NatWest Group plc Stock

Okay. Thanks, everyone. Thank you for joining us on the European track of the Barclays Global Financial Services Conference in New York. My name is Aman Rakkar. I'm the Head of U.K. and Irish banks at Barclays. Delighted to be joined this morning by Paul Thwaite, NatWest Group CEO. Paul, welcome to New York. We really appreciate you making yourself available.

It's good to be here.

Good morning, everybody. So perhaps we can start with the bigger picture. NatWest is delivering a close to 20% RoTE, more than 240 basis points of cap generation and strong growth with minimal credit risk. You've seen the ebb and flow of banking cycles. This is a very euphemism for a very experienced long tenure at NatWest. What makes you think this performance is sustainable and...

Is that a compliment or...

Yes, it is, yes. No. What makes you think this performance is sustainable? And with RoTE already tracking comfortably greater than 18% target, is there scope for you to kind of refine or raise your medium-term ambition?

Okay. Thanks, Aman. So the numbers you get a reeled off there, it's hard not to say we're pleased with them. They're very strong numbers. To me, what's most important in terms of underneath those numbers is that the strategy is working. It's pretty evident that the strategy is delivering, and we've created a business that is focused from a sustainable perspective, but also a structural perspective, driving higher returns. So that's very encouraging. That doesn't happen by accident. It happens by a lot of hard work, but we've put ourselves in a strong position.

If you look at -- if you pick apart some of those kind of big picture metrics into our eighth year of kind of growth, which is great, heading for our fourth year of RoTE above 17%, which is sector-leading returns. In that time period or if you look at it from, I guess, the last 5 years, cost-to-income ratio has come down by about 21%. So we're now the most efficient of the large U.K. banks. So we've got have the returns piece, we've got the efficiency piece, which obviously helps from an operating leverage perspective. And we've done that really without fundamentally changing the risk appetite of the bank. It's -- to me, that's great because when you look at how we perform under the central bank stress tests, our resiliency is very good. Our capital drawdowns are the least of the -- across the peer set. So I think from that perspective, I don't think it's a look forward. I think if you look at the track record and then you look forward, that's what gives you confidence about the business model that's there and the sustainability of the returns.

Second part of your question was around kind of '28 and the targets. We set -- we upgraded RoTE guidance at the half year for this year, given we'd only set the medium-term targets in February, we didn't do anything then. But as everybody here and those watching will know, the rate environment when we set those targets in February, were in one space. If you look at the current rate environment, obviously, it'll be very supportive in terms of delivery against those targets. So now it's not the time to reset them. But obviously, if you kind of mark-to-market September versus February, we would obviously be very supportive of the medium-term targets, which is great.

So we're confident we'll grow income through '27 and '28, let's call it, the life of the targets, the life of the plan. We'll grow TNAV per share. And you can see from the amount of capital that the business is generating that, that will drive strong organic cap gen. So net-net, we've positioned the business well. I think the track record is now -- is emerging on whichever metric you look at, that gives us confidence as we look forward through the life of the current target set.

Perfect. I'm actually supposed to ask for your help at the beginning, guys, right? So I'm going to ask for it now. We've got some remotes on the desk. We're just going to quickly rattle through 3 quick ARS questions. And I absolutely do not want this to be seen as a referendum on the first half answer that you've given. But if you could help us, how do you think the bank's share price will perform over the next 12 months versus the SX7P?

How many questions are there?

Three.

Okay.

I hope results will come up. Yes. Okay.

Second question, please. What do you see as the main earnings growth driver for the bank over the next 12 to 18 months?

Leading question.

Yes, you are right.

Okay. That's a pretty emphatic response.

Question 3, what do you prefer the bank does with surplus capital?

I guess -- yes, we'll address some of these points later on, right?

Yes, for sure. All 3 of them.

Okay. More buybacks. All right, cool. Thank you very much for that. I really appreciate it.

Yes, turning to your growth track record and sustainability, you referenced being in your eighth consecutive year of growth. You refer to CAL growth with continued momentum across lending, deposits and AUMA. How much of this growth rate reflects kind of stronger underlying demand versus NatWest actively pursuing market share? And what do you think about the sustainability of this momentum, how confident are you?

Yes. We touched on it a little bit in the first question. But I think the track record is there. If you look at the 7-year, we kind of don't count this year, let's look at the previous 7. I think the average is lending, 4.5%; deposits, 4%; AUMA, 12%, obviously off a lower base. So a different start point there. So you'd expect higher growth rates. So multiple year track record. We like the CAL metric because it kind of gives a holistic view of the business. We think about the business through the lens of the customer. We think about the business through the lens of our relationships. Those relationships, not always, but the majority of those relationships have elements of assets, liabilities and certain client bases' investments. So we think that's a good way of looking at it. The track record is good. If you look at the half 1 '26, the growth rate was 5.3%. We put a target out there in February for the next 3 years of greater than 4%. The 5.3% for the first half of the year has been supported by specifically kind of the corporate lending side of the business.

I think what gives us confidence is not just the track record because that's the kind of outcome. But what gives us confidence is we've got -- NatWest now is a relatively simple bank. We've got 3 very clear franchises. All 3 are scale franchises. That gives us a degree of diversification. All 3 are growing. All 3 are generating good returns. And to your point on demand versus market share gains, it's an element of both in all 3 of the businesses, I would say. If you quickly go through each of the 3 businesses, you take our Retail business, a scale business. It competes well in the majority of customer segments and product classes, but we've consistently been growing our share in mortgages, in unsecured lending and more recently in savings and investments.

So when you've got almost 20 million customers in your retail business, you're going to capture the demand that's there, but we've got runway to extend market share. So that's good. You take the Commercial & Institutional business, as you know well, it's a dominant corporate and commercial bank in the U.K. Our market share, our market positions are very strong. So if there is demand, we capture it naturally. But we've also been taking share. We've increased our share in start-up and SMEs. We've increased our kind of penetration share around some of the key products like asset finance and trade finance.

And then I guess, the smallest currently of the 3 franchises, but increasingly important is that the Private Banking & Wealth Management franchise. The organic growth in that business has been really strong, record flows over the last couple of quarters, which is great, but then you've got the addition of the acquisition as well. So by definition, we're kind of growing into the demand, but we're also acquiring market share. So I think the story there, Aman, is you've got the growth, but it's coming from 2 levers, I would say. The demand as it emerges because you've got these 3 scale franchises, but all 3 are going for market share gains, where you can get the right risk-adjusted returns. That's the discipline that I guess I put into the business CEOs.

So it's growth at the right returns. It's not growth at the expense of returns. And that's why I think we've now -- if you look at the metrics, the returns of each of the franchises look increasingly healthy, which is great.

You touched upon corporate loan growth. One thing that people find really difficult to reconcile is the growth rates within your corporate book and actually at a system level with what is generally regarded as a pretty subdued U.K. backdrop more broadly. What's your take on this? Is this a case of companies beginning to kind of structurally relever balance sheets after a quiet decade? Or is it kind of more concentrated and episodic in its nature?

Yes. I mean the corporate lending growth in the -- let's say, in the U.K. stats has been strong at a system level. I think if you look at the Bank of England data, about 9% year-on-year. We've grown slightly above that. I would expect us to do that just because we're dominant. So you would expect our scale to be a benefit there.

I mean there's a couple of things driving it. I think the best proxy for the, let's call it -- if we take a step back, you can see on a kind of 20-year average, that kind of U.K. corporate leverage is at low. And to me, the best proxy within our business for that dynamic is probably the mid-market business. That's growing for us at about 5% vis-a-vis overall kind of system at 9%, our large corporate business above that. So what that tells me is there is some kind of releveraging happening, but it doesn't explain the entirety of the growth in the kind of corporate lending sector.

And I think the more significant factor is probably the second dynamic, which is there are some long-standing structural trends that is driving lending growth. Some of the examples would be infrastructure, defense, transition finance, housing build-out. And I think those structural trends are a greater accelerator of the corporate lending demand, and we're very well positioned on them, which is great, and we've seen growth across all those areas. My view would be that, that's not episodic because I think it's quite kind of existential to the U.K. I think public and private capital will continue to follow -- continue to flow into those structural.

I mean you may get depending on the wider environment, and I'm sure I suspect we'll come on to it, then you may get depending on how the wider kind of confidence and sentiment evolves, you may get more of the releveraging. But I think there's a dependency there just on the general environment and confidence to invest for that mid-market. So I guess, punchline, Aman, is I think those factors are helping, but I would point more to the structural drivers and a modest amount of corporate releveraging.

Okay. Perfect. I guess turning to net interest income. I mean you upgraded your total income. So you upgraded total income guidance and highlighted continued growth should support net interest income. Interested in, given growing competition for deposits, in particular, how durable do you see kind of NatWest's deposit franchise and income in this environment? And as NIM becomes flatter in 2026 due to choices that you've made about growth. How should we think about your NII trajectory this year and into '27?

Okay. A few questions in there. You might need to remind me. So on the income piece, yes, we upgraded income to, I guess, to GBP 17.9 billion. So that will be about circa 9% year-on-year uplift, about GBP 1.5 billion. So pretty strong income growth. Within that, we are pleased to share at the half year that the quarter 2 NIM continued to widen. So another couple of basis points to -- if I remember it correctly, 241 -- I think, or 249. So 2 basis points increase. So you've got the income growth and you've got NIM expanding. There's a couple of different factors within the NIM. You've got the continued support and help, and it goes to one of the questions earlier from the structural hedge. So as that flows through, so that's very strong. And then you've got some offsetting impacts from the kind of lending and asset side. So as the mortgage refinancing works its way through, we've said publicly before, we expect the kind of the front book, back book to equalize at or around 60 basis points, so we're in the final kind of quarter of that.

And then probably the most significant impact and one which I'm very comfortable with is as we grow the asset side of the balance sheet and where we choose to grow, so whether it's mortgages, whether it's lending in the Commercial & Institutional franchise, that's low risk weights, high-returning business, but obviously lower margin, but supportive because of the balance growth, supportive for net interest income. So that's what explains the kind of NIM dynamic. And if you look at the outlook, we'd expect those dynamics to continue, and that's why we've referenced flattening of NIM because in effect, we're deploying capital at high risk-adjusted returns in those particular segments, but they're at a narrower margin. But I'm very comfortable with that because it's the best from a returns perspective.

So that's what's happening on the asset side. You touched on deposits as well. Our inheritance at NatWest is a very fortunate and good one because of the strong corporate and commercial bank. We've got a great kind of deposit base that comes with that client segment. So in relative terms, our LDR has always been relatively low. What you can see -- and that is durable and it retains because it's linked to the relationships. That is the reality of that. It's operational balances. So we feel very comfortable about our, I guess, our inheritance and our positioning. Where you see the competition is primarily the kind of retail savings market around fixed term and ISAs. And that's where you've also seen the growth this year.

I think what's important to point out is we haven't seen a change in the deposit mix. So if you look at the proportion of balances that are in kind of sight accounts versus term, you can see the quarter-on-quarter trend, and that hasn't really changed. So you've got competition in particular products. If you look at where we position ourselves from a pricing perspective, we're in the pack on term, where we compete at the kind of higher point in the league tables is ISA. The reason we do that is we're coming off a low base. We've got about a 6% market share. So we think we've got opportunity to grow. We also see a lot of relationship value and liquidity value there. So that's where we compete.

But the strategy more broadly, to your point on confidence around the deposit base. The strategy for the last several years has really tried to -- has been to grow the customer segments that come naturally with a deposit base, so rather than trying to capture fixed-term savings at an expensive price point. If you look at the customer segments, we've been prioritizing and growing, whether it's start-ups and the SME sector, whether it's youth and student in retail, whether it's kind of mass affluent and premier, the customer segments that come with a deposit base. So that's really been the strategy to ensure that the deposit franchise remains as healthy.

But what's happening, and you can see at the sector level, you can see it for NatWest, obviously, lending is growing at a faster rate than deposits. So kind of the way we think about it is our LDR, given our -- kind of our heritage is kind of normalizing. We've got the ability, if we need to, because we haven't really utilized the option historically to wholesale fund some of that lending, and we'll choose to do that if we need to -- if you still have these 8%, 9% growth rates on kind of lending versus smaller growth rate on deposits. So we have the ability to do that. But obviously, we'll factor that into our asset pricing and likewise, it would have an effect on NIM.

So it's quite a complicated -- in some ways, it's quite a complicated picture. But where we're growing is supporting income growth, which we're very comfortable with. Where we're deploying it on the asset side, is it good risk-adjusted returns and deposits, we think we're being quite strategically smart in terms of where we acquire those deposits from, but it's a pretty fluid market.

Yes. Perfect. I guess turning to Wealth. You're creating the U.K.'s leading Private Banking & Wealth proposition. I guess you supplemented that with the acquisition of Evelyn, doubling AUMA, broadened your offering quite substantially there. Interested in, how is that integration progressing? And kind of what would you encourage investors to focus on when they're trying to judge the success of that acquisition?

For sure. So if you think about our Private Banking & Wealth Management business, as I said, the kind of organic growth, so pre-Evelyn has been really encouraging. New leadership team kind of 2, 2.5 years ago, we talked -- we did a kind of investor kind of spotlight and talked about the strategy. So we have momentum in the business anyway, which is great. You then acquire Evelyn Partners, and it's genuinely transformational for the Private Bank & Wealth Management business. I can talk a little bit about why, but it's transformational for that business in terms of its scale. It more than doubles AUM. It makes our Private Bank & Wealth Management business, almost 20% of the group. It adds 20% to fee income. But crucially, it gives us a range of capabilities that we just didn't have to deploy against different parts of our customer base.

So from that perspective, it's very -- strategically, as well as transformational for the kind of private bank, it also accelerates the group strategy in terms of diversifying the income mix, which is, as you know, has been a priority of mine since I've had this role. So it works on multiple levels. We completed the acquisition at the end of June, so in effect, we've been owners of the business for 2.5 months. Really pleased with the progress so far. The business that we kind of took hold of at the end of June, was performing as we expected it to, both operationally, from a risk perspective. So that's good because that's always a test point.

So our performance is good. We've moved very quickly. We now have one integrated business that's being led by one person, Emma Crystal, our CEO. We have one integrated management team. We made some announcements last week that brought the different functions together. We've got one kind of financial planning capability that's now running across the whole business, which is great. We've already surfaced the D2C capability to some of our retail clients are starting to experiment with what's possible there. And encouragingly, we're seeing referrals both ways. A big part of the revenue synergies or a substantial part of the revenue synergies were distribution of, kind of, Evelyn financial planning and investment advice to NatWest or Coutts clients. We're also seeing referrals the other way, which is banking and lending product to Evelyn clients.

So we have to be realistic, we're 10 weeks in. So we don't get too carried away. We don't get too high, we don't get too low, but so far, so good. But I think what's crucial for me is the breadth of capabilities we now have across Coutts and Evelyn from banking, lending, saving, financial planning, advice, investment management and the D2C platform. So the whole wealth waterfront to be deployed against Coutts, which is our kind of high net worth private bank, premier, which is our mass affluent customer base, greater than 1 million customers, and then the 19 million retail, primarily NatWest customers. So to me, big opportunity to drive AUM investment growth, which is, by serving the capabilities up because the regulatory tailwinds are with us, the client demand is there. So really, the onus is on us as a management team to execute against that opportunity.

Perfect. Switching tack to costs. Costs have been very well controlled. You're guiding for about GBP 8.5 billion of cost in '26 and a sub-45% cost-to-income ratio by 2028. What are the biggest remaining opportunities to simplify the bank from here? And could you tell us about what role AI has in that?

Yes. So the cost performance of the bank, I think, has been incredibly strong for a number of years, it preceded me. I think it was in the DNA around -- a relentlessness around productivity and efficiency. I touched on it earlier, you look at the comparison to 2021, I think mid-60s cost-to-income ratio. You can see where we're tracking now, just above 45% cost-to-income ratio. My main observation was, although we've become, in many respects, a simple bank, the simple bank that I talk about, these 3 franchises. The way in which the bank operated was still quite complex. And that's really what drove my, I guess, simplification strategy, which is, I could see opportunity around efficiency.

And we've -- I could talk about some of those -- I should talk about some of those areas. And that's really what's guided the continued improvement in the target around cost-to-income ratio, so less than 45% by '28, but we've also been on record, Katie and I saying that, that isn't a limit to our ambition. We think there's scope. And when you look across the enterprise and you look across the franchises, some of this cost reduction is driven by what I'd just call fundamentally good kind of efficiency management. So it could be kind of workforce transformation and organizational design. It could be property footprint, for example, we've just moved data centers from Switzerland to the U.K., the big efficiency save, but it also delivers a better proposition. There's still work to do on digitization and automation. You don't necessarily -- I mean, AI can help accelerate that, but actually, you don't need some of the probabilistic kind of outcomes there. You just need deterministic activity. There's still a lot of, what I would call, complexity in banks and certainly in NatWest that supports continued [ drivement ] of efficiency.

The other big thing that's helping is we're just becoming a lot more efficient at delivering change. So where you have an investment envelope and you're deploying that investment to drive efficiencies, the quantum of change and therefore, benefit we can get from the same envelope is increasing considerably. Some of that, to the second part of your question is helped by AI, but not exclusively. So generally on costs, it's in our DNA. It remains a focus, less than 45% isn't the limit of our ambition. We put that out there for '28.

On the specific topic of AI, it's kind of pervasive across the -- as you would expect, across the whole organization. We kind of see it through the lens, not just of efficiency and productivity. We see it through the lens of customer and growth and experience. I think it can be a big driver of deeper customer relationships. We're seeing that. It does build trust if you do it in the right way. And therefore, to me, it should be a platform for growth as well. The reason for mentioning that is we don't just see it as a lever for efficiency and productivity. It's kind of we also see it as a lever for efficiency and productivity. But we are seeing tangible benefits on both sides. On the efficiency side, whether it's the engineering kind of coding side, which is, well trailed by many. But the benefits there are increasing, literally quarter-by-quarter. And actually, the engineering efficiency is outstripping some of the efficiency of the wider organization.

So actually the bigger challenge now is how do you get what we call kind of outer loop activity. So not the pure engineering and coding, how do you get the rest of the activities, whether that's cyber risk, operating model deployment to operate at the same pace as you can operate with kind of AI-driven engineering. So we're seeing that.

Customer contact is another big source of both customer experience improvements, but also efficiency improvements. The reality is in the retail bank, and to a certain extent, in the smaller end of the commercial bank, customers are very comfortable and much more satisfied on some of the kind of low-value tasks for that to be executed, contained, managed well, supported by the kind of whatever you call it, AGI or AI. So that's all operating. So a lot of tangible benefits. I personally am an optimist around it. I feel as if there's big opportunities both to grow the business and to make the business more efficient. I don't subscribe that all the benefits are going to fall on the banks' kind of bottom line. I think the benefits are going to be shared between the banks, the customers, in terms of I think some will be put back into customers. And I also think whether the tech companies, whether it's the labs themselves or whether it's the hyperscalers, we'll obviously take some of that, let's call it, AI dividend as it relates to banks and financial services.

I don't think that's settled yet how that -- where those benefits settle because a lot of these activities are still scaling up. The more mature ones like engineering and customer contact, you can start to see, but there's a whole host of wider kind of use cases, which, I guess, are yet to scale. And I think only then when you start to see how the AI dividend kind of plays through across the different parties in the value chain. And I think I've said that, maybe not at this conference, but I think I said that kind of 6, 9 months ago, and I believe that even more. I think everybody is still working that out, how is the economic model going to work. But net-net, there is no doubt there are significant benefits, both on the customer side and on the efficiency side.

Yes. I was going to take a step back then. The U.K. government wants banks to support growth and investment, but there's also continued uncertainty around bank taxation. How do you reconcile these 2 competing forces? And what does it mean for NatWest's willingness to lend and invest?

Yes. So obviously, in the U.K., we've had a change of leadership, both Prime Minister and Chancellor. So the individuals have changed. What I would say the fiscal situation hasn't changed as a consequence of that. The fiscal situation was the same, the pre-new administration. I think to be fair to the new administration, their words around the role of financial services, the role of banks, the importance of the financial services industry and sector in the U.K. have been well received. I'd say the relationships with government are good, access is good. Obviously, we're leading into a budget in the last week of October, which is not far away. Inevitably, there's speculation. It feels -- I'm sure it feels like to all of you, but it certainly feels to us too is that we've had speculation for the last 3 budgets. So in that sense, it isn't new.

I'm crystal clear that the government understands how important growth is in order to be able to achieve some of its other policy objectives. So I feel very confident about that. But the fiscal position is tight. So they're going to have to make some choices, not just in this budget, but also in future budgets. The argument that I make is I want to use the capital of the bank to support the wider growth agenda. The way banks can support the wider growth agenda is lending more to business, lending more to households, hopefully, hopefully into productive investment that helps drive. And that's -- to me, that's -- so you've heard me say before, strong economies need strong banks and the capital -- the ability to use the capital of banks to support the growing economy, my view is the natural thing to advocate for, and that's very much the approach that we're taking.

There is lots of evidence across many jurisdictions that bank taxes or policies of that ilk can limit growth and investment. And there's lots of academic literature around that, and it can feed through into cost of borrowing, et cetera. Yes, so my clear view is we want to support the U.K. to grow. I want to use the bank's capital to help businesses and households to grow. I think that's the best use of capital, and that achieves the North Star, which is trying to rebaseline U.K. economic growth.

That's perfect. I might actually just take this as a moment to open the floor. If there's anyone that does want to ask a question to Paul, here is your chance. Otherwise, we will continue our conversation.

Yes. Hey, good morning.

Hey, good morning. Just wanted to kind of get your thoughts on given how macro is playing out in the U.K. and the political fiscal budget being kind of on mind. Apart from that, what other risks keep you up at night?

So I guess the job of the bank CEO is to worry about risks all the time. So I sleep well, so that's -- you should know that. But cyber is a very obvious one. So I think cyber risk, especially given the acceleration of some of the frontier models and some of the potential risks of that threat. So cyber risk, definitely, we spend a lot of time and a lot of resources on understanding our cyber risk, managing our cyber risk. So that's one area.

I guess, linked to the macro, we do worry about geopolitical risk and the kind of the tectonic plates there and what that might mean, not necessarily just in the very short term, but in the medium and long term. We're always restless around operational resilience, not just from cyber events, but ultimately, a bank is based on trust and a bank needs to operate seamlessly every day. So we spend a lot of time thinking about the risks to our operational resilience, whether it's how our apps run, kind of our portals for our corporate customers.

We spend time on different aspects of credit risk. NatWest for the last decade has been a relatively kind of low credit risk bank. The great thing about the business is we've been able to grow without having to fundamentally change our credit risk appetite. But that doesn't mean that we don't agonize about new credit risks, whether it's build-out of AI infrastructure, the kind of second order, third order effects. So I don't want to give you such a long list you think I spend all my life worrying. But they are the type of things, I would say, are very topical outside of the macro and the kind of economic and kind of current political changes.

And we did a very -- I should say, we're do it in a very systematic way. We're very clear on what we believe are the key risks facing the institution, both inherent and residual, and making sure we're pretty agile with resources where we think we need to deploy more to mitigate some of those risks.

Got a question at the back of the room.

[indiscernible]

Okay. I speak of -- is it Phil? Yes, go ahead. I can see the spotlight, but I recognize your voice.

Why doesn't the level of rate -- level create problems, credit...

Yes. So it's -- we think about it both from the consumer side and the corporate side, I think the comments we touched on earlier around, if you look at U.K. balance sheets, the U.K. household balance sheets are in reasonably good shape at an aggregate level. We all know there's different strata of the, I guess, the population and there's certainly parts of the population that are more stressed. But generally, household budgets, household saving levels are high. Unsecured borrowing is 30% less in real terms than it was 20 years ago. Unemployment is still relatively low. And households have managed the transition to -- if you take mortgages as a proxy, households have managed the movement to higher mortgage rates pretty well. And we've now got 2/3 of our customers paying over 4%. And the reality is mortgage arrears haven't moved at all. So the capacity is there.

On the corporate side, some similar trends, but the reality is, there's a 20-year low on U.K. kind of corporate leverage. It doesn't mean -- I'm certainly not complacent about that because it does depend where the curve settles. But I do think there is a lot of debt servicing capacity. I think U.K. business has been very cautious since 2016 and Brexit, and some of that's because of lack of confidence to invest. The pandemic drove a lot of businesses' efficiency, still, as you know, so businesses have made themselves more resilient and their ability. If I look at the difference this year in terms of absorbing energy price shocks on the back of the Middle East versus 2022 and Ukraine and Russia are fundamentally different.

So I think there's more resilience in the system. I don't think we should be, I'm sure you're not. We shouldn't be as complacent enough to think it can't manifest in credit stress. But I think at a system level, household and corporate balance sheets are more resilient, certainly more resilient than they have been for some time. There will be pockets, that is the inevitability. Those most exposed to the consumer, for example, those businesses that are not as well run. But that's my general thesis on the resilience in the kind of credit system.

Perfect. Capital, to round out the discussion. So strong capital generation, 137 bps in H1, you're guiding for an excess of 240 bps this year before distributions. Interested in, sustainability of cap generation at these levels, how enduring and your decisions around deploying that capital from here? Are they evolving at all?

Yes. So I mean the capital generation of the business is incredibly strong. If you look at -- so we announced at the half year, we'll bring forward by 6 months, our ability to return to buybacks. I think you said 137 basis points of capital in the first half of the year. So that if you look at our ability to invest in the business, I think we grew our lending by GBP 17 billion during that period. We acquired Evelyn, and then we're getting back to buybacks at the end. So we've got a business, these 3 franchises that are growing, generating great returns, throwing off capital. So we're in a good place from that perspective.

We expect that to continue. We can see lending pipelines. We have a good sense of that. As we've -- the returns on growth are good at the moment because of our operating leverage. The returns on growth support the structurally higher sustainably higher returns profile, which by its very nature, generates capital. We haven't changed our philosophy around capital allocation. So capital that's needed for growth at the right returns, we'll -- an investment we'll deploy beyond the ordinary dividend, which we increased last year from 40% to 50%. Anything beyond that, that is surplus and not needed for growth, we'll return to shareholders as soon as possible.

So from that perspective, generating a lot of capital, very mindful of how we deploy it, confident about the outlook that we'll continue to generate. And to me, that gives us a really nice balance. We can support a lot of good growth, but we can also give a lot of distributions to shareholders. And that, to me, feels like the right balance. So no change in our philosophy from that perspective.

Perfect. We are exactly on time. Okay. So I wanted to thank everyone in the room, especially wanted to thank you, Paul. I really appreciate it, and happy to bring the session to a close.

Thanks, Aman.

Good afternoon, and welcome to NatWest Group's H1 2026 Results Fixed Income Presentation. Today's presentation will be hosted by CFO, Katie Murray, and Group Treasurer, Donald Quad. After the presentation, we will take questions.

Good afternoon, everyone. Thank you for joining our H1 2026 Fixed Income Results presentation. I'm joined today by Donal Quaid, our Treasurer; and Paul Pybus, our Head of Debt IR.

I will take you through the headlines for the half year and the detail for the quarter. Jon will take you through the balance sheet, capital liquidity, and then I'll go through the forward look and targets, and then we'll open up for questions.

So turning to the headlines. Our results today show how we have created a bank with increasing momentum through our focus on sustainable growth and returns by delivering growth across all businesses, improving operating leverage and managing our capital and risk well. We have created the most efficient large U.K. bank with the lowest cost of risk, delivering the strongest levels of capital generation and highest returns.

Our performance makes clear. We have the capability and capacity to grow at scale. The momentum we're seeing in customer growth, efficiency and returns gives us confidence for the future.

We have created a business capable of delivering strong, compounding sustainable returns through the cycle.

In February, we set at how we plan to deliver our 2028 targets by pursuing disciplined growth, leveraging simplification and actively managing our capital and risk.

Our aim is to grow customer assets and liabilities at an annual rate of more than to reduce our cost income ratio to below 45% and to generate over 200 basis points of capital before distributions with a return on tangible equity of more than 18%.

Our strategy is delivering excellent results as we make good progress against these ambitions. So let me give you the financial headlines.

We have deliberately built a scale business that benefits from structural U.K. growth drivers to deliver strong returns on a sustainable basis. Our return on tangible equity was industry-leading at 19.7%.

Our acquisition of Evrim Partners has now completed and boosts our exposure to the fast-growing U.K. wealth market. Customer assets and liabilities grew 13.4%, including Evan Partners. We continue to drive operating leverage.

Income growth of 8.9% is significantly ahead of 4.5% cost growth. And our cost income ratio reduced 2.8 percentage points to 46% getting close to our 2028 target.

We also generated high levels of capital at 137 basis points, and our balance sheet remained strong with a CET1 ratio of 13.2% after the acquisition of Evelyn Partners.

Given the strength of our performance and our confidence in the outlook, we are upgrading our 2026 returns guidance to more than 19%. I'll now take you through the performance of the second quarter.

My comments for the second quarter use the first quarter as a comparator. Our strong performance in the first quarter continued in the second with broad-based growth, income momentum and improved operating leverage.

Income excluding notable items, increased 5.4% to GBP 4.4 billion and total operating costs grew 1.8% to GBP 2.1 billion driving a percentage point improvement in the cost/income ratio to 45.5%.

The impairment charge was GBP 140 million, equivalent to 13 basis points of loans. This resulted in 12.4% growth in operating profit to GBP 2.3 billion.

Profit attributable to ordinary shareholders was GBP 1.6 billion, and we delivered a return on tangible equity of 21%.

Turning now to income. Income, excluding notable items, was up 5.4% at GBP 4.4 billion.

Income across our businesses continued to grow, supported by an increase in call, margin expansion and higher noninterest income. Noninterest income grew 15% or GBP 124 million.

Given the strength of our performance and the inclusion of Evrim partners, we now expect full year income, excluding notable items of around GBP 17.9 billion.

Turning now to customer assets and liabilities, or Cal.

We are pleased with our continued track record of growth. Cal increased by $86.8 billion in the quarter or 9.6% to JPY 986.9 billion. This comprises $9.7 billion of broad-based customer lending growth, $2.8 billion of customer deposit growth and a GBP 73.9 billion increase in assets under management and administration, including Evolin Partners. I'll touch on each of these elements in turn.

We are reporting another quarter of strong broad-based loan growth across the group with gross loans to customers up by GBP 9.7 billion.

Retail Banking and Private Banking and Wealth Management balances grew $4 billion or 1.7%. This comprises GBP 3.9 billion in mortgages and EUR 0.1 billion in unsecured lending.

Our mortgage stock share increased to 12.7%, with record applications in March. Commercial and institutional lending increased by GBP 5.7 billion or 3.6%. Within this, growth is strongest for our larger corporate and institutions where we see continued strong demand driven by structural trends, including digitization and decarbonization.

Our mid-market customers are showing healthy demand driven by manufacturing and social housing. Turning now to deposits. Customer deposits grew by GBP 2.8 billion in the quarter, this was driven by commercial and institutional, where deposits increased by GBP 2.5 billion with broad-based growth across business banking, commercial wood market and our large corporates.

Private Banking and Wealth Management deposits were up GBP 0.3 billion, mainly as a result of growth in savings balances. Retail banking deposits were stable with further migration to fixed and variable rate is as customers prioritize tax-efficient savings options.

Turning now to assets under management. Assets under management and administration closed the quarter at GBP 130.6 billion.

This includes the addition of GBP 71.7 billion from Evan Partners and a EUR 4 billion reduction following the sale of Cushing in May. Turning now to costs. We are pleased that once again, we have driven operating leverage as income growth outpaced cost growth.

Other operating expenses were GBP 2 billion in the second quarter, taking the total to GBP 4.1 billion for the first half. Our cost-to-income ratio reduced by 2.8 percentage points to 46%.

And we now expect other operating expenses to be around GBP 8.5 billion for the full year. Turning to impairments. Credit performance remained strong, and we benefit from a structurally low loan impairment rate and strong asset quality.

The impairment charge for the quarter was GBP 140 million, equivalent to 13 basis points of loans. We saw no new signs of stress across our 3 businesses, and we continue to expect a loan impairment rate below 25 basis points for 2026.

So our guidance is unchanged. We carry economic uncertainty post model adjustments of GBP 284 million, with total PMAs of GBP 316 million. And with that, I'll hand over to Donna.

Thank you, Casey. Good afternoon, and thank you for joining today's call. I'll start by sharing some highlights from the first half of the year before moving into more detail on the balance sheet, covering capital, liquidity and funding. I'll then update you on our progress on funding plans across the group.

Starting with an overview of the key metrics on Slide 15. We ended the first half with strong capital, MREL and leverage positions comfortably above directory minimum with a CET1 ratio of 13.2%, a total MREL ratio of 30.6% and a leverage ratio of 4.7%.

Our average liquidity coverage ratio was 140%, giving us a comfortable surplus over minimum requirements. Our average net stable funding ratio was 132%, and and primary liquidity was GBP 152 billion. The group's funding is very well diversified.

Our loan-to-deposit ratio was 90%, and we have a strong retail, private and corporate deposit franchise with around EUR 448 billion of customer deposits across our 3 businesses. We've made good progress with our 2026 funding plan with GBP 2.7 billion equivalent of benchmark issuance from NatWest Group across holdco senior, AT1 and Tier 2 capital securities and GBP 3.7 billion equivalent from NatWest Markets.

Thank you for your continued support of NatWest in both the primary and secondary markets. We saw another positive step in our credit ratings journey as Fitch upgraded a number of rated subsidiaries by 1 notch following an update to its bank ratings criteria.

Moving to capital generation on Slide 16. Our business continues to be highly capital generative. We've ended the first half of the year with a common equity Tier 1 ratio of 14% before distributions in line with the year-end.

Our earnings power is reflected in 197 basis points of CET1 capital generation, which was boosted by 31 basis points of capital generation from RWA management. Our ongoing investment spend consumed 19 basis points and organic lending growth consumed 61 basis points.

This means all our investment in growth was funded with just 6 months of capital generation. And we are reporting a CET1 ratio of 13.2% after accruing 50% material profit for ordinary dividend payments.

We expect to continue generating strong capital from earnings with active RWA management. And for 2026, we now anticipate capital generation before distributions and the impact of Eglin Partners of more than 240 basis points. This is before the impact of Basel 3.1 on the first of January 2027 where we continue to assume around EUR 10 billion of RA uplift.

Turning now to our approach to capital allocation on Slide 17. We have a robust balance sheet and aim to operate with a CET1 ratio of around 13% giving us appropriate headroom above minimum requirements.

Our strong capital generation enables us to invest in our business to grow and deepen customer relationships. We are both disciplined and dynamic in our deployment of capital and our diversification across 3 businesses gives us optionality through the cycle to optimize risk-adjusted returns. We also apply a high bar as we consider acquisitions to accelerate our strategy through additional scale or capabilities.

Our strategy is delivering attractive and growing shareholder returns and we remain committed to a dividend payout ratio of around 50% and to returning surplus capital to shareholders via share buybacks.

Turning to our total capital position on Slide 18. Our total capital ratio of 18.9% reflects the strength of our CET1 ratio and higher levels of AT1 and Tier 2 capital relative to our minimum requirements.

We currently have an AT1 ratio of 2.5% with GBP 5.1 billion of securities outstanding, inclusive of the EUR 500 million we issued in May. This is above our minimum requirement of 2.1%, and I expect to move closer to this requirement during the course of next year after the implementation of Basel III.

Our Tier 2 ratio is 3.1% with GBP 6.3 billion of securities outstanding, including the $750 million new issuance in the first half. Turning to our total MREL position on Slide 19.

Our total MREL is very healthy at 30.6%, significantly higher than our risk-weighted asset requirements, leaving us well positioned for the growth and the upcoming impact of Basel III.

Having built out the maturity curve of our MREL stack, issuance requirements will be driven primarily by refinancing needs.

Turning to our total leverage position on Slide 20. Our spot U.K. leverage ratio is 4.7% with an average ratio of 4.8% compared to our 4.3% minimum requirements.

I welcome the proposed reforms to the leverage framework that were announced as part of the financial stability report in July, which the PRA intend to consult on in the near future.

As you can see from this slide, if the proposals are adopted, the minimum leverage ratio for Navis Group would reduce by approximately 40 basis points to 3.9% while this will ensure leverage remains a backstop measure going forward, it will not bring any day 1 benefit to the group given the risk way framework is our binding constraint.

Turning to liquidity on Slide 21. Our liquidity position remains very strong. At the end of the quarter, the LCR was 140% on a 12-month rolling average, reflecting around EUR 44 billion of surplus primary liquidity above minimum requirements. Our total liquidity portfolio was GBP 224.6 billion, comprising primary liquidity of EUR 152 billion and secondary liquidity of GBP 72.6 billion.

Primary liquidity decreased during the first half, driven by an increase in lending and the acquisition of Evelyn Partners, partially offset by new issuance.

Second, liquidity decreased to the amortization of eligible collateral prepositioned at the Bank of England. Our central bank balances are held at both the Bank of England and the European Central Bank with 70% of balances held in sterling.

Looking at the composition of the securities portfolio, 69% are held to collect and sell and fair value through other comprehensive income and 31% are held to collect and held on the balance sheet at amortized costs.

The remaining primary liquidity is a smaller percentage of level 1 high-quality covered bonds and Level 2 securities.

Turning to Slide 22 on our funding composition. Although customer deposits account for over 80% of the group's funding we also have access to stable and diverse sources of wholesale funding across a range of products, maturities and currencies.

Of the GBP 93 billion of wholesale funding outstanding, the large majority is senior holdco and regulatory capital issuance from NatWest Group and senior unsecured issuance from NatWest markets.

Drawings under the Bank of England's TFSME scheme are part of our funding mix and our current drawings are $8.2 billion, with EUR 5.2 billion repayable in March 27 and EUR 3 billion in March 2031.

On Slide 23, you can see that we've made progress against our issuance plans for 2026, including benchmark transactions from the group holding company, NatWest Markets and NatWest Bank.

From NatWest Group, we've issued around GBP 1.6 billion equivalent in Holdco Senior against our guidance of approximately $3 billion for the year. In addition, we also issued EUR 0.5 billion of AT1 and around GBP 0.6 billion equivalent of Tier 2 capital during the year, including our longest maturity dollar Tier 2 capital transaction to date, a very well-supported 21 noncall 20.

While for Navis Markets Plc, our benchmark trades totaled GBP 3.7 billion equivalent across euro and U.S. dollar markets.

We also returned to the covered bond market for NatWest Bank in June with a 1 billion issuance, our first since 2024. As we come into H2, we continue to look for opportunities to further balance our funding mix to support our customers.

Following the success of our covered bond issuance, we expect to return to the market with another transaction later in the year. Investor demand remains strong across a broad range of asset classes, including short-term markets, providing the flexibility to access funding where we see the best value.

And as we approach the year-end, we will consider prefinancing opportunities across asset classes, taking into account balance sheet growth assumptions.

And finally, turning to credit ratings on Slide 24. We are composed strong A rating across our senior ratings, and I was pleasing to see progress in our credit ratings during the first half as Fitch upgraded a number of rated subsidiaries by 1 notch following an update to its bank ratings criteria. With that, I'll hand back to Casey.

Thank you, Donal. Given our first half performance and the inclusion of Evelyn Partners, we are strengthening our 2026 guidance.

We now expect income excluding notable items of around GBP 17.9 billion. Other operating expenses of around GBP 8.5 billion, capital generation before distributions and the impact of Evelyn partners, greater than 240 basis points and a return on tangible equity of more than 19%.

Finally, we now expect to announce our next buyback with our full year results in February. And with that, I'll hand back to the operator for Q&A. Thank you.

[Operator Instructions] Our first question today is what is your take on the July FSR proposals? I see that the new slide on leverage, any other opportunities that you see that would impact capital targets or planning.

So would you want to take that?

Yes. Quite a generic question. So there's a lot to unpack. Let me cover a few elements. Overall, what we'd say is we welcome direction of travel to date, but we reiterate what we said in case and the call this morning, and I also said in my opening comments, there has been no change to our capital requirements to date.

But if we look at some of the proposed reforms that were discussed as part of the FSO review, Firstly, on leverage. Again, in my opening remarks, I talked about the changes that we see from a NatWest Group perspective.

If implemented as proposed, we see about a 40 basis points reduction in our leverage requirement, but that will not bring any day 1 benefit to the group given we are constrained by the risk weight framework and not leverage.

However, I would say it is a positive move because it would move and insurers that leverage remains a backstop measure and that will not come and find any constraints in the foreseeable future. We've also had a lot of roofer usability.

So the FPC signals an ambition to support the move towards a simpler framework centered on a single buffer that is releasable in stress. Again, very much welcome that anything that's increases the size of releasable buffers and stress and simplifies the framework is a positive.

However, I think given that any changes there will be in conjunction with international authorities, I don't expect any changes in the near term that will probably evolve over a number of years and then we also had those change to the OSSI buffer where the PRA have clarified that it could release the OSSIbuffer in the event of a systemic stress under existing discretionary powers.

Now again, this is not going to have any impact on the way we manage capital or our CET1 target for a number of reasons.

Firstly, the OSS applied at the ring-fencing holding group level. and the related group risk add-on that is up at NatWest Group does not form part of MDA threshold. So therefore, in a stress, there will be no change to our MDA.

There would obviously be a change to our minimum requirement. As you know, we give careful for to the calibration of our CET1 target with consideration to multiple factors, not just the consideration of MDA or buffers and stress.

And we also look to balance the expectations of various stakeholders as well as consideration to our minimum Supervise requirements in both BAU and stress requirements and also probably the last point I would just call out is that the releasability of the OSI buffer would only be an event of a systemic stress.

I would afford no benefit against the new deact, syncratic capital event, which is an integral part of our management planning and target setting. So I think there -- the key, I think, proposals that are outlined in the FSO.

The other probably more meaningful element from a NatWest Group perspective is the work that still needs to be done on the overlapping elements of the domestic capital framework. That's one that we see the most potential upside, and that has been deferred to Q4, but we look forward to constructively engaging with the PRA on the case for reducing that overlaps within the framework.

Our next pre-submitted question is covered bonds were mentioned on the management call this morning. Can you just set out your thinking on the requirements and how it links to the deposit outlook?

Take this one again. Sure. So corporate bonds, we guided to $1 billion of cover bonds for the year. You saw we did execute our first cover bond number of years in June. .

And as Katie outlined this morning, given the success of that transaction, we look to come back to that market at some stage in H2.

I think the like is as we move to a more normalized liquidity position, we expect cover bonds to be more core part of our issuance requirements going forward.

Our next question is going to come from a via letter, if you'd like to unmute and ask your question.

Katie. Can you hear me? So thank you very much for organizing the call. And obviously, congratulations on the results. Look, just a question from me. I'm looking at your funding slide and you're halfway through your funding for 2026.

And shall I just take that we're still expecting you in AT1, Tier 2 and a little bit of MREL is that if you can confirm your stock? And then you mentioned prefunding what -- if we could quantify that a little bit, maybe on which part of the capital structure. Any comment also on currencies would be highly appreciated.

Sure, let me cover them, Villeta. Thanks for the question. Yes, I think your expectations from a holding company are pretty much there or thereabouts.

So I would expect from an MRO perspective, to be active given we have today, the issued about PHP 1.6 billion equivalent of our GBP 3 billion guidance, probably expect that to be done over 2 transactions over H2 and additional Tier 1, we're running headroom at the moment, 2.5% for -- so requirements, 2.1.

Obviously, I need to consider the impact of Basel 3.1 on the first of January 27, but also we do have a GBP 1 billion call in May. So we'll keep optionality there if there's a follow-on transaction to the $500 million that we've done early on this year.

I think we're done on Tier 2 capital for this year, given the transaction that we did earlier in the year. And then if I move on to the prefinancing question, I suppose it's becoming quite a regular occurrence, I think, just given the strong market dynamic.

But we'll look at market conditions into H2 once we've completed this year's requirements, we think from an issuer perspective and spreads are attractive, then we will give that some consideration probably later in Q4.

The question around, I think, going forward, capital requirements, you can actually see post-Basel 3.1 really, what you're looking at is refinancing of existing calls and maturities with some balance sheet growth built in there as well.

But we do have a slide in the deck that shows you post the the AT1 call next year in May, we have, I think, only EUR 400 million in 2028, and then there's nothing from an AT1 perspective for call until 2031.

So do expect that capital issuance to be quite light, I think, over the next few years. Currency wise, we'll be open to, I think, just different pricing dynamics in each market. But again, given a large portion of our outstanding capital MREL is in dollars, expect kind of dollars to play a big role in that as well over the next few years.

Super. Thanks, Don.

Our next question comes from Robert Smalley. Robert, if you'd like to.

Thanks for good to hear from you both. And my question and doing the call. Some of my question was just answered, but -- with respect overall to AT1s and then Tier 2s, first, given the amount of capital generation that the bank is currently producing.

Do you see going forward, even a bigger decline in the use of AT1s and Tier 2s. I know you don't -- other than this call next year, you don't have anything for a while.

So it seems like you'll just grow the balance sheet without keeping pace on the AT1 side. How about on the Tier 2 side, number one. Secondly, you did 21 noncall 20, very successful issue here in dollars. U.S. investors still for whatever reason, struggle with the 15 non-call 10 structure.

Could you talk about how the 21 noncall 20 worked from your point of view from a treasury and cost point of view, because I think that, that would be something that would be more attractive going forward to U.S. investors rather than the 15 non-call 10 for whatever reasons.

And then third question on the call this morning. A question was asked about data centers. If you want to give any more color on your exposure there just as a percentage of balance sheet and what you want to do in that subsector going forward, that would be great.

Do you want to take the first couple and we'll...

Robert Codere from you. So first question, just around AT1 and Tier 2, and you're reducing requirement there. I wouldn't say reducing requirement because obviously, we still expect the balance sheet to grow.

And with that, we expect our days to grow as well. But it really is -- the refinancing calls and maturities, I think, across the AT1 and Tier 2 stack as opposed to actually the overall requirement going down.

And as I said, just on the answer to the previous question, it is quite staggered because we have extended the duration, particularly, I think, within our AT1 outstanding issues.

So a lot of that refinancing is back-ended beyond 2030. On the question on the '21 non-call '20, yes, your comments resonate.

I think we've definitely seen at times from a U.S. investor perspective, that they aren't as comfortable with the 5-year non-call. So if it's 15 on call 10 or 10-year non-125, saying that we have successfully issued both in the U.S. over the last number of years.

So I think even though all investors aren't completely comfortable with that structure. There is a strong cohort of people who are invested in our debt that are. But the 21 non-core 20 was a very successful transaction for us.

I think it just looked attractive from an issuance and spread perspective with the longer duration. And that's something that we're open to in terms of looking at longer duration issues as well if the investor demand is there. So hopefully, that answers those questions.

Sure. Thanks very much, no. And good to hear for you is that we're Rob, the -- so if I look at the kind of data center piece out, look, it's not a separate classification, that we pull out to say it would be within here or there.

But to get a kind of a view of kind of some of the detail of where we have different exposure. Probably one of the easiest places to look is in the Pillar 3. I think if you go to Page 34.

Within that, you can see we have all different kind of -- it's the kind of sick code kind of classification of different amounts that we have on the balance sheet by kind of subcategory of lending, and you'll be able to pick up in the -- the category that they're obviously part of in terms of that, but it's not in itself a meaningful number as part of the total bank. We're obviously focused on long-term contracted assets with kind of strong operators and things like that.

But it's -- have a look there, and you'll be able to get a little bit of a flavor of the makeup of the total book by subcategory. Hopefully, that's helpful.

Thank you for all your questions today. I would now like to hand back to Katie for closing comments.

Thanks very much. And I'd just like to say thank you, as ever, to all of you for the support you give us on our debt issuance.

It really is is really much appreciated and particularly when we come out with classes that we don't use as regularly as we've obviously done a little bit this year with covered bonds. And thank you for joining the call, and I wish you all a love to me tend when you get to it. Take care. Thanks very much.

That concludes today's presentation. Thank you for your participation. You may now disconnect.

Good morning, and welcome to NatWest Group's H1 2026 Results Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions.

Good morning, everyone, and thank you for joining us. Our results today show how we have created a bank with increasing momentum through our focus on sustainable growth and returns. By delivering growth across all 3 businesses, improving operating leverage and managing our capital and risk, we have created the most efficient large U.K. bank with the lowest cost of risk delivering the strongest capital generation and highest returns. Our ambition for the future is founded on the strengths we've created and the opportunities we see ahead. The U.K.'s next phase of growth will be shown by a handful of defining trends. So we have built leadership positions in areas that will drive the next decade, such as wealth, AI and infrastructure.

Our performance makes clear we have the capability and capacity to grow at scale. So we're seizing the opportunity to maximize our position as a trusted partner for customers and to help stimulate growth across the U.K. In February, we set out how we plan to deliver our 2028 targets by pursuing disciplined growth, leveraging simplification and actively managing our capital and risk. Our aim is to grow customer assets and liabilities at an annual rate of more than 4% to reduce our cost income ratio to below 45% and to generate over 200 basis points of capital before distributions with a return on tangible equity of more than 18%.

Our strategy is delivering excellent results as we made good progress against these ambitions. So let me give you the financial headlines. We have deliberately built a scaled business that benefits from structural U.K. growth drivers to deliver strong returns on a sustainable basis. Our return on tangible equity was industry-leading at 19.7%. Our acquisition of the Evelyn Partners has now completed and boost our exposure to the fast-growing U.K. wealth market. Customer assets and liabilities grew 13.4%, including Evelyn Partners. And assets under management and administration increased more than 150% to GBP 131 billion.

Excluding Evelyn Partners, Cal grew 5.2%, well above our target of more than 4%. We continue to drive operating leverage. Income growth of 8.9% is significantly ahead of cost growth of 4.5%. And and our cost-to-income ratio reduced 2.8 percentage points to 46%, getting close to our 2028 target. Strong operating leverage, together with a low cost of risk has driven 23% growth in earnings per share to 38p with a 26% increase in our interim dividend to 12p. And a 13% uplift in TNAV per share excluding Evelyn Partners.

We also generated high levels of capital at 137 basis points. and our balance sheet remains strong with a CET1 ratio of 13.2% after the acquisition of Evelyn Partners. Given the strength of our performance and our confidence in the outlook, we are upgrading our 2026 returns guidance to more than 19%. Our strong capital generation has allowed us to invest in growth and acquire Evelyn partners while still having surplus capital. So we are bringing forward the point at which we consider buybacks by 6 months to the year-end results.

You can see from the distribution of CAL on this slide, that with the addition of Evelyn Partners, we now have 3 scaled businesses. Growth is broad-based and diversified across them. Each 1 shows increasing operating leverage, and each 1 delivers industry-leading returns of 20% or more. All 3 businesses are well positioned to benefit from attractive structural growth opportunities and we are allocating capital dynamically to optimize risk-adjusted returns.

Our Retail Bank has a strong track record of gaining share at attractive returns with a clear opportunity for further growth in key target areas. We now have the U.K.'s leading private banking and wealth management business in a high-growth market where regulatory change is accelerating customer demand. And commercial and institutional is capturing structural growth opportunities by building on its leading position in mid-market banking and in sectors such as infrastructure and social housing.

So let me update you on our strategic progress. Our retail bank serves 19 million customers or 1 in 3 U.K. families with an opportunity to continue growing in savings, investments and lending to align with our share of current accounts of over 16%. One way we are capturing this is by targeting growth in key customer segments such as youth, families and affluent. By strengthening our leading position in the youth market, we are creating the next generation of primary banking relationships and boosting our long-term funding base. We are building here on the success of our NatWest Rooster Money app. Its customer base has grown 18x since 2021, and it has a leading Net Promoter Score of 72.

We increased the number of Rooster customers by 15% over the last year. We opened around 50% more junior ICEs, and we enhanced our offer for teenagers with a new card new features on the app. We also grew our share in savings and investments, mainly with affluent customers as we opened 20% more ICER accounts and attracted 32% more customers to invest with us. There was also strong momentum in our Private Banking and Wealth Management business. Prior to the acquisition of Evelyn Partners, it attracted GBP 2 billion of net inflows to assets under management. This is a record performance representing a 33% uplift on last year and more than 9% of opening balances.

These inflows were supported by over 45,000 customers across the group investing with us for the first time, a 60% uplift on last year as well as 11% growth in the number of high net worth clients we serve with more than 3 million of assets and liabilities. This progress will be accelerated by the acquisition of Evelyn Partners, which I'll talk about on the next slide.

Commercial and Institutional is the U.K.'s biggest bank for business. It serves 1.5 million customers across the U.K. ranging from start-ups, where we have a leading 20% share through the mid-market to large corporates and financial institutions. We gain a clear competitive advantage here from our long-standing presence across the nations and regions as well as our highly experienced network of more than 1,000 relationship managers. They are rooted in their local communities, offering businesses both local knowledge and deep sector expertise. This enables us to play an important role in regional economies, giving us a distinctive platform to support investment and capture growth.

We are capitalizing on our market-leading positions in areas such as infrastructure, social housing and transition finance to take advantage of struggle growth. and building on our leading position in debt capital markets to support corporates not just with lending, but with broader funding needs. We delivered GBP 23 billion of climate and transition finance in the first half making good progress towards our GBP 200 billion, 2030 target. All 3 businesses continue to leverage simplification to improve customer and colleague experience and drive efficiency.

The AI is changing how our customers live and work as well as their expectations of us. It is also reshaping financial services. While the pace is faster and the tools have evolved the fundamentals remain the same. Success in our sector has long been built on relationships and on trust. So the real value of AI comes when it builds stronger customer relationships, strengthens trust and delivers growth through better insight, experience and outcomes. That's why we continue to invest in leading capabilities.

Last year, we created a new AI research office to enable faster innovation and to accelerate our responsible deployment of AI. The benefits for both customers and colleagues are clear, a smoother customer experience, quicker, more informed decisions and more time for colleagues to focus on what matters most, building trusted relationships and delivering better customer outcomes. So for example, we are using AI to deliver new customer propositions faster in hours rather than weeks to help customers understand their spending habits better, to help them resolve cases of fraud through natural language conversations with our digital assistant Cora and to provide relationship managers with greater client insight and more capacity for productive engagements.

The operational momentum in each of our businesses is demonstrated by operating profit growth of more than 15%. I'd like to turn now to the acquisition of Evelyn Partners. Evelyn Partners allows us to deliver an exciting step change in our private banking and wealth management business, generating sustainable growth and returns. We now have a highly differentiated, scalable, end-to-end wealth proposition, comprising advice, planning and investments, with the largest employed network of financial advisers across the U.K. and a highly regarded direct-to-consumer investment platform. The combination of planning and investment capabilities with banking, savings and wealth management services, gives us a unique position in the market and a distinctive offering for our 20 million customers.

One month in, Evelyn Partners is performing in line with expectations, and the integration is going well. We were able to hit the ground running, having planned since February, and we're executing at pace with a focus on the most valuable revenue opportunities. We have a single leadership team under Emma Crystal, we have created an integrated financial planning team to take advantage of opportunities like targeted support and we are already seeing business referrals in both directions. So we are excited about the opportunity ahead and the value that Evelyn Partners brings both for the group and for shareholders.

We look forward to updating you further at an in-depth spotlight in the fourth quarter. Our strategy is focused on driving sustainable growth and returns which in turn generates higher levels of capital, giving us both resilience and flexibility. So let me remind you of our approach to capital allocation. We have a robust balance sheet and aim to operate with a CET1 ratio of around 13%, giving us appropriate headroom above minimum requirements. Our strong capital generation enables us to invest in our business to grow and to deepen customer relationships. We are both disciplined and dynamic in our deployment of capital. And our diversification across 3 businesses gives us optionality through the cycle to optimize risk-adjusted returns. We also apply a high bar as we consider acquisitions that accelerate our progress through additional scale or capabilities.

Our strategy is delivering, attractive and growing shareholder returns, and we remain committed to a dividend payout ratio of around 50% and to returning surplus capital to shareholders via share buybacks. This translates into compounding growth in earnings, dividends and TNAV per share. Given the strength of our performance and the inclusion of Evelyn Partners, we are upgrading our 2026 guidance. We now expect a return on tangible equity of more than 19%, and we are bringing all the date when we consider share buybacks to our full year 2026 results.

The momentum we're seeing in customer growth, efficiency and returns gives us great confidence for the future. By driving disciplined growth, increasing our operating leverage and managing our balance sheet and risk, we have created a business capable of delivering strong, compounding sustainable returns through the cycle. With that, I'll hand over to Katie to take you through the results.

Thank you, Paul. I'll cover the second quarter using the first quarter as a comparator. Our strong performance in the first quarter continued in the second with broad-based growth income momentum and improved operating leverage. Income excluding notable items, increased 5.4% to GBP 4.4 billion and total operating costs grew 1.8% to GBP 2.1 billion, driving a 1 percentage point improvement in the cost/income ratio to 45.5%. The impairment charge was GBP 140 million, equivalent to 13 basis points of loans. This resulted in 12.4% growth in operating profit to GBP 2.3 billion. Profit attributable to ordinary shareholders was GBP 1.6 billion, and we delivered a return on tangible equity of 21%.

Turning now to income. Income, excluding notable items, was up 5.4% at GBP 4.4 billion. Income across our 3 businesses continued to grow, supported by an increase in CAL. Margin Expansion and higher noninterest income. Net interest margin was 249 basis points, up 2 basis points with deposit margin expansion, partly offset by the mix of lending. Noninterest income grew 15% or GBP 124 million, supported by strong customer activity in commercial and institutional, together with higher insurance fee income following our decision to partner with a new insurance provider.

Looking forward to the second half, we expect an income contribution of around GBP 275 million from Evelyn Partners. Given the strength of our performance and the inclusion of Evelyn Partners, we now expect full year income, excluding notable items of around GBP 17.9 billion. Turning now to customer assets and liabilities, or CAL. We are pleased with our continued track record of growth and the addition of Evelyn Partners. CAL increased by GBP 86.8 billion in the quarter or 9.6% to GBP 986.9 billion. This comprises GBP 9.7 billion of broad-based customer lending growth. GBP 2.8 billion of customer deposit growth and a GBP 73.9 billion increase in assets under management and administration, including Evelyn Partners.

I'll touch on each of these elements in turn. We're reporting another quarter of strong broad-based loan growth across the group with gross loans to customers up GBP 9.7 billion. Retail Banking and Private Banking and Wealth Management balances grew GBP 4 billion or 1.7%. This comprises GBP 3.9 billion in mortgages and GBP 0.1 billion in unsecured lending. Our mortgage stock share increased slightly in the quarter to 12.7% with record applications in March. Commercial and Institutional continues to be the fastest-growing segment with lending up GBP 5.7 billion or 3.6%. Within this, growth is the strongest for larger corporate and institutions where we see continued strong demand driven by structural trends, including digitization and decarbonization.

Our mid-market customers are showing healthy demand driven by manufacturing and social housing. And our smaller business banking customer balances are stable with potential for growth once government schemes are fully repaid. Turning now to deposits. Customer deposits grew by GBP 2.8 billion in the quarter. This was driven by commercial and institutional, where deposits increased by GBP 2.5 billion, with broad-based growth across business banking, commercial mid-market and our large corporates. Private Banking and wealth management deposits were up GBP 0.3 billion, mainly as a result of growth in savings balances. Retail banking deposits were stable with further migration to fixed and variable rate ices as customers prioritize tax-efficient savings options. Overall, deposit mix continues to be stable.

Turning now to assets under management. Assets under management and administration closed the quarter at GBP 130.6 billion. This includes the addition of GBP 71.7 billion from Evelyn Partners and a GBP 4 billion reduction in assets under administration following the sale of cushion in May. Excluding both Evelyn and Cushen, AUMAs were GBP 6.2 billion higher in the quarter. comprising positive market performance of GBP 5.1 billion and net inflows of GBP 1.4 billion. Net inflows to assets under management of GBP 1.1 billion were a record high at 10.2% of opening AUM on an annualized basis, demonstrating accelerating client confidence and strong momentum.

Turning now to costs. We are pleased that once again, we have driven operating leverage as income growth has outpaced cost growth. Other operating expenses were GBP 2 billion in the second quarter, taking the total to GBP 4.1 billion for the first half. Our persistent focus on simplification delivered a further GBP 250 million of gross cost savings in the first half, which gives us the capacity to continue investing in the business. We front-loaded investment spend in the first half to speed up our transformation. We also increased pay for staff by 4.1%, which took effect in April. The impact of this has been largely offset by a reduction in the number of employees. Our cost income ratio reduced by 2.8 percentage points to 46%. And we now expect other operating expenses of around GBP 8.5 billion for the full year, including around GBP 300 million for Evelyn Partners. We have given you a more detailed breakdown on the slide.

Turning now to impairments. Credit performance remained strong, and we benefit from a structurally low loan impairment rate and strong asset quality. The impairment charge for the rent was GBP 140 million, equivalent to 13 basis points of loans. We saw no new signs of stress across our 3 businesses, and we continue to expect a loan impairment rate below 25 basis points for 2026. The change in our economic scenarios and weights this quarter was immaterial for expected credit loss. We carry economic uncertainty post model adjustments of GBP 284 million, with total PMAs of GBP 316 million.

Turning now to capital. Paul explained our capital allocation policy earlier, and our capital bridge here is aligned with that. As you know, our business is highly capital generative. We ended the first half with a common equity Tier 1 ratio of 14% before distributions in line with the year-end. 142 basis points was invested in our acquisition of Evelyn Partners. Our earnings power is reflected in 197 basis points of CET1 capital generation, which was boosted by 31 basis points of capital generation from RWA management. Our ongoing investment spend consumed 19 basis points and organic lending growth consumed 61 basis points. This means that, in effect, all our investment in growth was funded with just 6 months of capital generation. And we are reporting a CET1 ratio of 13.2% after accruing 50% of attributable profit for ordinary dividend payments. We expect to continue generating strong capital from earnings and RWA management.

And for 2026, we now anticipate capital generation before distributions and the impact of Evelyn Partners of more than 240 basis points. This is also before the impact of Basel 3.1 on the first of January 2027 where we continue to assume around GBP 10 billion of RWA uplift. Turning now to guidance. Given our strong first half performance and the inclusion of Evelyn Partners, we are strengthening our 2026 guidance. We now expect income excluding notable items of around GBP 17.9 billion, other operating expenses of around GBP 8.5 billion capital generation before distributions and the impact of Evelyn Partners greater than 240 basis points and a return on tangible equity of more than 19%. We Finally, we expect to announce our next buyback with our full year results in February. And with that, I'll hand back to the operator for Q&A. Thank you.

[Operator Instructions] We will take our first question from Sheel Shah of JPMorgan.

Hopefully, you can hear me.

Yes, we got you Sheel.

I've got 2, please. First, we've seen some changes to the leverage ratio come through and your leverage ratio requirement has fallen as have some peers as well. And you clearly have improved the mortgage stock market share, and this is a market that continues to grow. So I'd like to hear your thoughts on the changes to the leverage ratio and its application to the mortgage market. We had a peer yesterday talk about long-term asset margins declining in the mortgage market. So I'd be to get your thoughts there. And then secondly, can I ask with regards to the Private Banking wealth inflows of GBP 2 billion that you saw in the first half. You made a point that 45,000 customers across the group have contributed to these inflows.

I'm wondering when it comes to customer segmentation of your overall retail and corporate base, what is the target market we should be thinking of that are maybe applicable for wealth products within the existing customer base. How are you doing in terms of penetration of this customer base, please?

That's great, Shell. Okay. Katie, why don't you -- about the leverage ratio, maybe then you want to talk about the mortgage market and cover wealth.

Super. Thanks very much. Thanks. Sheel, the leverage framework and expense very much as we had expected, we would expect to see kind of a 42 basis point reduction in our leverage requirements. Remember, I think Sheel it's really important to note that we are not a leverage constrained, so it doesn't release day 1 balance sheet capacity, but instead ensures that leverage does remain a backstop measure for us all kind of very much in line with expectations. Paul, do you want to... .

Yes, fine. I guess then the link to mortgages and kind of asset margins, Sheel. So if you look at the half 1 for ourselves on mortgages, as you say, we've grown slightly our mortgage market share, which is great. But our approach really has been very thoughtful in terms of trying to ensure that we're driving kind of quality decent growth. So we've been very mindful around got acceptable making sure that we're right in deploying capital in the mortgage market acceptable returns, but also driving low cost of risk. So we've played the market really to take growth at the right times and what -- as you alluded to, at specific points was a very competitive market. So we're on our balances by GBP 4 billion. And yes, we've increased share.

But if you look at the areas we're focused on, we're broadening our addressable market, first-time buyers, family-based mortgages, buy-to-let. We've also signed a number of part with digital platforms where we're, I guess, putting ourselves earlier in the customer journey to secure volume, right move ChatGPT would be 2 examples of that. So we're being very thoughtful there. And the strategy on mortgages is to grow, but to absolutely ensure that we're growing at the right returns. I think it's a little bit too early to draw any wider conclusions about, I guess, the long-term prognosis for mortgage asset margins. I think the reality of some of the building societies as you may see on what I call vanilla mortgages, more competitive pricing, but I think it's very early to draw conclusions.

On the second question, different topic on Private Banking and Wealth Management, yet very, very pleasing kind of organic AUM flows in the private bank. GBP 2 billion net new money record 30% up on the same time last year. So that's great. Part of that is from the broader distribution or I guess, new customers investing with us, but that's a proportion portion of it. So we've troubled a number of good target to travel a number of customers who are investing with us. We're making good progress on that. I'd also remember that it's not just a real base, it's the commercial institutional base is a great source of referrals.

In terms of our customer segmentation and the opportunity and how we're going to execute across that opportunity, the spotlight I announced in the presentation will be a great opportunity to dig into that further. We're going to talk about the different customer segments, how the proposition plays and how excited we are about the opportunities. But delighted with 2 things to close off, the underlying momentum in the kind of the wealth management business, the organic momentum and then obviously completing Evelyn, which adds a whole host of expertise and capabilities, which opens up much wider opportunities. Thanks, Sheel.

Our next question comes from Alvaro Serrano of Morgan Stanley.

Yes, I've sort of struggling. Kind of 2 questions on a similar theme around NII sort of your growth in loans in CIB and Corporate Institutional continue to be very if anything, accelerating. So can you sort of again sort of talk us through what you're seeing latest in demand because it's accelerating more than sort of normalizing? And looking at your pipeline conversations, should we continue to expect an acceleration, this kind of level of pace for the foreseeable future is sustainable in your view? Just a bit of color on that as we think about the next few quarters. .

And next year without explicit guidance, I presume, but same other. And then on deposits, sort of competition, again, the your competitor yesterday was making pretty sort of cautious sort of comments and assumptions around limited deposit growth in the system with strong loan growth that doesn't bode well for competition. Obviously, in this quarter, we saw the ICE season. But again, any color of how you're thinking about your best guess of how deposit cost may evolve over the next few quarters given the loan growth picture, it sounds like it could continue to be competitive.

Thanks, Alvaro. I probably take both of them. So on -- yes, so thanks for acknowledging the strong lending in C&I. We continue to be pleased with that as you alluded to, it's not just 1 quarter. It's a strong track record of growth. And I think really it talks to both the scale of the franchise, but also the quality of the franchise. So -- we have, in our view, a distinct competitive advantages that are positioning against sort of the key structural trends that we've had for almost -- at least a decade, I would say, be that infrastructure, social housing, et cetera, is positions us well. So yes, over GBP 5 billion growth in the quarter, GBP 9 billion for the half year, in the areas it's coming through. You'll see in the disclosures, infrastructure, social housing, housing, aspects of tech funds lending. There was also growth though in the mid-market and in business banking as well. So it's not exclusively the large end.

Looking at the pipeline, there's a lot of demand. So there is a strong pipeline of root that direct question. So we feel that demand is resilient. Plus, if you look at the system level data, which I know you do, the Bank of England data, growth the PNFC growth is around 8% or 9% from -- so there is a resilient demand -- the good news is we're not needing to change any sort of risk appetite. We're growing we're able to grow with the same risk appetite. That business, we're riding at high risk-adjusted returns, which obviously is a great support. So very encouraged there. And we think the strength of our franchise positions us very, very well.

On the other side of the balance sheet, deposits, so some growth in the quarter, just under GBP 1 billion. You can see that's come through the private bank and also through the commercial franchise, retail, give or take, is flat, although there are some ups and downs, current account balances, for example, I think we should think quite broadly about this. We don't just see it as funding. We see it as a key part of the customer relationship and how we grow with customers. So aspects of retail are competitive, where we've chosen to focus, and you'll have seen this during the first 6 months is where we see real relationship value. We haven't changed hot money. So for example, the ISA season, yes, we've competed there. We've taken share, but that's because we see great relationship value. Affluent would be another segment where we see that opportunity likewise you. So that's how we think about it.

Leaning out, we take quite a holistic approach. We work very closely the treasury teams and the strategy team do a great job to make sure that we're optimizing in terms of both the customer proposition but also the cost of funding. And I think strategically, what we've done over the last couple of years is really trying to ensure that we're owning the customer relationship early.

So whether that's start-ups, whether that's economy, whether it's youth through Rooster. And that means we build the primary relationship earlier, and that comes with the high-value deposits. So strategically, that's how we're thinking about it. So I think there will be net-net, that's our strategic positioning, but there will be some kind of competition, I'd say, in the retail hot money space. We're going to remain disciplined, and we want to be thoughtful about where we where we invest, and that needs to be where we can see wider customer value. Thanks, Alvaro.

Our next question comes from Benjamin Caven-Roberts of Goldman Sachs.

Two for me, please. First, a lot of focus today on capital generation. And it's, of course, positive to see the share buyback expectations being pulled forward 6 months. If we look further ahead, how are you thinking about uses of capital generated as we move into 2027 and 2028 particularly in terms of how much RBA growth is consistent with that strong lending activity you're seeing? And then how much capital that leaves to be returned to shareholders? And then secondly, just on income, of course, strong as well this quarter. Could you talk through your expectations into the second half and if you're seeing much of a different backdrop on income between the different segments of the business and the balance of tailwinds versus headwinds in NII and non-NII.

Thanks, Ben. Katie, why don't I take capital and you take income that -- okay. So on capital, Ben, very strong capital generation in the first half, 137 basis points. Obviously, we've raised the guidance there in terms of year-end expectations, greater than 2.40x Evelyn. I guess, testament to the I guess, high growth, high returns business model where we've built. In terms of how you should think about it in terms of allocation. So in terms of organic, we still see growth opportunities across all 3 businesses. You can see with the momentum we've got, we're executing well. We've now got a multiyear CAL record. We've got CAL targets out there, and we've demonstrated in the first half that we see opportunity. So we will deploy across the 3 businesses, but in a disciplined way, per the answer earlier to make sure we get the right risk-adjusted returns.

On the inorganic side, obviously, we've made our choices over the last few years, whether that's purchase of retail mortgages, unsecured and more recently, wealth -- so the near-term focus is very much on the successful integration of Evelyn, pleased to say that that's on track and performing well. So then that links to your, I guess, the latter part of your first question, which is distributions committed to the 50% of attributable profit for ordinary.

And then on surplus capital, we've got a very strong track record of returning our excess capital. We'll assess it, as you exactly see with the Board at the half year and the full year. We certainly see good value in buying back our shares where they currently are, and we're absolutely committed to returning at the earliest opportunity and the signal we've given today, we expect to return at the year-end is good evidence of that. I think all of that really is to me is, I guess, evidence of the model that we've built. We've got a high capital generative model that gives us great choices to deploy into the business to grow, but also to drive good returns and then drive the distributions for shareholders. Katie?

Sure. Income. Thanks very much. Ben, so obviously, we're very pleased with the strategic progress we've made in the first half of the year and the strengthening of that guidance I mean, that reflects in a large part, the completion of the Evelyn Partners transaction, which we're delighted about, but also our increased confidence following that strong H1 performance we've had and then our line of sight that we have for the rest of the year. So I think -- a couple of things that I would bear in mind in terms of economics. We obviously, as you know, earlier in we removed the 2 bank rates from our plan. We still expect bank rates to remain at 375 this year. So no change in that rate assumption as we go from here.

If I think of where we'll kind of see the growth coming through to get to GBP 17.9 million GBP 275 million of it is Evelyn in terms of where we are than other things I would think about across the business is -- the strong balance growth that we've had and pipeline that we can see in corporate lending, that will come through and will continue to drive NII growth. We then have the reinvestment, obviously, in the structural hedge that will come through. But then if I look to the kind of noninterest income kind of area. You know that we are continuing to deliver a lot of product propositions for our customers. We're really pleased with the performance in C&I at the beginning of the year. We expect that to kind of continue and then obviously, the AUM fees, which I've already talked about.

So as we look at it, the kind of a solid performance, 1 thing I would think about is that we did have -- in the first half of the year, we had higher insurance income in that noninterest interspace, that was GBP 45 million that came in. That won't be a repeat. But overall, a good trajectory for income in the second half, continued growth across all of the businesses. And importantly, supported by ongoing balance sheet growth. Thanks very much, Ben.

Our next question comes from Guy Stebbings of BNP Paribas.

First question was just on net interest income. Thanks for sort of refined in the hedge guidance. Are you able to confirm what assumptions you're using to sort of underpin that guidance this year, future years, et cetera, that would be very helpful. And then on the lending spreads, they went backwards a little bit more than the sort of pure mortgage back to front book spread compression that was just partly a function of good lending growth, but maybe you could elaborate on the dynamics there and how we should think about that in future periods. .

And then a question just on sort of buybacks and capital. Very pleasing to see that come forward. Just interested, is that purely a reflection of the better capital generation that you're seeing this year? Or does it reflect any way in terms of around where Basel 3 lands precisely or how the capital framework might evolve later this year.

Okay. Thanks, Guy. Why don't I take the third 1 very quickly and then Katie, you on the other. So the buyback is very much driven by the performance in the first half of the year, Guy. It doesn't make any assumptions in terms of around future regulatory. So we've got Evelyn, we've got the performance of the first half, we obviously got good line of sight on the half 2 performance. That's a simple answer. Katie.

Thanks very much. We deal with the hedge reinvestment rates, first of all, Guy. So we assume a blended hedge reinvestment rate of around 4% for the full year 2026, and that's 3.9% on the product hedge and 4.7% on the equity hedge, that's well ahead of the expectations we had at the start of the year, where at that time, our assumption was that we would have 2 rate cuts coming down to a terminal rate of 325. So clearly benefiting from that reinvestment rate. It's also supporting our out-year hedge income and I would remind you that we did say in February that we expect growth in our hedge income every year out to 2030. So there is further upside if the current market rates are sustained.

If I then go on to NIM, I mean you're absolutely right. You can see within NIM, while there's a 2 basis point increase that we've had in the second quarter, that's built of 4 basis points in the deposit margin, clearly coming from the hedge basis points on funding and other, and then that's partly offset by the 4 basis point decrease in the lending margin. A couple of things happening within there. We've talked a lot this year already around the roll off of the higher 5-year fixed mortgages that's coming through. That will be completed as we get to the end of this year. So that's good to see a little bit more stability that will come through in later years on that but also we've had strong growth in lower risk, high return, but of course, lower margin areas like mortgages, but also in our corporate and institution business.

And so while we look forward, the structural had continued to be a positive tailwind and for the rest of the year. But that -- those trends that we're seeing in the lending margins as we kind of add on high returning business. It will continue as we go forward from here. So I would expect been that the NIM trajectory is likely to be a little flatter to be flatter for the second half of the year. But obviously, NII is going to be driven by the lure growth that we're seeing. This for us is really disciplined choices in our capital allocation. and the loan integrated origination that we do. You should expect this growth to drive higher returns as we've seen in H1 '26, and that's what's been reflected in our increased royalty guidance. Thanks very much.

Our next question comes from Benjamin Toms of RBC. Benjamin.

Just firstly clarification on that buyback and the quantum of buyback at year-end. Is the right way to think of it that we assume that you distribute down to 13% on a post Basel basis? And then secondly, a question on Basel. We're seeing continued structural shift from mature to professional landlords. Do you think you have the current capabilities to deal with that shift or you need some further build out here? And then just a personal point on your Rooster to card stop charging for the front covers on the card is costing you fortune, thanks. .

I won't comment on your parents at the. Right. Okay. Katie but...

Yes, absolutely, absolutely. Look, Ben, we were really clear and deliberate when we set our target of around 13%. So that we can be flexible with that number for our capital allocation decisions. We're not paying down to a specific number. But as we have said before, we wouldn't have a problem printing a 12 handle for CET1 given that this is a point-in-time metric. We're really confident in our strong ongoing capital generation as we've just demonstrated again these last 6 months.

Obviously, we haven't hit that 12 yet despite even the absorption of the Evelyn Partners acquisition at Q2, given how strong our capital generation has been.

Good. And then on buy-to-let, good observation. Ben, you're right that the market has evolved in terms of, I guess, the amateur to professional landlords. That's the reason why we put the partner strategic partnership in place with land that's a really well for a really successful partnership. Obviously, the combination of ourselves, we have the necessary capability. We have also been building out in parallel our internal capability. So we feel very, very comfortable in terms of an underwriting perspective from a face-to-market perspective. So yes, that's why we took those steps last year, actually. So yes, well placed on that front. Thanks, Ben. And please your family's a Rooster customer. Thank you.

Our next question comes from Perlie Mong of Bank of America.

Just 1 on the hedge and the reinvestment rate. I think the footnotes as it is the macroeconomic assumptions for the -- not for this year, but outer years. If I look at our IMS, I think it's 3.8%. Can I just clarify that, that is what you're assuming for outer-year hedge roll-off assumption? And then second question on non-NII. Can you help us understand a little bit more about the sort of sustainable organic growth rate in that business? Because it's been a bit lumpy, and this quarter, obviously, is very, very good. But just 1 of those lines that I think we find it a little bit difficult to forecast.

And then maybe more specifically, maybe talk to you about the wealth growth prospects other than the even advisory side of things, but the D2C side of things, as well because obviously, some of your peers have been quite aggressive in pricing there and not charging any platform fees. So just how do you make money and how do you monetarist that D2C platform? And how does that link to the non-NII growth.

Thanks, Perlie good questions. Katie, do you want to go with hedge, and then I'll cover off wealth.

Perfect, super. Thanks so much. So part or apologies if it wasn't clear forgive me. So if I look at the rate that we're assuming for 2026, it's the product hedge reinvesting at 3.9% and 4.7% on the equity hedge. We have marked our out-year targets to market in terms of where they are. So that's still sticking with the kind of original assumption of the 5-year swap rates of 3.5% through to 2028. So clearly, if tier rate sustains as we go forward, you would see some additional benefit coming through from that as well. Paul? .

Pyes. On DC, Perlie. So -- you can see we've got -- we've shared today, we've now got 45,000 people in the last quarter -- in the first half, we invested for us for the first time. So we're pleased with that. Obviously, as part of the Evelyn acquisition, we acquired a digital investing platform. We already have NatWest Invest as well. We'll lay out in more detail at the spotlight, where we see the opportunities and how we plan to execute against those opportunities. But the mindset we have around that is we see ourselves very much as the challenger, not the incumbent.

In most of the markets we operate in, we are the incumbent. But the reality is in that space, we are the challenger. So we believe that there are levers that we can pull, given we have the customer relationships, and we have the product set to be very competitive and very attractive. We've got the full end-to-end proposition in place now. Very excited about the opportunity and growth that can come from it, but more to come in the quarter for spotlight. Thanks, Perlie.

Our next question comes from Andrew Coombs of Citi.

[indiscernible] answers can just dig a bit further into C&I. On Slide 34, you helpfully give the lending and deposit margins by division. If I look at C&I, I think the lending margin is -- or actual year gross yield, I should say, is dipped from GBP 6 million to GBP 5.5 million -- so interesting comments you have on the margin on the flow versus the stock? Because obviously, you're seeing strong growth there, but I assume it's into lower-margin segments -- and then secondly, staying on the same slide, deposit yield in C&I has actually trended up slightly in the quarter, 4 basis points. Anything you can do on deposit competition in that space as well, please. .

Yess. Thanks, Andrew. Okay. I'll take that, Katie. If that's okay. So on the C&I story, it's very much a mix. It's very much the mix story. We're deploying capital in areas which are low risk weights, high risk-adjusted returns, infrastructure, social housing, et cetera. But obviously, they're at a lower margin. So we're very comfortable that's a great deployment of capital. It's driving growth, but it's also driving returns. So you should think of it as a conscious mix choices. On the other side, on the deposit side, it's primarily a function of where the deposit growth has come from. There's very different ranges of pricing within the commercial and institutional base. Some of the growth this quarter has come from the kind of large corporate institutional end, obviously, the pricing on that is fine vis-a-vis, for example, aspects of SME operational balances. It just reflects that. That's how I think about it. Thanks, Andrew.

Our next question comes from Robert Noble of Deutsche Bank.

Just 1 question, really. So the loans are growing very quickly and the deposits not as quickly at the moment. So your loan-to-deposit ratio is -- to 92%, I think. So how far are you willing to let that go? And what are the margin implications for just solely that aspect of loans growing faster than deposits going forward? .

Okay. So LDR and -- Rob, can you just repeat the second one? We couldn't quite just...

Just the margin implications from purely the loan-to-deposit ratio going up -- does that cause margin lower given where the spreads are, both loans and deposits? .

Yes. No, absolutely. Let me talk to that, Rob. So as we look at it, we obviously manage our funding very holistically. We don't traditionally manage on an LDR basis within the bank, clearly is something we look at, but it's not is not 1 of our key kind of metrics. So as we're kind of looking -- looking at things we really manage on the LCR, where we've still got capacity to move lower than the current 140 average LCR that we have. You've also seen us this year be a little bit more active in covered bonds. We may do a little more of that in the second half of the year. But basically, as we see that the growth of the assets on the balance sheet. We are very mindful of actually where is the right place to fund them from, whether that's to go to the market or whether that's to do a little bit more on deposits. Paul talked a lot about the importance of deposits for a customer relationship as well. So we kind of look to manage that.

But clearly, there is a little bit of an impact on that within the NIM as lending margins, as you can see, are a bit tightest at the moment. We just look to manage all of those things, which is also why -- we're really focused on [indiscernible] to make sure that we're getting the right returns to the capital that we're deploying. And we're obviously balancing and fully loading in the cost of where that funding is coming from. Thanks very much.

Our next question comes from Chris Cant of Autonomous.

Appreciate it. I wanted to ask on capital and data centers, please. So on the 13% and kind of flexing around that 15% target I think the more interesting thing to come out to Bank of England, FTC review process was actually this flexibility they expect to introduce a cyber for understressed and effectively, if that happens, you're going to have 1 of the more hyper flexible MDAs in the sector. Just curious how that feeds into thinking about headroom to MDA over time, particularly with your Pillar 2 legally coming down next year. It seems to me there's room to actually nudge that target lower potentially over time. I understand you're not announcing that today. But I was interested in your thinking noting that your -- 1 of your domestic peers indicated there may be room to review that in their case next year, and they already run with a tighter headroom 28 than you do?

And then on data centers, -- there's obviously a relatively high number being built in U.K. As you say, you're the largest commercial bank. I'm just interested in -- you can comment on your exposure there, how you think about that area. And in particular, if you are taking exposures, how those get structured from a lending perspective, whether you have any sort of direct linkage into delivery of data center revenues down the line?

Okay. Katie, do you want to take he first and ...

Sure, absolutely. That's great. So I think, Chris, when we look at the target, I just sort of repeat again that we set our target very deliberately -- so we're not paying down to a specific number in mind. We wouldn't have a problem paying down to kind of a 12 handle in terms of CET1. What I would say is the kind of the risk weight framework that's going on. I mean, I know that you and [indiscernible] from our side are very involved in a lot of these conversations as well. We're pleased that they're looking at the kind of overlap between different parts of the framework whether it's Pillar 2A or OSSI or the CCYB kind of numbers. I think 1 of the things that you can see that's helpful is that the committee reaffirming its judgment that the appropriate benchmark for us is the Tier 1 capital, that's around that 13% of risk-weighted assets, interesting that's equivalent to about a CET1 ratio of about 11%.

So we may see some changes kind of come through from that. We've obviously got Basel 3.1 coming in, which we confirmed still around 10 that we're estimating for that -- as you can imagine, we don't kind of manage our capital today on what may or may not happen in terms of kind of future kind of buffers. But we do like the approach of making it easier to access those buffers. And I think we're just very much watch to see how things develop. Again, we kind of welcome the move that they are more releasable in stress. But at the moment, there's no change in terms of what we're doing and what we're talking with you externally. Paul, can I come back to you?

Yes. On the -- Chris, on your second question on data centers. We could probably spend a very long time talking about that. And I'm sure the team are also happy to pick bilaterally, but maybe try some broader thoughts which should help you. It won't surprise you given the, I guess, acceleration of data center and the associated infrastructure build that we're very thoughtful in terms of where to deploy credit and capital towards data centers. When you think about your point on how these things are structured, can very much think about that can be the physical security or it can be the long-term cash flows. We're where you're dependent on long-term cash flows, we're very focused on, I guess, high-quality occupants, highly rated, highly grade, almost exclusively the hyperscalers. That would be how you should think about how these things are structured.

As I said, we've got a multi-decade history in kind of project finance, structured finance. So I feel we've got very strong expertise. We only participate where we are very confident around the security that sits behind -- there's a lot of talk and there's a lot of noise. I think it's a key that you remain disciplined in this part of the market, and that's our approach. Hopefully, that gives you a sense of -- but the key really is if it's cash flows, and it's all about the creditworthiness of the kind of occupancy or the offtake as it is internally in other kind of energy and utility deals. Thanks, Chris.

Our next question comes from Amit Goel of Mediobanca.

Just 1 kind of follow-up just on the capital, apologies for kind of asking it again. But I guess I'm just still trying to size, how much buyback you could contemplate at year-end? And I appreciate the comments that you'd be happy or you'd be comfortable running with a 12 handle. Still just trying to get a sense of like pro forma for the Basel 3.1 effect like would you be happy running down to like a 12.5% type ratio? Or is that too far out of the bounds of circa 13?

And then my second question was just on the noninterest income in retail. Just comment about the -- there were some effects relating to the accelerated recognition of back book insurance income. Just kind of curious how big was that? And does that mean that we're not getting that income in the second half of the year? So just how much of a delta to expect going into Q3, Q4 on that.

Thanks, Amit. Katie? .

Yes, sure. Let me try to help you a little bit. I'm not going to get into the [indiscernible] of what around 13 might mean you guys are the masters of that kind of debate. But when we look at it, obviously, we consider the pro forma for Basel 3.1 when we're doing any capital decisions as we would always be looking a good few years out as we make these kind of decisions. I think probably a way that could be helpful to you to think around on the RWA kind of trajectory that we'll see in the second half. So we've been growing well this first half in lower risk-weighted lending areas, such as mortgages and CIB. And we're confident that that's going to continue in H2.

Partially offsetting that, you've seen our successful ongoing program of RWA management. We'll continue to exercise transactions where economics make sense. We do have a good line of sight of those RWA management actions for the rest of the year following the GBP 3.9 billion we did in the first half. Also, you should just bear in mind that we have got the annual operating uplift in Q4 as well. You can see historically what that number generally is. But if I bring all of those things together, I would think from an RWA perspective, we expect to see a little bit of growth coming through in the second half of the year on an RW basis. And then if we go to the retail side, so what this was, was very much the kind of the recognition of a transaction we did with our existing home insurance provider as we move to a new provider. And so it's simply recognizing the income that would have been flowing through over the next number of years into just now.

The reality is, Amit, it was GBP 45 million. So that will be a non-repeat in the future quarters. but you won't see a particular impact on it on the different quarters because the way that we have amortized through. And obviously, with the new provider, although it will have built up a little bit, you'll see that kind of coming back in. So for your model, I would kind of think of the GBP 45 million for this quarter and not worry too much about the -- how it flows in and out over the next number of quarters. Hopefully, that's helpful.

Our next question comes from Nicolas Payen of Kepler Cheuvreux.

I have 2 questions, please. The first 1 would be on the retail banking. -- on the cost-income ratio. I can see a very strong improvement in the cost-income ratio. We get in closer to the 40% market. Just wanted to know what is the frontier actually. -- because I can say that talking about AI quite a lot. I think the AI has tripled in the quarters. You are deploying Cora. You also mentioned that your headcount, I think, decreased by 400x Evelyn Partners. So yes, anything structural going there and if we could expect the cost income ratio to actually go below the 40% mark? That's the first question.

And the second question is coming back on your common KT regarding RWA management. Just wanted to know what your authority benefit is in your -- currently including your CET1 ratio. You mentioned it was part of. So I just wanted to know whether or not it's going to accelerate or if we have hit a run rate on that front.

Can you take that...

That perfect or absolutely. No, no, no, sorry, forgive me. So if we look at where we are -- look, this is year 3, our SRT program. I would say at the moment that we're not quite at our run rate, but kind of by the end of this year, you'd sort of see that while there will still be more actions, you'd be filling in kind of a lot of the historic deals. So we would expect to do more transactions as we go through. You can see more detail in the Pillar 3 in terms of where we are, but we do think we still have a little bit more capacity building on the 3.9% total RWA actions that we did earlier in the year. Paul, do you want to...

So on the cost-to-income ratio. So overall, Nick, great progress. You can see cost income ratio has improved again. we're driving the cost/income ratio through improvement through all of the businesses, I would say. The retail team have done a great job, as you alluded to, to get to -- they've got a circa 40% number. They pulled a lot of levers to do that and they drive -- continue to drive productivity and efficiency. And when we laid out our group target of less than 45% for 28, obviously, we had some assumptions about what the different businesses would contribute. We've also said our ambitions go beyond 45% at a group level.

And when we see the opportunities in front of us, some of them driven by AI, but not exclusively by AI. You may have heard me say before, I don't see AI as the hail mary here. We've still got a lot of good productivity and efficiency levers that we're pulling across the group that is improving the underlying efficiency of the business. So I'm not going to give you in your words, a frontier number for retail, but we are absolutely confident that as well as growing, we can continue to drive operating leverage via an improved cost/income ratio, and that will be the case across all the businesses, including retail. Thanks.

Our final question comes from Ed Firth of KBW.

Yes, I just have 2 quick questions. The first 1 was just picking up on a comment you made, I think, KatIe, you tell me if I'm wrong, you thought the NIM trajectory would be flatter in the second half. I mean, given that it was up only 4 basis points in the first half, that sounds like we're getting pretty close to flat. So firstly, just wanted to check that, that is correct understanding. And I guess, in that context, we've got another big year for the hedge next year. But after that, it grows but grows quite modestly. And I'm just trying to -- is there some correlation between the sort of hedge benefits and pricing in the market, do you think? So as that starts to disappear, some of these competitive pressures will disappear because I think you said a lot of the pressure came from mix. Now that's not going to change. So once these hedge benefits go, which would be sort '28, '29 are we actually saying the underlying margin will start declining -- so I guess that's my first question. .

And the second 1 was there's an awful lot of talk on this call and all the other calls about capital and the Bank of England potentially reduce capital requirements, et cetera, et cetera, and Pillar 2 cover, et cetera. But I mean you're making a 20% return. You're growing well above nominal GDP. I mean, what are we looking for in terms of this benefit from reducing capital requirements? I mean are you saying that actually 20% is not enough, we should be making 25% I mean, have you got unutilized capacity for growth that you can put to work? I don't really understand it seems to me that if you reduce capital requirements, all that's going to happen, margins will come down and return will return I mean 20% returns, plenty, isn't it?

Shall I start on. You're absolutely right. I did reference a flatter NIM. My comment was directional. As you know, we don't guide on NIM. I think the important thing is that it really is around the deliberate choices that we've made to grow in lower risk but high-return areas like CIB and mortgages, which is driving that lower kind of lending margin. You know that at the end of this year, we've got the drag from the roll off of the higher -- of the higher margin 5-year mortgage business is kind of coming to an end, which will be helpful. So that will give us a little bit more stability as we go on from here. And then there's an offset in our margin with the improvements on the deposit, the structural head story, which continues to deliver into 2027, '28 and beyond. And obviously, I've talked about the better rates that we've had just now that will strengthen not just [ 2027, ] but it will also strengthen the kind of the later years as well as we move forward from that.

I don't generally comment on consensus, but we have given you kind of good guidance on what the our expectation is for the full year income as we go forward from here. But overall, while I do expect based on the pipeline, we do expect the volume to drive higher NII in the second half, in line with our guidance and then further income growth here out to 2028 and beyond from there. Could I hand back to you.

Yes. Okay. And then, Ed, on the second question, I guess, simply on the kind of capital reg side, I think our message is we just kind of want various consultations to conclude. So everybody knows exactly where the -- we're at the very tail end of IRB, the tail end of Basel 3. So I just think kind of conclusion and certainty would be helpful for all stakeholders. So our message is no more complicated on that. In terms of the what we would do with any hypothetical additional capital, we're just very -- we manage the business for returns. We'll deploy it where we see demand. At the moment, we can see that demand is there -- and that growth obviously will support returns into the medium term. So I don't want to oversimplify it, but that's how we think about the regs and that's how we're thinking about how we deploy capital organically and -- that's a virtuous cycle, as you know. We deployed into grow high returns, that drives capital generation, drives distributions. So it's no more no more complicated than that. But hopefully, I just like to give you a little bit of color and a little bit of flavor. Thanks, Ed.

There are no more questions. So I'd now like to hand back to Paul for closing comments.

Okay. Thanks, Matt, and thank you, everybody, for your questions. We appreciate it. I hope you've seen today in the presentation and hopefully in the Q&A, the momentum we've got in terms of driving both sustainable growth and returns. We're very pleased with that. We've delivered growth across all 3 businesses. As we've touched on 7 times, we've improved and increased our operating leverage. We're now the most efficient large U.K. bank. We have the lowest cost of risk, and we're delivering the strongest capital generation and highest returns. But the mindset of management is this is very much the start, not the end. We're very ambitious for the future of the business.

So we determined to capitalize on some of those leading positions that we've created and also our exposure to some of the structural drivers within the U.K. And hopefully, that will lead us to accelerate the momentum we've already seen to date. So our strategy is all about driving strong compounding growth and sustainable returns. So we look forward to updating you that both in the spotlight in quarter 4 and then in our quarter 3 results. So I wish you a good Friday and a good weekend. Thank you.

That concludes today's presentation. Thank you for your participation. You may now disconnect.

Okay. Well, I think we are ready to get started. We'll do 35 minutes as with the other sessions, 5 minutes for Q&A at the end. So if you have any burning questions, get them ready. So with that, it's a wonderful pleasure to introduce Katie Murray as our next speaker, Chief Financial Officer of NatWest, a role she's held since 2019. Prior to being CFO, Katie held senior roles within NatWest as Director of Finance and Deputy CFO. Previously, you were also Group Finance Director for Old Mutual Emerging Markets based in Johannesburg. So thank you very much for joining us, Katie.

Thank you. It's very lovely to be here this morning, Ben. Thank you.

Brilliant. Well, let's dive straight in with the macro. Clearly, a lot going on in the U.K. How are you seeing that situation currently evolving? Have you seen any change in client behavior over the past couple of months as well?

No, thank you, and good morning, everyone. It's lovely to be here. So as we look at where we are on the macro, I think for us, with 20 million customers, we're very tied into what's kind of happening. And with the kind of strength of balance sheet that we have, we're able to kind of work with our kind of customer base as we go through.

You'll recall that Q1, we did a little bit of an update to our macro numbers. We're now estimating that rates will be flat. Some of you have different views on that. And if I looked at the market today, there are different views around as we go through. But actually, I would say some of the macro that has come out in the last couple of months in terms of GDP growth has been a little bit better than we were necessarily expecting.

So when you look at those 20 million customers and say actually what's kind of going on, I would say that they're strong, they're resilient, and they're also thoughtful in terms of what they're doing, whether that be investing in 1- to 2-year kind of ISAs rather than kind of going more short term, managing their cash positions.

I think in retail, we see them being thoughtful around where they're spending, still spending, but being very mindful of that, mindful of taking out longer positions and mindful about how they're using their mortgages. If I look at the commercial side of the business where we're the biggest bank for business in the U.K., very strong balance sheet there. They've weathered a lot if you're a corporate in the U.K. over the last kind of decade.

And what that's actually done is actually made them far more, I think, resilient and able to manage their balance sheet. So they're in a good position, continuing to kind of grow and do borrowing and continue to invest, but actually sitting quite strongly within the piece. Obviously, at the moment, we're looking at what do we think for Q2, and we'll talk about that a little bit more in July and things like that. But at the moment, while the macro has been challenging. I think our customers are well placed to deal against it.

Okay. Great. Well, let's pick up on the mortgage angle within all of this. You outlined a growth target pretty recently to grow customer assets and liabilities at over 4% annually from 2025 through to 2028. Can you talk there how delivery is tracking?

And then specifically on the mortgage side, pretty strong Q1. How are you thinking about the pipeline looking ahead from here? And then a big pickup in rates at some point in the year, as you alluded to. Has that changed how people are thinking about mortgages or the types of products they're taking?

Yes, sure, absolutely. So looking to grow CAL. So for us, that's our sort of our lending, our liquidity, obviously, in terms of deposits and also our assets under management. What we wanted to do is to bring a target that actually covered the breadth of all of our client activity and growing at over 4%. Now we've done that for the last 7 years. And then if you look at Q1, you could see that lending was up 4%. We call it, deposits up -- just less than that, about 3.5%, I think, and then AUM up about 10% on the prior year. So very strong growth.

So we started the year well, and we're very pleased with that kind of start. So we've got -- and as we kind of look at it and you kind of look out to 2028 where that target is, we feel pretty comfortable that, that will continue to come through.

So if I look to mortgages, one of the things we've talked a lot about within mortgages is what we saw happening in March. We saw this kind of pull forward because people reflecting my comments that customers actually are pretty aware. They can see higher rates are coming. I want to kind of make sure I lock in my mortgage rate today. And you know that customers in the U.K. can do that about 4 months ahead generally of when their transaction is happening. And so we saw people kind of looking to do that.

What's interesting though, we would probably have thought at that time, we've seen this pull forward and actually then we'll see a kind of kind of pull back as this quarter has kind of gone through. In reality, we've continued to see the strength of that book coming forward. And actually, the mortgage book is particularly strong.

When you look at our customers, more than 60% of them today pay over 4% already. So I think, Ben, when you and I would have been talking as rates were beginning to rise 2 or 3 years ago, I'd have said, "Well, people are going to 5 year, they're kind of lock in this rate for longer." The idea of going from 1% or 1.2% mortgage rate up to a 5-point something is kind of horrifying. But actually, we're 4 years further on, we had 4 years of pay rises, 60% of them are already paying over 4%. And when people set their mortgage, they set it by the rate, but they also set it by what the monthly cost is. And you can see that they're kind of managing that.

So what we've seen in that customer base, there was a pull-through. The balance is stronger. Balances are stronger now as well as we -- as it comes through. Customers are being very mindful. They're going for more 2 years than 5 years. What I'm also really pleased about is the investment that we've made within our mortgage system is really paying dividends.

What you want to be able to happen is when there's a big wall of applications that come at you at any one time, and that can happen for lots of different reasons that you're able to process them and you get through and you're still on your kind of SLA agreements. Because otherwise, what happens when there's good mortgage, mortgage margin in play. If you're not able to be in the market, then you -- that's a really frustrating place to be. And I've been delighted with what we've done within there.

We can also see that we've done some real extension in our kind of mortgage waterfront, whether that's more buy-for-let through our association with Landbay or more kind of first-time owners or new builds that we're kind of bringing in as well and also some lovely innovation in terms of PEXA, which is our speedier digital mortgage settlements. And those of you who spend a lot of time in the Australian banks will know that they settle within days, and we still talk about it in weeks and sometimes months. So this will really accelerate.

And we've also got our mortgage app is in -- is an app within ChatGPT, which is -- we're the only first bank to do that. We've got a very strong collaboration with OpenAI. And actually, that means that we are appearing then in very much within their system as well.

So all in all, as I look at mortgages, we feel quite good. Ben, you spend a lot of time asking me about margins on those mortgages, and we -- traditionally, we're writing around 70 basis points. We know that because of the kind of COVID high margins that are kind of flowing through and they all have kind of slowed through this year. What I talked about Q1 that, that will go to kind of around 60 bps. Still very comfortable on the return of capital on that, but you will see that coming through. And we saw in the first quarter, a couple of basis points coming through both the retail NIM and the group NIM as that mortgage kind of cost has come through.

Other lending kind of is remaining quite robust. I think though on CAL though, it's important not to forget the asset management piece. And for us, we're really excited about the growth that's coming through. Obviously, we did the Evelyn transaction. We'd expect that to complete this month. That will give an initial kind of pop up as those assets come on balance sheet, but we expect them to grow. And if we look in our own book, we had sort of 10% growth in our assets under management. We know that that's a line that grows a bit faster. So we'll continue to see that coming through, obviously, not just in the balances, but also kind of in fees as we get there. So a good step forward in terms of that target.

Brilliant. Well, let's flip from mortgages to thinking about the commercial and institutional side. One of the biggest investor focuses for U.K. banks right now is whether they can continue to outgrow the broader U.K. economy. Commercial institutional seems to be at the heart of that. Can you frame how you think about that issue going ahead, current competition? And then also how you think the recently announced reforms to ring-fence might fit into that?

Yes, absolutely. So we are the largest U.K. bank for business and by kind of any measure, which puts us in a position where we can really see what's happening from the very smallest businesses to some of the very largest. When we did our spotlight last year, we really kind of highlighted the areas that we wanted to focus on and very much focusing in that fast-growing kind of mid-market segments. And we've done a lot of work to make sure that we're able to grow within there. And that's whether that's things like some really quite innovative lending that we're doing on IP that's coming through. We set up a ventures team, where we had 24,000 startups, 25% increase on the previous year.

So if you look at the kind of big incumbent banks, we've got absolutely the largest market share of that space. Again, that's all down to being where your customers are, the digital investment that you're making as well, making it really kind of effortless to kind of come in. We're very proud of the presence that we have across the U.K. And when we look at that kind of mid-market space in terms of the investment we're making across all different sectors from life sciences, infrastructure, sort of social housing.

You can see there's just such a lot of activity, and that's because our relationship managers who've been embedded in the communities in the nations and regions of the U.K. have been there for a long time, and they're very kind of close to the business.

So we have consistently grown above nominal GDP. It's something that we've continued to do year in, year out. You saw us do that again in kind of Q1. And for me, it's about pulling on all of those different levers that we have, whether it's the RMs, the innovation around kind of product development, the investment we're making in things like Bankline, where we're able to bring more of the bank to more of our customers through bringing this sort of that NatWest markets kind of sort of FX, capital markets kind of much closer to those kind of customers and just really making sure that we're really very present for them.

So I would say at this stage, when I look at our pipeline, when I look at the growth we've had in Q1, we're confident that we'll continue to deliver at that sort of level. There is a bit more competition. People look at us jealously as they should to sort of see actually how do we kind of get a little bit more of that opportunity. And we just need to kind of keep on developing, making sure that we're there working with our customers in the right place. Ben, you know we spent a lot of time kind of lobbying on ring-fencing where I think in the U.K., we've got a very strong kind of scheme across both ring-fencing and resolution. And what we were really trying to do is to take out some of the friction that exists from our customer base.

So the rules that they've brought out in terms of being able to use a portion of your kind of credit risk-weighted assets to then lend to kind of activities that weren't traditionally allowed in the ring-fencing. For us, that's a good opportunity. It will take friction out of the process. It doesn't unfortunately come until 2028. So we'll have to wait a little bit until then, but we'll work with the PRA to come through. But overall, we would see it as a net positive for us in the bank and for our customer base. So we're supporters of that.

Very clear. Well, let's move on now and think about deposits. Q2 sometimes had some ISA seasonal impacts. How are you thinking about the impacts there and then how customers are managing their deposits in higher for longer rate backdrop? Are you seeing any change in mix or volumes?

Yes. So as you look at it, the ISA season is always very competitive, and it kind of starts at the tail end of Q1 and then goes into Q2. And we can see there that customers have been quite thoughtful. I think one of the features that's been more interesting this year is that more of them have used sort of 1 year and 2 year, whereas actually a little while ago 2 year wasn't that popular. So they're kind of looking to kind of lock in rates, which again, just kind of points to the fact that the customer is thinking about what they should be doing.

We saw very good growth in the first quarter across the book, even reflecting that actually we had higher tax outflows, which is a big feature, obviously, in the U.K. So overall, I would say it is intensely competitive, but is also working well in terms of that customer base. And then we just kind of see how they're also reacting to the speed of velocity and where they're kind of moving, and we're kind of comfortable with the kind of performance we're seeing. So overall, as we look at deposits, I'm comfortable with our performance, and we'll continue to see the strong savings rate that we've seen within retail, and that will continue to kind of flow through from here.

Okay. Perfect. Well, let's wrap it all together and think about net interest income and net interest margin. 2026 versus 2025, the hedge, big positive. You talked about mortgages refinancing at tighter spreads. You also have the path of bank base rates, which probably is a negative this year. How are you thinking about all of that fitting together? And then effectively, the output of those rate-sensitive levers within your balance sheet?

Yes. So as I look at it, I think what we did in Q1 was we upgraded our income guidance. So what that tells you is that the higher rate is obviously positive. We went from GBP 17.2 billion to GBP 17.6 billion to say we're going to be at the top end of the range. And that's definitely benefiting from the higher rates that we see kind of in the market.

So look, the hedge is obviously a feature of that. We're investing at higher levels than we said we would at the beginning of the year. We've got a little bit of a negative. We said it was about GBP 300 million negative from the impact of all of the rate cuts we saw last year. We are assuming flat from here. We'll see how that continues to kind of develop. But I think the important thing as well is to also bringing on the kind of customer lending and the deposits and the AUM, obviously, more noninterest income than NII.

So we can see that with this strength and growth that we're seeing coming through the balance sheet, coupled with that with the hedge activity that we're seeing. And also just other treasury activity because things, as you know, happen outside of the hedge as well. It's not always rolled into this one simple number.

And then overall, that's given us real kind of confidence in our income for this year, and obviously, confidence as we move forward from here as we lock in more of the hedge in later years at these kind of higher rates. So it is important, but I would also say what's really important is that growth that we see coming through in CAL. So yes, mortgage is a little bit of a drag, but strength in other places and obviously, very strong returns that we're getting on the deposit side as well.

Okay. Very clear. Well, let's flip to noninterest income. Conscious, this is not a line that you actually guide to in revenues, but I wanted to drill into the moving parts. Commercial institutional, I think it's about 3/4 of your noninterest income. And Q1 had a slightly more challenging backdrop, part of which connected with the rates business. So how are you thinking about noninterest income as you look ahead?

Yes. So noninterest income. I think the way that I think about it is to say, can I show that I'm just kind of going -- showing good, solid, consistent kind of growth within there kind of quarter-on-quarter and kind of year-on-year. And overall, we're kind of comfortable with that. You're absolutely right. It's mainly a C&I business. I'll talk a little bit about PBWM in a moment.

And as I look in there, we can see there's a range of numbers that come through, whether that's from payments, transaction banking, lending fees. We've obviously got the benefits that come through from our capital and then the FX. And also we had a little bit of a challenge with the extreme rate sterling rate volatility. I would say it's kind of GBP 10 million to GBP 20 million. It's an important number. But utterly irrelevant when you're managing GBP 17.6 billion of income sort of things. So things I wouldn't overly focus on that kind of little wobble in that space, very much a result of the kind of the volatility.

And overall, what we're really trying to make sure is actually how do we make sure we're really embedded with our customers so that we're working and growing on all of those lines. And we're kind of comfortable that overall in the round, that's kind of where we get to.

Obviously, with the acquisition of Evelyn, we'll see some strengthening coming through on the AUM fee line. So when they come on, it will be an immediate kind of 20% pickup on the fee income, which is -- will be meaningful for us, and we'll continue to see that growth come through. And I talked earlier about this, a line that often grows faster than other lines within there. So what I would hope to see is a bit more balance between C&I and the rest of the bank in terms of that noninterest income line. But one that I think we'll just continue to see consistently improve as we bring more of the bank and more of the services into our customer base.

Okay. That's a pretty comprehensive picture on revenue. So let's flip to costs.

Absolutely.

You're guiding to around GBP 8.2 billion this year, something in the order of 2% to 3% increase year-on-year if you exclude onetime integration costs. What are the puts and takes within that number? And then as you're looking further ahead, you've got a 2028 cost-income ratio target below 45%. That's from below 49% this year. So how are you balancing inflation, investments, savings?

Yes. As we look at cost, I think it's something that NatWest, we're really known for within there. So around GBP 8.2 billion for this year, that's the number that we'll print obviously, pre-Evelyn, we'll talk a little bit about that.

When we kind of look at costs and if I'm in a more reflective mood, I'd say I've been CFO for 8 years now. In that time, my cost base has actually gone down by 4.5%. So that's 0.5% per annum in terms of cost reduction that we've delivered. That compares to a 4% kind of increase you're seeing in terms of inflation. So that's -- I mean, that's a kind of a great position to be in at any level. That's really helped us to deliver the improved cost/income ratio. So we printed 46.5% at the end of this year, 48% at the -- sorry, end of Q1, 48% at the end of the year. That's 16 percentage points -- sorry, 14 percentage points better than when I started.

Income has got a bit of that, but also there's the fact that costs have really come down. And that's because it's just a constant metronome. We don't do pull back this year, spend next year. It's just every year, this is where we're going to improve. This is what we're going to see. This is how we're going to kind of keep on delivering and making sure that we're kind of managing all of the different kind of cost lines.

One of the things that people I know are worried about. So if you got that level of cost takeout, are you really continuing to invest in the right way? When I look at the investment pool sort of from when I became CFO to where it is now, what's really exciting is we're spending on different things.

If I go back kind of 8 years, we'd still have things like ring-fencing coming in and the tail end of that and all sorts of kind of regulatory kind of stuff you had to do. So you had this investment pot that was quite consumed by things that were important, but not necessarily kind of customer facing.

Now as I look at it, we're spending it much more in client contact, what we're kind of doing on sort of technology, what we're kind of doing in terms of the kind of systems like kind of Bankline. And obviously, AI is just a theme that kind of goes through all of that. So we continue to make real strong investment.

One of the things as a finance director you really want is when you offer somebody more money and they say, no, I don't want that. I can deliver better. So last year, we were going through with Scott and I said, "Scott, should I just give you a bit more of a investment budget?" He said, no. He said, "I absolutely believe that we can deliver greater capacity by using the tools that are available to us now really embedding AI into this."

We talked last year about creating GBP 100 million of capacity or investment pot. So what that means is I'm getting GBP 100 million more worth of delivery than for the same amount of money, and they'll deliver that to me again this year. So that's real kind of change that you're getting within the piece.

One of my kind of favorite little stories of what happens within the kind of the transformation space that they're doing is just how much they're really accelerating that kind of -- the speed of their investments. So overall, one of the things I talked to you a lot about each quarter on cost is they will be lumpy.

Q1 is often a bit lumpy because in Q1, I decided to do a bit more restructuring, spend a bit more on property take out, invest a little bit here. The number we'll deliver at the end of the year, pre-Evelyn will be GBP 8.2 billion. You can put it in your model, and it's absolutely guaranteed you'll kind of get it. So very comfortable, right, very comfortable we've got the right balance of investment in the bank as well as the cost of running the bank. And we just need to keep that metric ongoing year after year after year because then the business also knows what it needs to do. They don't think feast or famine. It's just constant. Manage your cost base.

Very clear. Well, let's pick up on one of the elements within that, that you're talking about. So AI, big focus for the industry at large right now. How are you creating tangible benefits for NatWest? And then how are you shoring up your competitive moat against the range of AI threats for bank disintermediation, whether that be on payments, deposits, investment products?

Yes. So let me talk a little bit about that. So when we look at it, I think if you look at any business, the winners will be the ones that have scale. So for us, it's very important that we have this kind of 20 million customers that we're able to invest and put real kind of solutions in their hands. And AI is kind of part of everything that we do these days in terms of what we're developing. So if I kind of think of a few sort of examples as to how we kind of go through.

If I look at what's kind of happening on the customer base, we can see that the -- what we're doing on fraud and what we're doing on things like complaints. Our complaints journey is almost entirely done with AI. There's obviously the right human support and safeguards and all those things around about it, but that's all been completely transformed to get much better outcomes on fraud, which we can see tangibly in our data in the market that we're doing that and also much better and speedier outcomes in terms of complaints.

If I look at what's kind of happening for those customer-facing colleagues, some of the simple things and some of the tools that we'll all use as things like how do you do the call summarization, how do you make sure that you've got the right kind of data about that customer before you go to the meeting? What are the right next quality investment or savings choices that they should be making? We've put all of those kind of tools in place. And across the business, that saved about 100,000 hours a year.

Now if you can think of 100,000 hours of extra RM, personal banker, wealth managers' time that's now focused at the customer, you can see how you're using AI to then kind of help on the income line. That's a lot of meetings that you're kind of happening, and that will kind of continue to develop.

Then you kind of think, well, what's happening within the business and within the core. And this is kind of one of my favorite kind of stats. When you were taking a new client proposition out, like just a small simple thing, not something like a whole new product or something, but a new kind of feature. As we looked at it traditionally, we'd have 12 engineers and it would take about 6 weeks.

What we're doing in some areas of our book now is 3 engineers, 7 agents and 6 hours. I mean that is a staggering difference in terms of the move forward of the speed that we can see kind of coming through. And that's a flywheel that will just continue to grow as we move forward from here. But then you kind of sit back and think, well, what will that mean for my customer base? How will they change? And we've heard a lot around AI and what it means for our depositors and actually, these machines are going to come in and move everybody's money around.

And again, I think there, it's important to step back a little bit and go, okay, well, Katie, what is your deposits? What are they? 30% of our deposits are noninterest-bearing accounts. So that's millions of customers who are managing their transactional accounts. They don't generally have a lot of excess spend within there, and that's the bedrock of a lot of our kind of hedge position, as you know.

So actually, I would say that within that space, it's not something we expect to see a lot of difference. If you go to our good customer base, actually, we already manage your money in that way. You'll have set a limit of how much you want in your account, we'll sweep your account every night into a higher interest account. And so therefore, as a customer, you're very used to holding a minimum amount in your current account and having that speed kind of happening. And that's really important for us because it allows us to see and understand what kind of excess people want to hold, who are the ones that are more kind of prone to kind of making that movement.

And I think the other thing we've gone through really dramatically over the last number of years is that change in fixed term. If you think a few years ago, we were at 6% of our deposits were in fixed term, and we're all -- they were going up every quarter and you're kind of worrying where will it stop? Where will it stop? What we've seen over the last sort of 2 years is it's really stabilized around that 16%, 17%. We have high retention of those balances. We've got good insight in terms of those that will move, and they are valuable to us because they're 1- and 2-year deposits. So at the point of retention, you need to make sure that you're at the right rate and that you're working with the customer.

So it's an area that we watch, but it's not an area, given that we've actually got quite lot of experience in already that I'm overly worried about. If I go to PBWM and the kind of wealth management business, I think that AI is going to be a real -- it's going to be a real opportunity for us. Again, it's a scale game. But if we look at the kind of customer base, we can see that customers are already using AI to kind of help them make decisions and then they interact with us, and they want the review to kind of verify their thoughts, make sure that they're comfortable.

We can see real improvements of how we get our people ready for those meetings, but also kind of the knowledge that our people are coming in. So I actually see that in both of them, and that's why Evelyn was a really important transaction, I think, for us, is as kind of advice is more sought, people are better informed. Actually, that will create a real opportunity, and I'm quite excited about what AI will do for us going forward. So overall, scale is important, making sure that you're really investing and understanding what's happening and just getting some of those really competitive advantage that you can see in the speed at which we're operating.

Brilliant. Well, let's think now about cost of risk. You talked about through-cycle range of 20 to 30 basis points. Where do you think NatWest is and where the U.K. is within that through cycle right now? At least for this year, I know you guide below 25 basis points. So what are the upside and downside risks in that? And have they changed at all over the past couple of months?

So there's a few things kind of going through within there. So kind of through the cycle, 20 to 30 basis points. We are a large prime bank lender. We're the best performing bank under the PRA stress test. So we know in terms of that kind of stress so that we're not as impacted as others in times of stress. What you have seen happen in the last couple of months as rates and unemployment have gone up, and we had some views on house prices coming down a little bit, that we have taken a little bit -- we took an additional GBP 140 million in terms of the charge for risk in Q1. That was offset by about GBP 30 million of PMA. But nonetheless, let's say just over GBP 100 million kind of charge coming through.

What was interesting with that charge is that, when you look underneath into the book that actually there's no signs of issue within the book at all. That's something that we would call out. So you've taken this charge because of the macro on top of what is a well-performing book. And you can see that quality of performance as you look through those numbers. So for us, we know that we react well in stress. We have taken a little bit more as a precaution.

We have, I think it's about GBP 250 million of kind of PMAs at the moment, which is the adjustment you put kind of on top of your models. We guard that quite kind of jealously to see how that kind of rolls through. But overall, as I look at the book, it's performing well. We're very comfortable with that guidance. Others, we know operate at a higher level, but for me, we're below 25 seems the right place to be at the moment.

Okay. Brilliant. Well, I'll ask one more question before we open up to audience Q&A. So let's think about CET1. Earlier in the year, you updated your guidance being at around 13%. How are you thinking about the moving parts within that, whether it be organic growth, dividends, buybacks and effectively, the other types of RWA management tools you have as well to mitigate the RWA growth?

Yes. No, around 13%. It was something we have been trailing for some time. And certainly, I've been working on for some time, just really reflecting how well we do react under stress to make sure that we were kind of holding the right kind of capital levels. So when we look at it, there's obviously many different component parts. I'll take RWAs first. So we started a program about 2 years ago, really active RWA management in the kind of the detail. Once we finish with things like the NatWest Markets restructure, the disposal of Ireland and kind of moving into actually as you're managing very much within the line. And we've seen good performance in that program. I don't think we're quite at steady state yet.

So you'll continue to see that kind of grow a little bit. GBP 2.2 billion of management actions in the first quarter. They come from a spread of SRTs, credit risk insurance and kind of data quality. And we will see them continue to go through. I always remind the analysts don't take that number and annualize it because it will be different in different quarters, depending on what kind of transactions you've done. But it's an important part, a very important feature of our RWA management.

If I look at last year, our lending growth and our RWA management almost perfectly matched. That's a fantastic position to be in where you're adding on higher returning kind of assets as you go through. We're obviously very capital generative as a bank. We're guiding you to around 200 basis points for this year and greater than 200 basis points in 2028. In Q1, we did 65 basis points. I mean that was a particularly strong quarter. So that certainly gives us a lot of comfort for this year. And that kind of level of capital generation that you see very consistently is as you know, is incredibly strong within the market and enables us to pay our dividends at 50% payout ratio, which we moved to last year.

We've obviously, this year delayed buybacks because of the Evelyn transaction. But what's lovely about the Evelyn transaction, GBP 2.7 billion, we're able to self-fund that with a very small delay within the buyback. One of the things that Paul and I have been really focused on and our past is a really good indicator of this is that when there is excess capital, we'll pay it out to you. We've got a very strong track record of payout of excess capital to our shareholders. We'd expect that to continue.

We've committed that recommences in June 2027. So when we kind of look at the capital pieces, it's about how do we manage to that rate, how do we, first of all, make sure there's the right capital available for organic growth so that we're then continuing to generate the capital, make sure we've got the investments in capital and then the excess we return via dividend and buyback back to you to really have what has been very strong kind of growth in that dividend per share, but also growth in the capital generation, which funds all of it.

Perfect. Well, I'll open it up now. Let's see if there's anyone in the audience who has a question. If you do, a microphone could come your way. If not, I will keep going very happily. But so let's think about interest rates again. So how are you thinking about the risks of the interest rate trajectory from here? I know you provide a stated interest rate sensitivity, but I'm curious about how you think about it a bit more qualitatively as well. The market is clearly pricing a slightly different outcome in terms of bank base rates relative to the start of the year. I mean how are you thinking about whether we are at or close to a sweet spot in rates or whether the higher or longer backdrop has trade-offs?

Yes. Look, it's -- we spend a lot of time debating it as well because it comes through in lots of different aspects of the P&L, just to look at it managed margin or the structural hedge is too simplistic as you think you have to think about it in terms of kind of client affordability and kind of client appetite for lending as well as just the deposit side of things. So we are sitting at 3.75%. I think when I was looking at the market yesterday, the kind of the 2-year rate was about 4.23%. It will have moved again since then. So market is a little bit higher.

We know that that's often the case that it reacts a bit stronger and then we kind of -- we pull down. So at the moment, we're comfortable. We can see that at this kind of level, the higher for longer is a little bit to our advantage because it's not a level that is really impactful in terms of the customer appetite.

When I talked earlier about mortgages. A few years ago, I would have said to you, if mortgages hit 5%, they'll just stop. I don't think that's the case any longer because actually so much of the book is already well into that 4%. And so people are more attuned. So I don't know what the new 5% is and maybe not get there because I think it would be a little bit high. And so as you see that kind of come through, what you're trying to balance is, what does that mean?

We've talked about that kind of 3 handle. It's something that's a really nice spot for us to kind of operate in. If it was to go much below the 3s. I mean we all worked for an incredibly long time where there was basically no interest rate, no deposit income coming through, and that's obviously a very, very low rate environment, very far away from where we are today. As you get to the low end of 3s and into 2s, then you know you have kind of other actions to make sure you're continuing to deliver the profitability. But in this kind of corridor of where we are, we don't feel that uncomfortable.

Our results are benefiting a little bit from the fact it's a bit higher, and we'll see that benefit come throughout our numbers as we go through '28, '29 and even into '30, as we've locked a lot of those benefits kind of in, we'll see that continue to go through. But we kind of quite like where we are. We didn't particularly like it to go up more. If it falls a little bit, we'll be comfortable with that as well.

Okay. Perfect. And I think, unfortunately, we're out of time, but that was a very, very insightful session. So thanks a lot, Katie.

Lovely, and thank you very much, indeed, Ben. Thanks very much. Thank you, everybody.

Good morning, and welcome to NatWest Group's Q1 2026 Results Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions.

Good morning, and thank you for joining us today. As usual, I'm here with Katie. I'll start with a brief introduction before Katie takes you through the numbers, and we'll then open it up for questions.

We started the year with strong momentum across our 3 businesses and made good progress against each of our 3 strategic priorities. First, we continue to pursue disciplined growth. In Retail Banking, we increased our share of the mortgage market as we expand our offering and announced new partnerships such as becoming the exclusive mortgage provider for Rightmove. In Private Banking & Wealth Management, our acquisition of Evelyn Partners makes a strong addition to the group. The transaction is progressing well, and we expect it to complete in the second quarter, subject to the usual regulatory approval. In Commercial & Institutional, we are the leading bank for U.K. start-ups, and we grew our share this quarter as we onboarded 24,000 new start-ups, a 25% uplift on the same period last year, supported by easier agentic onboarding.

Second, we are leveraging our investments in simplification and have delivered over GBP 100 million of additional cost savings in the first quarter. We employ over 12,000 software engineers, and we are complementing that talent with artificial intelligence. So over 40% of our code is now written by AI, and we are scaling agentic software development. Typically, our development process for new customer propositions requires 12 engineers and takes 6 weeks. But in some scenarios, with a team of 3 engineers and 7 agents, we can deliver in just 6 hours, making us more productive and delivering faster for our customers.

Third, we continue to manage our balance sheet actively, helping to free up capacity for further growth and allocate capital dynamically in this fast-changing environment.

So let's turn now to the financial headlines. Customer lending grew 6.6% year-on-year to GBP 400 billion, whilst customer deposits grew 2.6% to GBP 445 billion. Lending growth of GBP 7.3 billion in the first quarter was well balanced across our businesses, including GBP 3.3 billion in mortgages and GBP 3.8 billion in Commercial & Institutional. We also provided over GBP 10 billion of climate and transition finance, taking the total to GBP 29 billion since last July, making good progress towards our GBP 200 billion 2030 target.

Deposits increased by GBP 3.1 billion in the first quarter with growth in Corporate & Institutional, partly offset by an expected decrease in Retail and Private Banking as customers use their savings to make annual tax payments. Assets under management and administration grew 16.9% year-on-year to GBP 57 billion. 23,000 people invested with us for the first time during the quarter, with net inflows to assets under management of GBP 900 million. Taken together, client assets and liabilities have increased to just over GBP 900 billion, up 5.2% year-on-year, in line with our 2028 annual growth rate target of more than 4%.

Income grew 6.9% to GBP 4.2 billion, and costs were up 4.8% to GBP 2 billion as we increased our operating leverage and reduced our cost/income ratio by 2.1 percentage points to 46.5%. Our return on tangible equity was 18.2%, driving strong capital generation of 65 basis points in the first quarter. Earnings per share grew 15.5% year-on-year to 17.9p. Tangible net asset value per share was up 15.1% to GBP 4, and we continue to maintain a strong balance sheet with a CET1 ratio of 14.3%.

Since we announced our full year results in February, conflict in the Middle East has clearly increased geopolitical uncertainty. While sentiment is now more considered, we have yet to see any material impact on our customers. Both households and corporates remain resilient with historically high levels of savings and low levels of debt and arrears. In light of this uncertainty, we have revised our economic scenarios and now expect higher inflation with interest rates remaining at 3.75% for the rest of the year, resulting in slower economic growth and a modest increase in unemployment.

This means we have taken an additional provision in the first quarter of GBP 140 million, which reflects our macroeconomic assumptions, not our credit performance, which remains strong. With rates staying higher for longer, we now expect full year income to be at the top end of the GBP 17.2 billion to GBP 17.6 billion range we set out in February.

So we remain confident about the outlook and our 2026 guidance. That confidence is underpinned by the knowledge that we have built a resilient business, which is well positioned for a broad range of macro environments. We have a clear strategic focus on growth that delivers good returns with a prime lending portfolio that's well diversified and largely secured. We have invested and simplified so that we are now the most efficient large U.K. bank with a cost-to-income ratio that continues to improve, and we are actively managing our balance sheet.

For example, we have taken the opportunity of a sharp move upwards in the yield curve to accelerate the increase in our structural hedge, supporting income growth in the years ahead. We have also increased our capital efficiency significantly in recent years, driving high levels of capital generation. All these factors have contributed to our strong performance in the Bank of England stress tests, giving us confidence in our outlook and guidance not just this year, but over the medium term.

With that, I'll hand over to Katie to take you through the numbers in more detail.

Thank you, Paul. My comments for the first quarter use the fourth quarter as a comparator. Income, excluding notable items, reduced 1.1% to GBP 4.2 billion, and total operating costs were 9.2% lower at GBP 2 billion, delivering 11.6% growth in operating profit before impairment to GBP 2.3 billion. The impairment charge was GBP 283 million, equivalent to 26 basis points of loans, including the charge for our updated economic scenarios that Paul mentioned. This resulted in operating profit of GBP 2 billion, with profit attributable to ordinary shareholders of GBP 1.4 billion, and return on tangible equity was 18.2%.

Turning now to income. Income, excluding notable items, was GBP 4.2 billion. Excluding the impact of 2 fewer days in the quarter, income across the 3 businesses continued to grow, supported by both volumes and margin. Net interest margin was 247 basis points, up 2 basis points due to deposit margin expansion and a small benefit from funding and other, with lending margin declining by 2 basis points, mainly driven by mortgages.

As you heard from Paul, our 2026 guidance now assumes that the Bank of England base rate remains at 3.75% this year rather than coming down to 3.25%. Together with our revised economic scenarios, this means we now expect income, excluding notable items, to be at the top end of our GBP 17.2 billion to GBP 17.6 billion range, excluding the impact of Evelyn Partners.

Turning now to customer assets and liabilities, or CAL. You will recall we introduced our 2028 growth target for CAL in February. I am pleased we are entering another year with strong growth, continuing our track record. Our CAL increased by GBP 8.4 billion or 0.9% in the quarter to GBP 900 billion. This includes lending growth of GBP 7.3 billion, deposit growth of GBP 3.1 billion and a reduction in assets under management and administration of GBP 1.8 billion as strong AUM inflows were offset by market movements. I'll touch on each of these elements in turn.

We are reporting another quarter of strong broad-based loan growth across the group with gross loans to customers up by GBP 7.3 billion. Retail Banking and Private Banking & Wealth Management balances grew GBP 3.5 billion or 1.5%. This comprises GBP 3.3 billion in mortgage lending and GBP 200 million in unsecured lending. Mortgage stock share increased marginally to 12.6%, and we have a robust pipeline following record applications in March. Commercial & Institutional lending increased by GBP 3.8 billion or 2.4%. This includes growth in corporate and institutions, driven by good demand across a broad range of sectors, including project finance, renewables and utilities and funds lending, together with increased lending in commercial mid-market, notably in commercial real estate and the housing sector. You will also see we have provided a detailed breakdown of our financial institution exposures, including private credit in the appendix of our presentation.

Turning now to deposits. Customer deposits increased by GBP 3.1 billion despite the expected higher seasonal tax outflows. Commercial & Institutional deposits increased by GBP 5.1 billion. This was partly offset by a slight decline in Retail Banking and Private Banking & Wealth Management deposits as a result of higher customer tax payments of GBP 10.3 billion. Retail Banking outflows were partly offset by growth in current account and ISA balances. Overall, our deposit mix remained broadly stable.

Turning now to assets under management. Assets under management and administration closed the quarter at GBP 56.7 billion. We are pleased with positive AUM net inflows of GBP 0.9 billion, which equates to 8.2% of opening AUM, demonstrating continued client confidence and strong momentum. There was a reduction in assets under administration of GBP 1.4 billion, driven by gilt redemptions to support client tax payments. Overall, balances were impacted by negative market movements of GBP 1.7 billion. However, these were reversed during April.

Turning now to costs. Other operating expenses were GBP 2 billion, an increase of 4.8% year-on-year and a decrease of 8.3% compared with the fourth quarter. Our cost/income ratio in the quarter was 46.5%. We are pleased with the progress we've made on our transformation, and we made decisions to accelerate investment spend and incur higher restructuring costs in the first quarter, which drove the overall cost growth year-on-year. The reduction from the fourth quarter is mainly due to ongoing cost savings as well as lower bank levies. We remain confident in the delivery of our full year 2026 cost guidance of around GBP 8.2 billion, though our cost profile will be uneven throughout the year.

Turning now to our updated macroeconomic assumptions. Following a period of global macro uncertainty, we have revised our economic assumptions. In our revised base case, we assumed inflation now means CPI will peak at 3.5% in 2026 rather than fall to 2% by the end of the year. This means interest rates stay higher for longer, and we assume the bank rate remains at 3.75% throughout the year. We expect lower GDP growth of 0.4% and a modest increase in unemployment to a peak of 5.7%, above our previous assumptions of 5.4%. This remains at levels we are comfortable with in terms of lending risk appetite and credit quality. We will continue to review our assumptions as the situation progresses.

Our balance sheet remains well provisioned with an expected credit loss of GBP 3.7 billion and ECL coverage ratio of 84 basis points. Our latest scenarios also show that even if we were to give 100% weight to our new moderate downside scenario, this would increase Stage 1 and 2 ECL by GBP 99 million or 2 basis points.

Turning now to the impairment charge. The impairment charge for the quarter was GBP 283 million, equivalent to 26 basis points of loans. This includes a charge of GBP 140 million as a result of changes in economic scenarios and total post-model adjustment releases of GBP 34 million as elements were effectively consumed by changes in our economic scenarios. Excluding these, our underlying impairment charge was 16 basis points. There were no new signs of stress across our 3 businesses, and the current credit performance of our book remains strong. We continue to expect a loan impairment rate below 25 basis points for 2026. So our guidance is unchanged.

Turning now to capital. We ended the quarter with a common equity Tier 1 ratio of 14.3%, up 30 basis points since the end of the year. Capital generation before distributions was strong at 65 basis points. This includes 69 basis points from earnings. Other regulatory capital movements added 16 basis points. Growth in risk-weighted assets consumed 21 basis points of capital, and our usual accrual for ordinary dividend payments reduced capital by a further 37 basis points.

Risk-weighted assets increased by GBP 2.7 billion. GBP 4.3 billion of business movements broadly reflects our lending growth and increased market risk. This was partly offset by a reduction of GBP 2.2 billion as a result of actively managing our RWAs to create capacity for further growth. Other movements included FX and immaterial CRD IV model updates. We remain confident in our ability to continue generating strong capital from earnings and to manage risk-weighted assets and expect around 200 basis points of capital generation before distributions this year, whilst operating at a CET1 ratio of around 13%.

Turning now to guidance. We now expect income, excluding notable items, to be at the top end of our range of GBP 17.2 billion to GBP 17.6 billion, excluding the impact of the Evelyn Partners acquisition. All our other guidance and targets remain unchanged.

And with that, I'll hand back to the operator for Q&A. Thank you.

[Operator Instructions] We'll take our first question from Andrew Coombs of Citi.

If I could just have one on loan and deposit growth and then I guess the second on average interest-earning assets. On the loan and deposit growth, again, it's a strong performance Q-on-Q, again, led by C&I. If I speak to any investor, particularly those outside the U.K., they always struggle to link the economic performance in the U.K. with the strong loan growth and loan demand that you're seeing. So perhaps you can just touch upon what drove the loan and deposit growth, particularly in C&I, where is that demand coming from? How sustainable do you think it is throughout the remainder of the year and into next year?

And then the second question, I mentioned that loans are up Q-on-Q, deposits up Q-on-Q, but your average interest-earning assets are down 0.2% Q-on-Q. And it seems to be due to a reduction in the liquid asset buffer. So perhaps you could just touch upon that as well and what's driving the disconnect between the average interest-earning assets and the movement in the loan balances.

Thanks, Andy. Okay. Katie, why don't I take lending and deposits and then you come back on AIEA.

Okay.

Good stuff. So Andy, as you say, good, strong growth on both sides of the balance sheet, pleased on lending and deposits, especially as you know the context of quarter 1 deposits is always higher outflows because of tax payments. Why don't I give an overview, and then I'll drop down into C&I because I'm conscious you wanted some specific color there.

So lending overall, I'd say it's pretty broad-based. You can see growth in mortgages. You can see growth in C&I. You can see growth in unsecured within Retail as well. And within C&I, you can see it through different business lines. I'd also add that the pipeline remains pretty strong as well in both businesses. So we're encouraged by that. So not only is the activity good, the pipeline -- I was going through it yesterday and -- Wednesday actually, the pipeline of activity looks strong looking ahead into quarter 2 and quarter 3. And as you know, we've consistently grown above market, growth on the lending side. I'll come back to some of the reasons why I think that's true.

On deposits, 2 sides to this. As I said, we've got the tax outflows in Retail and Private Banking. They were up 28% year-on-year. So it's a big number, GBP 10 billion of deposits. And that was offset by growth in C&I, which was from a combination of things. Some of that was operational deposits, some of that was interest-bearing deposits. I think there, when you think about the size of our corporate and commercial franchise, the reality is we benefit as deposits flow onto corporate balance sheets.

If you look into Retail, actually, personal current accounts were up, which is good. That's obviously healthy from a number of factors. And we are starting to see the impact of our -- what we call our Boxed proposition where we're providing savings products to companies like AA, Saga at Sainsbury's, et cetera. So that's also supporting Retail deposits. So that hopefully gives you a kind of big picture view.

On C&I specifically, demand has been strong. I think we're very well positioned on what I'd call some of the structural drivers. So project finance, infrastructure, transition finance, utilities, funds lending, energy transition, et cetera. And I think what you can see is the growth in those parts of the market is bigger than, let's call it, the U.K. systems growth. So I think that helps to explain why our C&I franchise captures the opportunities there, but also outperforms the market.

As I said, the pipelines are strong. So to your point on sustainability, I think those trends are -- they're structural trends, not kind of short-term opportunistic trends. So I think the lending growth and the lending pipelines will continue to support sustainable growth. So net-net, good balance sheet performance. C&I, yes, but also on the Retail side of the business as well. So hopefully, that gives you a bit of color.

Katie?

Sure. Thanks very much, Andy. So you're absolutely right. When you look at AIEAs, they were sort of stable in the quarter. They were down kind of 0.2%. A couple of things within there. So reduction reflects the optimization of our surplus liquidity. We repaid around GBP 4 billion of TFSME at the end of Q4, and we deployed surplus liquidity to meet our customer loan demand, which we've just been talking about, in a quarter of seasonally lower deposit growth. If you look at the kind of the Q1 loan growth of GBP 7.3 billion versus the GBP 3.1 billion of deposit growth, there's a natural kind of mismatch within there. What I would say is we're 3% higher than AIEAs a year ago, and we do expect them to grow from here going forward as our customer lending increases.

Our next question comes from Alvaro Serrano of Morgan Stanley.

Hopefully, you can hear me okay.

We can hear you clearly.

I actually had 2 questions related to spreads. And the first one is on mortgages. At least I had the expectation of a step down in spread on mortgages in Q1, given the roll-off of the COVID ones. But actually, the spread has held up reasonably well versus my expectations, at least. I think they contributed [ 324 ]. Can you -- maybe this one is for Katie, but can you maybe talk to if there's still sort of headwinds ahead and talk to the mortgage front book spreads?

And then similarly on commercial, the spreads there, compared to base rates, have been increasing steadily the last 8 quarters or so as you grow the book. What kind of business are you underwriting there? And what do you think it can -- should it continue to improve? Or how do you see the outlook on pricing on corporates as well, commercial?

Okay. Great, Alvaro. Katie, do you want to start with mortgage?

Yes, absolutely. Thanks very much. Alvaro, so if we look at Q1, we continue to write mortgages at front book spreads that were below the back book as we did through last year, which we talked about a lot, very much in line with our strategy of delivering steady growth at attractive returns. So I'd say our year-to-date margins are in line with expectations. We did see a bit of volatility in March. We repriced every 2 days, so that's 11 kind of changes in 22 days, which I think is a great testament to the flexibility we've built into the system. And we can even see that ability to handle that increased mortgage demand as a result of that investment in the platform and digitization, which has meant we've been able to execute new business at margins which are ahead of the back book in April, which is great to see.

You're absolutely right to mention the COVID mortgages. We are seeing a little bit of the book margins being impacted by that churn of the 5-year COVID era mortgages, and they're rolling off at spreads that are higher than we're currently writing. I would expect that to have worked its way through during the rest of this year. So we expect a little bit of pressure from this on the book margin over the coming quarters.

But I guess as I go to where we are today, where we're writing the mortgages at front book spreads, which are below the back book, what we're seeing is it's starting to bring that back book margin down. We're kind of writing now, you've heard me talk a lot about this kind of below 70 basis points over the last number of quarters. That's kind of continued. And as I look at that number, I think that we will see the book margin to reprice to around 60 basis points over the course of this year. Interestingly, April margins have been above the back book, and we're pleased we were able to capture that.

So I talked to you, remember at the year-end, Alvaro, around 1 to 2 basis points impact on our NIM walk per quarter throughout this year. You absolutely saw that already in our walk. This quarter, you should expect to see that. What I'd also really encourage you is don't forget to see that you have the deposit margin expansion that's going to more than offset that negative. Hopefully, Alvaro, that gives you what you need.

Paul, are you going to do the commercial spread or shall I...

Yes, happy to.

Okay. Perfect.

Thanks, Katie, and thanks, Alvaro. On commercial spreads, a couple of general points first. I would say, Alvaro, actually, commercial lending margins, I would see them as fairly stable on a product-by-product basis. So that's how I'd think about it. There's obviously always a mix effect depending on where you write the business. But there's been no material deltas, changes over the recent past nor would we expect it going forward. So that's, I guess, one positioning piece. Secondly, in our commercial book, a significant proportion of customers are paying variable rates. So you will see that -- you will see kind of rates reprice in line with short-term rates and how that changes. So hopefully, those 2 points just contextualize what you'll be looking at in terms of the commercial lending book.

If you drop down into the individual businesses or asset classes within the commercial and institutional bank, there's different dynamics. Obviously, at the very small end, margins are much higher, but the total value of lending there is small relative to the overall commercial book. So whilst we're growing that business, and it's higher-margin business, from a weighted average perspective, the impacts are relatively limited. In the commercial mid-market, that's a competitive space across the field. But depending upon the asset class, the margins can vary quite a lot. So if it's social housing, lower margins, but very high risk-adjusted returns; commercial real estate, thinner margins, more of a commoditized product.

And then at the large corporate side, obviously, you've got the kind of revolver aspect to that, but also where you've got kind of project financing and infrastructure finance, a bit of the same dynamics as my example on social housing. At a spread level, margins are relatively tight. But given the capital treatment, the risk-adjusted returns are very attractive. So they're all very good areas to deploy capital at good returns.

So nothing major to call out, I'd say, on commercial spreads, but that hopefully gives you a bit of the contours of how that business works. Thanks, Alvaro.

Our next question today comes from Benjamin Toms of RBC.

The first one is on your income guidance, which you've upgraded to the top end of your previously provided range. Just wanted to kind of get some color, your thoughts on whether you'd characterize this guidance as being conservative. I'm just noting that consensus is kind of still quite a way above that guidance and whether you're comfortable with that gap?

And then secondly, there's been some pretty fairly intense competition in the ISA -- cash ISA deposit market, and NatWest Group competing but one of your large peers is not. Can you just talk a little bit about how you weigh up collecting deposit volumes versus margins at a group level at the moment?

Great. Thanks, Ben. I'll take the guidance and income, Katie, and then you can talk a little bit around Retail savings and ISAs. Okay. So yes, as you said, Ben, we've strengthened the income guidance. We're guiding to the top end of the range, of the GBP 17.2 billion to GBP 17.6 billion. We're doing that for a couple of reasons. One, you can see the momentum in quarter 1. So the underlying performance has been good, which is great. And then you've got the kind of net effect of the change in economics. Obviously, we've changed our rate assumptions. You've seen that from 2 cuts. Assumed 2 cuts now to 0. But we've also assumed -- you have to follow the logic through. You would assume if you have -- if you don't have rate reductions, it would be reasonable to expect some small softening in demand. So we've assumed that. But net-net, we see that as positive to income. So that's kind of how we're positioning at the top end.

We haven't changed the guidance for RoTE. We're maintaining the greater than 17% there, but we're increasingly confident on that. As I said in February, and I'll say again, it's always a greater -- that's always been a greater than guidance, and we always aim to beat our target. So we haven't changed that, but we're increasingly confident because obviously, the conditions for that are supportive. I should point out, I think, it's obvious, but that all excludes Evelyn.

But net-net, Ben, I would say it's a good start. We're confident around '26, hence, the nudge up in guidance. We haven't changed '28. But obviously, you can see from the trends that it's -- the conditions are supportive towards the medium term as well.

Thanks very much. Ben, so I guess if I look at our ISAs and the kind of recent activity, I think the first thing I would really say is we see really strong relationship value in our fixed term deposits. We have high retention rates, greater than 80%, and some of those are retained in the higher-margin instant-access products as well as us also having an opportunity in the future to engage with these customers on investment products, and we've seen good growth there as well this quarter with a lot of new investors coming in, but we also expect that ambition to kind of grow and that's supported by the acquisition of Evelyn Partners, obviously, in this last quarter.

During Q1, with the volatility that we saw in the swap markets, we actively managed our hedging across both our assets and liabilities, which enabled us to really price effectively on the fixed rate deposits. Overall, you can see our deposit mix has been stable, both at the group level and in Retail. When I look at fixed rate ISA specifically, the balances are small in the context of the group, low single-digit percentages of deposits. And in terms of overall deposit dynamics and margins, really very happy with the progress, particularly around things like current account growth, and we expect to see ongoing group deposit margin expansion in the coming quarters. So overall, a real comment on balance across the portfolio. Thanks.

I'd add one small thing on that, actually, Ben, because I've got the pricing tables in front of me. It's quite interesting when you look through. And as Katie said, we've been very thoughtful about how we manage the volatility in swap rates and how we play that back into pricing to maintain margins. And you can see you've got 3 or 4 of the larger banks ahead of us on pricing. But as Katie alluded to, the volumes have been encouraging. So I think we've been very thoughtful in how we're playing in that market.

Our next question comes from Guy Stebbings of BNP Paribas.

I think, I just have one sort of broad question on the income guidance for this year and the assumptions sort of underpinning it. It's clear in terms of what you're doing on policy rate. But in terms of the long end of the curve, when you're thinking about the hedge reinvestment, could you confirm what the assumption is there?

Then in terms of volumes, I'm just trying to work out whether you're assuming slightly more sort of conservative macroeconomic assumptions as per the ECL models, but that would be going against sort of the positive comments you're saying in terms of what you're actually seeing on lending volumes, et cetera. So can you clarify what sort of expectations are on volumes?

And then on mortgage spreads, just in light of the comment you made there, I'm just trying to understand whether anything has changed. So you've talked about the stock of the back book trending down towards 60. I presume that's kind of entirely consistent with what you were expecting a few months back. And actually, your comment on April being above the back book is slightly encouraging. So could you just confirm if those mortgage spread trends are sort of in line, better or worse than what you were thinking a month or 2 ago?

Great. Thanks, Guy. Very clear. Katie, you got any preference on order? We've got hedge, volume...

I'll start off with spreads and hedge, and then why don't you jump back in on volume, yes?

Yes.

Perfect. Thanks so much. If I look at the hedge, first of all, a few things just to kind of share with you on that. So first of all, when we talked about the hedge at the year-end, we said that we would increase our structural hedge this year above GBP 200 billion as -- and then you've seen it, as deposit balances have grown and equity base will increase given the business growth. What we did earlier in Q1 was as we saw those yield curves move really sharply higher in the quarter, we did take a decision to accelerate the increase of our product hedge. So we added about GBP 5 billion additional in Q1. So that means that we've locked in income for the outer years and, of course, modestly reduced our rate sensitivity as a result of that.

When I look at the kind of first 3 months of the year overall, we're reinvesting our product hedge at about 3.8%. That's against guidance I've given you at the year-end of 3.5%. I would now expect that reinvestment rate on average for the whole year and given what we've seen also in April to be around 3.9% on the product hedge and 4.7% on the equity hedge, which is up from 4.5% as we go through there. So as I look at those kind of current assumptions of rates, the growth that we've seen, I do continue to expect total hedge income will grow annually through to 2030 as you see the improved levels that we spoke about in February.

If I then look to your mortgage spreads, you've got it completely right. Mortgage margin is very much in line with our expectations. They are currently a little bit better. I would encourage you not to bank that forever, but we're very happy with how the team are managing the book at the moment. We can see the reduction in book margins absolutely being driven by refinancing.

If you think a little bit of our mix, 30% of the book will reprice this year and the roll-off is a little over 90 basis points on a blended basis. So that really drives the stock margin lower over the course of the year, completely in line with our expectations and very much in line with the income guidance that we've given you throughout this year and upgrading this morning.

On volumes, Guy, so this -- as you say, this kind of tried to thread the needle a little bit between, I guess, the logic of the kind of mechanistic logic of the economic assumptions versus activity year-to-date and pipelines. And I think that's what we're trying to balance. If you take the logic of the economic assumptions through, i.e., higher for longer, slight tick up in unemployment and slower growth, then the logic of that would be, you would see some softening in, for example, the mortgage market vis-a-vis our original predictions and likewise, some softening in business lending. So that's what the economic assumptions drive.

Then when you look at the activity, as you rightly point out, what we've said is quarter 1 has been very strong on the kind of lending side. The pipelines in the respective businesses look strong. So the activity is there. I guess what we're trying to do is strike the right balance between optimism on that side, but also, I guess, the reality of how the economics play out over the course of the next 9 months might impact demand. And we factored that into how we've guided toward the changed guidance to the top end of the range. So hopefully, that just unpacks a little bit how we're thinking about it.

Our next question comes from Jonathan Pierce of Jefferies.

Good. I've got 2 questions, please. The first, the other C&I noninterest income, it's been running at about GBP 230 million to GBP 240 million a quarter for the last 6 quarters, dropped down to GBP 170 million in the first quarter. It does feel like there was a bit of a one-off in there. I don't know if you can quantify how big that was and whether you've seen anything else coming through since the end of March?

Secondly, more broadly on this impairment sensitivity, just trying to get a feel as to how much confidence you have of -- I've asked you this before, Katie, actually, in the IFRS 9 ECL models. I mean you're telling us today that the weighted average assumption for GDP growth is about 0.3%, 0.4% a year next couple of years. The downside is minus 0.4% this year and minus 1.6% next year. It's also got unemployment going up to 6.2% next year, I think.

But you're telling us your ECL in that scenario would only increase by about GBP 99 million. Now I get that that's a general provision measure. But by definition, the ECL on those Stage 1 and 2 is reflective of losses you expect in the future on the performing book. So are you genuinely confident? And if so, why more qualitatively in this idea that even if we saw a recession, even if we saw unemployment moving into the 6s, your impairment charge ex any initial ECL build would not move up very significantly at all?

Good. Thanks, Jonathan. I'll take the first one. Katie, you can take the second one.

Sure.

So Jonathan, your characterization is right. So actually pretty stable income line in the last 6 quarters, dropped off -- the C&I noninterest income dropped off in quarter 1 '26. If you look at that compared to '25, it's, I think, GBP 20 million versus GBP 64 million. Not exclusively, but almost exclusively, it's explained by sterling rates, as you say, so kind of one-off. You've seen that across lots of desks and lots of banks. So we have a relatively small rates business. It's obviously -- it's indexed to sterling, given what we are as NatWest. So that really explains the delta that you're seeing there. And you'll see yes, GBP 64 million in quarter 1 '25 and GBP 20 million in quarter 1 '26. That's a big part of the difference versus the previous quarters.

A couple of things I'd say, it's obviously very small in the context of the overall revenue line. And also given the more subdued volatility, we'd expect improvements as we go through quarter 2 onwards, not just in that line, but overall on C&I noninterest income. So I think you're seeing it and reading it pretty accurately there.

Okay, Katie?

Sure. On impairments, thanks, Jonathan. But as I look at it, I mean, these are models that we test extensively. They go through both our own verification and independent verification, and they're also kind of reviewed very closely by kind of external parties. So I am comfortable in them. And I think that the thing that I do like with IFRS 9 is this concept, which is in and around the kind of PMA. So that kind of enables me where there are moments of discomfort. And you can see that we sometimes have them when you can see in different classifications, it's wider than just the kind of the sort of economic uncertainty. So when you see other numbers in there, you can go actually, that's a bit of the model they're kind of working on. So completely comfortable on the models is what I would say first.

And you're right, if I look to the ECL on kind of Stage 1 and 2, if I went 100% kind of to the downside, it suggests an extra GBP 99 million. But I would remind you that Stage 1 and Stage 2, so there would be some Stage 3 losses. They are impossible for us to quantify as to what they would be. So we don't seek to attempt that. So I would probably suggest to you that the actual charge could be a bit higher if that was the case.

Obviously, that's not our base case just now. In terms of what we're looking at. We -- at this stage, we are happy with the base case. We're happy with the guidance that we've done. We've obviously added a bit on the mezz, 110 net, a little bit out of PMA. That's just kind of mechanics of the calculation, which has taken us to the 26 basis point charge this quarter. But if I take out that mezz, we've overlaid, it's kind of 16 basis points. So what we can see is a good, well-diversified, well-performing book to date.

We've given you a good estimate if we were to move. But at the moment, obviously, we're comfortable and happy to have that little bit of extra buffer as we enter a little bit of greater uncertainty than we've seen recently. So comfortable at this stage, Jonathan. Thank you.

Our next question comes from Benjamin Caven-Roberts of Goldman Sachs.

Just 2 for me, please. First, a follow-up on the cost of risk. I see you mentioned about 60% of mortgage balances now with customer rates above 4%. How are you thinking about the refinancing profile for that remaining portion and the extent to which those customers are moving on to rates a fair bit higher than what they had expected when entering those mortgages? I know you do stress rate assumptions as well when issuing the mortgage originally, but clearly, a lot of volatility in swaps and rate expectations right now. So just keen to hear your thoughts on that.

And then secondly, thanks a lot for the extra disclosure on the financial institutions. If we look at that business and private credit altogether, how are you thinking about the growth of that book? Is it something you expect to grow more quickly or more slowly relative to the recent past? And have you changed your strategy at all in terms of the underwriting there?

Great. Thank you, Ben. Katie, you go for first question.

Yes. In terms of cost of risk, Ben, so you're absolutely right. There's -- and you've obviously -- you've got far in the pack this morning. So Slide 32 kind of lays it out really nicely.

So I guess a couple of things I would talk about as we look at our prime mortgage book. So obviously, the level of security gives us a lot of comfort. Our sort of greater than 3-month arrears are below the sector average and quite significantly so. So it's well underwritten. And I guess the guide on the financing of the remaining 40% that aren't on customer rates over 4%, we do kind of use what's happened in the last couple of years to kind of help guide us on that.

So what you've seen in that time, obviously, there has been wage growth across the different areas. People who are coming up are very aware that they're coming up. They are -- what we see has been really interesting over the last couple of months is our kind of a greater increase on the use of the 2-year versus the 1 year. If you look at our -- sorry, versus the 5-year, forgive me, if we look at our kind of 5-year fixed as a percentage of our fixed book, it's about 66% 5-year. But actually, if I look just at what's even been happening in the last little while, that's kind of flipped almost completely to that we're writing about 77% 2-year at the moment.

So customers, they understand what they're doing. They are understanding what they need to do in terms of managing their exposure. We do see them looking to lock in refinancing early so that they can get the benefit of the rate, and they've certainly been preparing for this. And as we talk to them as they go through those transitions. Obviously, it's a big change when you go from your COVID rate to the new rate, but it's something people have definitely been looking for, and we've seen them managing it really, really quite well, I would say.

And Paul, on the...

Yes, yes. So Ben, so yes, so I'm glad you liked and have seen the new disclosure. We hope that's helpful to everybody.

In terms of the kind of outlook for the -- obviously, it's a very broad business when you look at the breakdown there. But in terms of the areas that you referenced, we have been growing the business, I guess, over a number of years, but it's been in a very disciplined way.

If you look at limits there, they haven't really moved since this time last year, so quarter 2 '25. Likewise, we haven't materially changed our risk appetite. We're always very focused on being senior lender, good protection from first loss, making sure that the risk-adjusted returns are supported. So our strategy really has been not around growing limits, but prioritizing risk-adjusted returns versus volume-driven growth. As you know, we haven't been involved in any of the recent public names.

Looking forward, what I would expect actually is to see some of the spreads to widen, so i.e., the same business, the same risk, but actually better risk-adjusted returns. That would be my assumption because as you know, a lot of that business is relatively short term in nature, so you get to reprice. So that's how we're seeing. Hopefully, that gives you a sense of it in terms of limits, but also, I guess, business strategy, which is returns led rather than volume-led.

Our next question comes from Chris Cant of Autonomous.

Two, please. On corporate banking, commercial banking, in the context of what we've got going on in the Middle East, are there any areas of your book that you'd be more nervous on, please? And I'm not thinking specifically just about oil price as an input here. I guess there is the potential for product shortages or oil-related product shortages regardless of price if this persists. So are there any sectors that you're nervous on when you're speaking to your corporate customers, what are they worried about?

And on the comment around refi of the mortgage book, my understanding there is that customers essentially have sort of a bit of a free option to lock in, but then change products if rates shift after they've preemptively locked in. Are there any risks to you and to kind of NII later in the year given swap volatility. Just conscious, I guess, the value of that option being given to customers is arguably higher right now. So any comments on how you manage that, how we should think about that would be appreciated.

Thanks, Chris. I'll take the first. Katie, you take the second. On the -- I guess, the kind of core mid-market commercial bank, Chris, obviously, we're staying very close to all the various sectors and also the different regions there. It's very consciously a very diversified book. We gave you quite a lot of breakdowns on the relative sectors and segments.

In terms of -- to your specifics around sectors or subsectors that might see greater impacts. Probably similar to some of the previous kind of challenges, I would say, sectors like agriculture, aspects of hospitality and leisure. So where you see some of the -- not just what you call pure energy input prices, but you have fuel, fertilizer, food, et cetera, where you see exposure there would be areas that we are -- we will pay more attention to. And as we've done in the past, we work closely with those sectors if support packages are needed. We're not at that stage yet, and we're seeing no deterioration.

I think generally, what I'd say, if you think back through what we're seeing in the Middle East, what we saw through the tariff period, a similar time last year through Ukraine and even through the pandemic, customers are -- I'd say business customers are a lot more adaptable and resilient than maybe they were prior to the pandemic. Their ability to change their cost base and/or pass on costs, the kind of the way in which they've engineered their business models over time have given them more flexibility.

So what we see is a faster response, but also greater adaptability, which ironically, I think is down to the fact that a lot of these businesses and sectors have had to face a lot over the course of the last 4 or 5 years. So that's how we see it. But there are probably 2 sectors that are kind of on our minds. Katie?

Sure. Thanks very much. And then your great question, Chris, we've kind of watched this happen historically, we've seen other peaks. But look, it's something that we manage incredibly tightly on this. We've got very sophisticated modeling that we have in play. We based on it looking very much at the kind of individual kind of customer behavior, looking at what happened in other periods of interest rate volatility, who would move, who would kind of stick.

You heard me mention earlier today as well that what we've done and the investment that we've done within our mortgage system has allowed us to kind of be able to react really, really quickly. I mentioned that we repriced 11x over the course of 22 days during March. I mean that is a significant change from where we were a number of years ago. So very comfortable with the dynamic overall.

What I would kind of add is that we do see that most people who do refinance with us do ultimately kind of stick with us as well. So there's that good kind of customer engagement, which is just -- is really, really critical. We're also kind of largely locked in already for our forthcoming roll-offs. But I would say all of these things are embedded in the guidance that I've talked about today about the book actively kind of repricing to 60 bps over the course of the year. And so while we manage it actively, but I don't see it will be something that would change what I've said to you this morning already on that number.

Our next question comes from Sheel Shah of JPMorgan.

First question on corporate deposits, please, because this is a line item that has remained under GBP 200 billion or so for the last 2 years, and we're finally seeing a lot of growth come through the business. And not only the growth, but also the rates that you're paying on these corporate deposits, looking at your other disclosure looks to be declining as well. So I'd be interested to get some insight as to what's happening there?

And then secondly, on the cost base, I know the first quarter had some increased investment in restructuring costs, but you also mentioned on the call earlier that the cost profile will be uneven through the year. So just wondering how you're thinking about that across the remainder of the quarters?

Thanks, Sheel. I'll take deposits. Katie, cost, yes? So I'm pleased you've noticed the trajectory there, Sheel. Deposits in the commercial bank is a big area of strategic focus for the team and has been, I would say, increasingly over the course of the last 18 months. So part of the performance momentum there is around focus. Given also the growth we've seen in lending, there's been a natural need to increase deposits in the commercial bank. So focus has played a part. But we've also broadened the product range. We've also digitized parts of the product range as well. So we've got business focus. We've got enhanced proposition for different segments within the commercial and corporate bank.

And as you'd expect us to have, we also have a much broader focus on transaction banking, which obviously brings high-value operational deposits. And to your point, depending on the nature of those deposits, high liquidity value, but also in relative terms versus interest-bearing deposits, good cost of funding. So it's a strategic focus supported by a number of operational and tactical activities that support our client base but also help the LDR.

Katie?

Costs, sure, absolutely. So you're absolutely right. Q1 is a little bit higher than normal, reflecting some of our decisions to front-load investments and restructuring costs alongside staff and inflation-related increases from 2025. But you'd expect me to say this, it's our history. It's what we deliver every single year. We are really confident in hitting our cost guidance of around GBP 8.2 billion. That excludes the impact of Evelyn. I'm just going to take the opportunity just to talk a little bit about Evelyn costs. We'll share more about that as well when we kind of -- once we've kind of finished the acquisition and things like that, which is going well.

But there are a few things that you need to be thinking about that will impact some of those Evelyn costs as they come through. Obviously, first, we've got day 1 transaction costs. That was included in our guidance of the 130 basis points of capital. We've obviously got the operating costs that will come through from the point of consolidation in terms of Evelyn's own costs. We're then familiar, we talked a lot about the cost to achieve in terms of the GBP 150 million total cost to achieve to drive the GBP 100 million of cost synergies.

And finally, we are going to have ongoing amortization of the intangibles that will be created upon completion. That doesn't impact our capital generation going forward as we've incurred that as part of the capital impact of the 130 basis points. Obviously, I'll give you more detail when we get to the point of completion. But when you think of lumpiness, think of -- they're absolutely rock solid on their 8.2. That's where they'll land because they always do. But there will be a little bit as Evelyn comes in. So think about that in your models of those 4 different kind of categories. Hopefully, that's helpful to you, Sheel, as well.

Our next question comes from Aman Rakkar of Barclays.

Hopefully you can hear me okay, sorry.

We can. Yes.

I had 2 questions then. So could I just trouble you on the deposit margin, please? I think that 2 bps deposit margin Q-on-Q contribution, I think it's the softest uplift Q-on-Q. And obviously, you've got multiple moving parts in that, notably a massive structural hedge tailwind, but presumably offset by compression on kind of actual deposit spreads in the quarter. So I was interested in your sense of the deposit margin contribution on a sequential basis in coming quarters, please? And to what extent do you think this kind of intense deposit competition dynamic, particularly for term deposits, I mean, lots of people writing term deposits at negative spread kind of feeds into that would be really helpful.

And then the second question was a broader question just around actually the income dynamic beyond this year because it feels like there's a building confidence around the income profile beyond this year, principally because of the interest rate environment. It's not really materially moving the needle on this year's guide as much as it perhaps will do on the forward look, not least because of the structural hedge. But I'm thinking about the cadence for net interest income through the course of this year is presumably going to be quite robust, right, in terms of what it means for next year. So is that the right characterization? And kind of what do you as a management team do with that, the kind of building confidence on the income outlook in the medium term versus what is quite an uncertain near-term dynamic in the Middle East?

Perfect. So deposit margin, 2 basis points in this quarter. I think you need to just think a little bit about the overall movement in balances in the quarter. So you've got tax outflows, GBP 10.3 billion. They are predominantly in January. Some do dribble into February, but they are predominantly there. We're confident around the deposit margin expansion will be greater in the coming months as we move forward from here.

If we then look at kind of income beyond 2026, we expect annual income growth through 2026 to 2028. We're confident in that growth trajectory. Obviously, disciplined growth across lending, deposits and AUMAs continue in line with our CAL target of greater than 4%. That will obviously be boosted by the Evelyn Partners acquisition when it comes online.

The higher for longer interest rate environment, we've got -- now got the terminal bank rate of 3.75% alongside the actions that we took in -- already taken in Q1 to move higher in the yield curve, meaning that we are increasingly confident on the income tailwind from the structural hedge, supporting income all the way through to 2030. You've got other variables like customer behavior, competitor behavior around pricing and macroeconomics. We'll see how these develop. But again, you can see what we've got in terms of our economics in there. And given that kind of interest rate sensitivity that we have, we do see that as a net positive for income beyond 2026. So overall, confident and building on our confidence that we had when we spoke to you in February as well. Thanks very much, Aman.

Yes. And as to your final point, Aman, how do management characterize that? I think as Katie finished there, net-net, it feels like we're in a stronger position on income and returns, both '26, but also looking out to '28.

Our next question comes from Amit Goel of Mediobanca.

Hopefully, you can hear me okay.

Yes, we've got you crystal clear.

So one, just kind of following up. I suppose just on Slide 30, just on that deposit margin and contribution, just trying to reconcile on each of the divisions, it seems like the cost is coming down, but on the group, it's flattish. So I just wanted to check what's driving that?

And then secondly, just on Evelyn, just curious how the business -- I mean, if you've got any color in terms of how the business has been developing since the acquisition announcement and I guess, during the first quarter and beyond in terms of AUA. So just anything on that would be helpful.

You go first.

The first one, absolutely. So if you look at the businesses, what that is, is that's representing the customer rate on deposits or loans, whereas if I look at the group number, it's the overall cost, including hedging. So it's not perfectly like-for-like as you look across those 2 lines.

Paul, Evelyn?

Yes. So Amit, obviously, I can't comment on a business that we don't yet own. So that wouldn't be appropriate. What I would say is in terms of the planning to closure is going very well. We're moving at pace. We hope to announce that in the coming months. The work on -- the appropriate work on integration is progressing really well. You can see from our AUMA performance as in NatWest, the AUM performance, the strength, net new money above 8%, again, despite the market movements, top quartile investment performance. The -- going back to the AUM, kind of 10% up on year-on-year, which is great.

So there's a limit. There's obvious limits to what I can say. But in the work that we're doing so far, we're very encouraged. I've spoken at length around the scale and the capabilities that Evelyn will bring. I think if you look at the success we're starting to have around retail investments and premier investment in the NatWest space, the acquisition of Evelyn is only going to accelerate that. So to me, the demand signals and the performance signals are good. Once we've closed, as Katie alluded to earlier in relation to the cost question, once we've closed, we'll obviously share a lot more detail in terms of the overall numbers and the plans, and we are eager to do that as soon as we can. Thanks, Amit.

Our final questions come from Ed Firth of KBW.

I just have 2. The first one is just on detail. I think at the time of Evelyn, we were talking about GBP 300 million of revenue and GBP 300 million of costs in the first year. Is that still the right number we should be getting? So that was just my first question.

Yes, nothing has changed since the original disclosures, Ed. That's the best way to think about it.

Perfect. Okay. And then the second question was related to Jonathan's question really about risk because I've just struck that in your sort of worst-case scenario, you're talking about a low few hundred millions of credit losses, I guess, something like that. I know it's more than GBP 99 million, but it's not huge. And that's on a GBP 30 billion tangible equity invest, and you're making pre-provision profits of GBP 10 billion a year.

And so I'm just wondering, how do you think about appetite to risk? I mean, do you really feel confident that you're taking enough risk? Because it feels to me that potentially there's quite a gap there for you to be doing quite a lot more and growing revenue quite a lot faster than you are.

And I guess related to that, can I just ask about Slide 33 again? I mean it's a great slide, and thank you very much indeed for giving it to us. And I wish all the other banks would as well. But it does strike me that particularly your funds lending looks quite a lot bigger than I would ever have imagined. And is that -- I mean, I don't know the market that well, but I guess you do. You're a market leader in that space. Is that -- would you imagine that you are sort of bigger than most people? Or would you think that you're just a player and that's pretty standing? Because unfortunately, other people don't give us that type of a disclosure.

Great. Okay. Thanks, Ed. Good to hear from you. Quite a few different questions there. So we've got the kind of the extreme downside kind of credit piece. Katie, why don't you have a shot at that. I'll cover funds. And then there's a bit, I guess, linked to the -- just on lending risk appetite as well.

Yes, I'll crack on impairment, and you can jump in after that. So Ed, what I'd probably do is guide you a little bit. If you go after the call, on Page 27 of our IMS today, we gave you, I think, helpfully as a nonstandard Q1 disclosure, the -- what the -- our new change in our scenarios would be. And you can see that on the downside scenario for Stage 1 and Stage 2, it's GBP 99 million additional. But if you went to the extreme downside, that's a GBP 1.7 billion hit. So really very different in terms of numbers. And you can also see that, that's obviously greater than the hit we would have had at the year-end in that space. So I would just -- I'd probably just rebalance your numbers a little bit on that. That's obviously just Stage 1 and Stage 2.

We would -- I would kind of point out that, that extreme downside is really quite far away from our base case. But obviously, it's blended into the number. I think we gave about 14% probability kind of weighting. So quite far out there, but it is something to kind of consider as you look at the numbers.

And Paul, shall I come to you for the other?

Yes, yes, fine. Thank you, Katie. So on funds lending, I'm glad you liked the disclosure, right, I would say. On funds lending, that's a really long-standing business for us in excess of 20 years. A large part of that business is in our RBSI, which is our Channel Islands business, been in our disclosures for all that period of time. Probably worth diving in into a little bit of the detail. I wouldn't say we were a leader in that business. I'd say we're a strong player where we choose to participate. It's worth bearing in mind of that funds lending business, 80% of it is, I guess, what you know as subscription lines or capital call facilities. So that's where you kind of got exposure to LPs, and we take security charge over the LPs.

Typically, that's pretty short dated as well, just to give you a bit more context, 1 to 3 years. So when you look at that line, the best part of GBP 17 billion is sublines. The other part is NAV, which is a smaller part, kind of GBP 3 billion, GBP 4 billion. And that's where you're seeing it, in effect, in a senior creditor when you're lending on to a particular asset. Average LTVs, again, just to help you there, around 30%, and you've got an institutional investor base. So very long-standing business. It's been predominantly led out of our Channel Islands business, no historical losses. So a good business, but there'll be -- as you look across European U.S. banks, you'll see different levels of exposure. I'd say we're strong, but certainly not a leader.

And in terms of risk, do we feel we've got the balance very much we're taking to get to his last question?

Yes. I think I hear both -- I guess, Ed, I hear both sides of the story. From some investors, I hear they really value the low-risk business model, well-diversified credit base, high risk-adjusted returns that you see. And then you hear the other side is, could you take more risk.

I think the way we've approached our different asset portfolios, both in retail and commercial, has stood us in good stead. It allows us to perform well with a low cost of risk. We generate a high cost -- a high amount of capital. Our RoTEs are obviously sector-leading. So it feels like that -- we've got the balance right.

We do at times, increase our risk appetite. You go back over the course of the last couple of years, you can see some of the moves we've made in retail. We've broadened our addressable markets in mortgages and credit cards. But I kind of feel that a U.K.-centric low-risk business model, high capital generation serves us well. So it feels like we're in the right space. Hopefully, that gives you a bit of insight into how management think about it, Ed. Thanks.

Thank you for all your questions today. I will now hand over to Paul for closing comments.

Yes. Thanks, Oliver. So I just want to close with, I think, a couple of key points, which I think are particularly important given the context we're in and I think demonstrate why we think we're very well positioned as a bank.

The first one is our deposit franchise and the gearing that gives us to rates. Obviously, that's driven by our corporate franchise. It supports our revenue growth, especially in a higher for longer environment.

The second thing I would point to is the growth track record that we've built and continue to build and the targets that we've put out there. We think we've got a good track record and further opportunities across our 3 businesses. You can see also the progress we're making around cost management and our cost/income ratio and continuing benefits of operating leverage.

And then to link it to Ed's question, if you look at the loan book and you look at the Bank of England stress tests, we are the most resilient bank under stress. I think that's as a consequence of our diversified business mix. So the lowest stress drawdown of any U.K. bank. So you add all that up together, superior returns, high capital generation, which can drive stronger distributions. So from my perspective, we feel very well placed as we look into the circumstances that face us.

Thanks for your time. I hope you have a good weekend. Cheers.

Thank you.

That concludes today's presentation. Thank you for your participation. You may now disconnect.

Thanks, everyone, for joining this session with NatWest. Thanks, Paul Thwaite, the CEO, for coming and joining us again this year. We're very excited to have you, and I'm sure it's going to be a very insightful session. So thanks for joining us.

Good to be here, Alvaro. Afternoon, everybody.

And we're going to lead with a polling question, so we can set the scene. What will drive the next leg of share price performance for NatWest Group? Number 1, the EUR 12.2 billion to EUR 12.6 billion revenue guidance proves too conservative.

Number 2, NatWest achieves 4% annual growth in assets and liabilities. Number 3, the company delivers on its EUR 8.2 billion guidance for this year and 45% in '28. Four, successful integration of Evelyn; Number 5, capital build to surprise and share buybacks to start before first half '27. Okay. That will set the scene.

All of the above.

All of the above. We don't put that in on purpose. We have the European Commissioner and there was all of the above and.

Okay.

Everybody goes, well, all of the above. So capital builds to surprise positively. So bear that in mind. Let's start with Evelyn. Obviously, the biggest acquisition, the major financial, the biggest you've done since the GFC. Maybe you can run through the group in terms of the capability, the scale, the revenue mix and why do you think it was the right time to do it?

Yes, of course. So first of all, I'd say very pleased with the acquisition. It demonstrably accelerates our organic strategy and in one fell swoop, I guess, creates in the U.K., the #1 private bank and wealth manager. So that feels a great start. If you look at some of the metrics, it gives us immediate scale. We doubled our AUMs. I think scale is incredibly important. It brings a lot of new capabilities.

We can come back to some of them. It adds 20% to the group's fee income, which is a significant positive delta. And obviously, it brings a lot of customers as well. So in summary, it brings a lot to the group. In terms of the capabilities, they're really compelling. We spent a lot of time over the course of the last 3 or 4 years thinking about savings, investments and wealth management.

So we're really clear on what capabilities we thought we had already in the group, primarily in our Coutts business, but the capabilities we had and the capabilities that we needed. So Evelyn from that perspective was very attractive. It brings a financial planning and investment adviser, the largest employed U.K. adviser network in the U.K..

So that's a constituency, very experienced, very professional, that we can expose to the client base of the group. So that's a great first capability. Secondly, we acquired a D2C platform, Bestinvest. We do have an offering within the group, but this is a significant upgrade, both in terms of technology, product capability, platform, for example, 3,000 products.

So that's another big addition. And again, with 20 million retail and premier customers, it's a significant opportunity. And we also get a broader range of kind of wealth management, financial planning solutions, including some neat tech as well. So it's a very broad set of capabilities in addition to the scale, which we obviously get through the AUM.

So you wrap that all together and you wrap what we have already in NatWest Group and Coutts, you wrap it together with Evelyn, it feels like a significant opportunity. There's great regulatory tailwinds. I wouldn't underestimate how important the changes around targeted support and simplified advice under the FCA's Advice Guidance and Boundary Review will be.

We also think -- and I'm sure we'll come on to it, the acceleration in some of the tech trends will help wealth businesses. So it exposes us to a higher growth business, a higher returning business. And then by definition, we should become a higher growth, higher returning NatWest Group on the back of it. So from that perspective, we feel pleased. Obviously, we've got a lot of hard work to do in terms of integration, but it's a great opportunity to create a third scale franchise to add to our corporate bank and our retail bank.

The acquisition is very much aligned with the strategy you had already laid out previously, where there's been more debate, as you know, is on the price paid and that 11% return on invested capital and also around the risk of some of the talent potentially leaving doing the integration. What would you say to those points?

Well, remind me to come back to -- because there's quite a few points, make sure I come back to all of them. First of all, I'd say very confident on the growth potential of the business, very confident on the value creation opportunity that there is from this transaction. I alluded it to it in the previous question. What it does is it creates a higher growth, higher return business, both our wealth business, but also overall NatWest Group. So I think that's an important strategic framing. In terms of the financials and the transaction, the bar that I've talked about previously and I've talked about on this stage and previously, we have 3 high bars, strategic, financial and operational.

So the test that Katie and I and the Board set was the return on invested capital here needed to be greater than the buyback within the 3-year period. So we set ourselves that bar, and we're very satisfied that we exceed it. You touched on 11% there and we made a lot of disclosures on the Friday in our year-end results and what we talked about was greater than 11%.

So that was the bar we set ourselves, and we're satisfied of the opportunity that drops out of the transaction from it. In terms of how we're going to deliver that, in some ways, you can explain it very simply, but obviously, there's a lot of hard work that will go into it.

Very clear on our commitments to the market around cost synergies. We believe there's around EUR 100 million of cost synergies from bringing the 2 businesses together. That actually represents about 10% of the combined cost base of our Private Bank and Wealth Management business and Evelyn. So we feel confident about that.

And on the revenue side, we've said around EUR 200 million, split equally between half of it from natural structural growth in the AUMs that are in the business. We've assumed a mid- to high kind of single-digit growth rate. You can see that Evelyn has grown at 7% the last couple of years. We've grown at a higher rate than that.

So we think that's appropriately prudent. And then the other part of the revenue synergies come from deploying the capabilities that we've talked to, which is the financial planning, the D2C platform, putting that in as many hands of our NatWest Premier and Coutts clients that we can.

So all in all, very confident about the value creation opportunity. And if you think beyond the 3 years, I think it's important we were clear around 3 years. But if you think beyond the 3 years, the returns will grow beyond that as well because you have the compounding benefit of AUM growth. So from that perspective, yes, we're clear and we're going after the synergies.

Okay. I want to touch as well on the growth. You've delivered very good growth in lending and deposits and AUMs. And you're guiding for that to continue with a greater than 4% compound growth in customer assets and liabilities going forward. Can you maybe touch on the outlook in each of those components? And I'm particularly interested in corporate loan growth, in particular, why it's been so strong? And why do you expect it to continue to be strong?

So I think on the broader -- let me start with the broader kind of growth piece. So I think we've now established pretty clearly that for a number of years, we can grow on both sides of the balance sheet and our assets under management. So I think we've got a strong multiyear track record there, which is great. As you rightly pointed out, for '28, we've been more explicit on our growth targets.

We framed that through what we call kind of CAL, customer assets and liabilities. That's a kind of term and an approach that we use internally, but we've now kind of decided to externalize that. And we think it's the best representation of our relationship -- our client relationships overall their product holdings.

So we've been explicit that we expect to grow greater than 4%. What I would say, Alvaro, is that's a kind of CAGR greater than 4%. So I don't think everybody should be thinking every line of the balance sheet is going to grow every year at 4% because what I'm very mindful of and we're very thoughtful about as a management team is where we deploy our capital to grow.

So we're going to deploy our capital where we see attractive returns. That could vary depending on market -- that could vary on external market conditions. It can vary depending on the competitive context. But we're very confident overall that we'll -- because we've done it previously, we'll deliver greater than 4%.

And that's obviously powerful from a growth perspective because if the balance sheet grows year-on-year, that's very helpful to EPS, DPS, TNAV per share, et cetera.

Then I guess the other part of your question is, you talked about corporate lending. But in terms of -- before we deep dive into that, I would say I can see opportunities for the growth to come from different parts of our business. You take our retail business, we've made great strides over the last couple of years in mortgage lending, great strides in kind of unsecured lending.

We still think there's more room there to go. We're thoughtful about how we do that, but you can see growth there. Likewise, on the savings side of retail, we have kind of 16%, 17% current account market share. But actually on the savings side, we have 10%, 11%. So I can see -- we can see paths to growth within the retail business. On the wealth business, again, we had a pretty ambitious organic plan that we shared with the market last June. That drove growth on the deposit side of the balance sheet and the AUM side of the balance sheet. So that's where we'll be looking to there.

And then in our -- I guess, our corporate and commercial bank, probably should take a step back first. So we grew 10% last year on lending growth. Why are we able to do that? We have got the dominant U.K. corporate franchise, no matter which metric you look at. We've got leading market shares, whether that's SME, mid-market, large corporate.

I think that gives us tremendous position in the market that when the demand is there. And bear in mind. The level of -- I think the level of deleveraging that's happened over a long period of time means that commercial companies, corporate companies do have the capacity to borrow.

When they've chosen to borrow, we've been able to capture that demand. But I think we have our strong competitive kind of positioning there gives us confidence that we can continue to grow. You look at the #1 lender to infrastructure. We're the #1 lender to social housing. We've got the biggest mid-market business. So it just gives us confidence that if the environment supports it without any fundamental changes in our risk posture or risk appetite, we can drive growth.

So it's a very, I guess, broad-based perspective to growth. What I'm not prepared to compromise on is returns. So it will only be growing at the right returns across all our businesses. We're very focused on that capital deployment between the different business units. And I won't compromise on risk appetite either. So this is growth at the right risk appetite, i.e., the current risk appetite and at the right returns.

We'll touch on some of the uncertainties shortly. But when I hear you around the growth momentum of the business, you do have a track record of beating revenue expectations, which makes me think that the EUR 17.2 billion to EUR 17.6 billion looks too conservative. Maybe you can go down through the moving parts, tailwinds and drags, that you see on competition that may be behind that I'm thinking deposits or mortgages, but maybe you can drill down into -- double-click on that.

Yes, happy to and direct me where you want to spend more or less time. But -- so revenue growth was strong last year, 12% growth. And what was most pleasing about that outturn to me was it was a combination of product volume, product margin and fees. So it felt like a healthy mix, a healthy mix of growth, both across and within the businesses. So that was good.

As you rightly said, our guidance this year on income is EUR 17.2 billion to EUR 17.6 billion. I know your forecast are at the upper end of that. But that -- and what we've tried to do there, and you'll recognize this, it's a narrower range than we've guided to before. So we're trying to give people a clear steer. That, to us represents a sensible balance of the risks and opportunities. So we expect to fall within that forecast based on a sensible combination of the risks that we face and the opportunities playing out.

So that's -- I'd say that's the philosophy that we've adopted with that income guide. I would say -- I should say it obviously excludes Evelyn, and it also excludes any changes to economic assumptions on the back of the last couple of weeks conflict. In terms of the tailwinds and the headwinds.

I think on the tailwinds, it's about -- we just had the discussion about volume growth. So volume growth is definitely going to support the revenue momentum, especially as we target our greater than 4%. I would flag a couple of things on that. We're expecting kind of margin pressure on the mortgage side. You can see from book pricing on mortgages. We know there's a whole slew of COVID 5-year fixed rates that are maturing this year. So that will put a bit of margin pressure on. Likewise, we expect fixed rate deposits to be competitive as well. So you've got the volume growth coming through, but you've also got a little bit of pricing and margin pressure that will play out.

Then you've got rates. We expect the contribution from the structural hedge in '26 to be EUR 1.5 billion greater than '25. So that's a big tick up. But we should also remember, we've got the annualized effect of a couple of rate reductions last year, which will work their way through. And our current assumptions had 2 rate cuts in for this year.

So that would go up EUR 1.5 billion on the hedge and the combination of previous rate cuts and assumed rate cuts, and we'll likely have a debate about whether they play out, but would drop that by about EUR 500 million.

And then the other thing that sometimes isn't as visible, but I think it's important that everybody realize is a third kind of component to our revenue line is as we've worked the balance sheet harder over the course of the last kind of 3 years, as we've, for very good reasons and I think very return-friendly reasons, entered into more kind of capital management actions, SRTs, credit risk assurance.

Obviously, there's fees associated with them, and they net off. So you should think about EUR 100 million on those as well as we go through '26. So they're the kind of -- they're the puts and takes. Specifically on competition in mortgages and savings, I would say, first of all, on quarter 1, I'd say volumes have been quite reassuring.

Mortgage volumes have been good. We've been able to take the volume we want at the returns that we're comfortable with. It has been competitive. There's been a lot of price changes. We've changed prices, I think, 5x since the start of the Middle East conflict. So it shows the agility that's needed, but also the flexibility and agility we have in our mortgage platform to change rates.

We expect that to continue. As I said, you've got this flow-through in the market generally of 5-year kind of, let's call it, COVID mortgages at slightly higher rates. Likewise, on savings, I think it's going to be a very competitive ISA season, given all the kind of government and regulatory changes. This is the last year of, let's say, the current ISA regime.

So we think it will be competitive. We have less to defend there. Our market share in ISAs and fixed rate savings is circa 6%. So we see opportunity there, but it will be competitive. So that's the dynamics we expect to play out on the retail side of the business.

I'm going to explore if part of the conservatism is in noninterest income. We've already discussed Evelyn. How do you think about the rest of the business lines in noninterest income? Obviously, you've got the markets business there within C&I. But broadly, can you touch on the visibility you've got in that business?

Yes. Well, we've been -- as you know, we've been very focused on kind of fee income and noninterest income over the course of the last couple of years. I'd say I'm pleased that we're now building a track record of growing that line. If you look back, I think we're about 32%, 33% up since '22 overall on fee income. So that's good growth.

You're right to highlight commercial and institutional. That's about 70% of the total fees. some good growth last year. FX business, which we've got great FX platform was up around 20%. Some of that driven by the volatility. But actually, a lot of it driven by just bringing more of that FX product to the rest of our commercial bank customers.

We also had mid- to high single-digit growth in our payment fees. So as we extend our kind of payments and transaction banking product set, we think there's opportunity there.

We also actually saw some good tick up in fees on the retail side of the business. It doesn't contribute in relative terms to the C&I business, but we saw some good pickup on the kind of credit card and debit card, which is really driven by customer activity. So I think what we're building is kind of underlying fee lines in the respective businesses.

And then you add on, as you alluded to, the -- our Private Bank and Wealth Management Business. So the organic plan has good 11% growth on fees. Then you take all that together and add 20% from Evelyn, it feels like we are we're building organic fee lines, but also starting to diversify our income mix. Which, as you know, 2 or 3 years ago, I said was important, but would take time to do.

Let's talk about some of the uncertainties. Obviously, we've got the Middle East. How do you think that's affecting your clients? Are you seeing anything at this stage? And thirdly, we touched on markets. Obviously, any comment there would be helpful. And one thing that came up this morning in the polling is private credit, as you know, is also a source of concern. Should we be worried about your exposure to private credit? Maybe you can give an overall sort of overview of the...

Uncertainties in general. Okay. Let's start with the Middle East and the conflict. We genuinely run a series of geopolitical scenarios or how we respond to certain events. We were doing that as we came into this year. We don't have a Middle East business, as you know. So from our perspective, the impacts are primarily second order. You'd expect me to say that.

So how events play into energy prices into inflation, into rates and obviously, our customers who are dependent on energy. So that's how we think about it. It would take a sustained from our perspective when we run the different scenarios. it would take a sustained conflict to have, I'd say, a material impact on our kind of growth or credit outlook. And I think that's the question we're all kind of wrestling with is what is the duration of this conflict going to be and therefore, what are the knock-on impact. So that's how we're thinking about it.

So I think our view really only changes on the back of a sustained and long-duration conflict. In terms of customer and client reaction, in some respects, it's -- I mean, it varies across the business. It's very real and immediate in the markets business, customers looking to manage their risk. So you see that in real time.

So no difference to whether it was tariffs or Russia, Ukraine, you kind of -- you see that immediately and customers thinking about risk, managing risk, trying to get ahead of things. I'd say in the more kind of the core franchises of retail and commercial, far too early to say. On the retail side, definitely affecting sentiment.

You can't go through the last 2 weeks and customers not have a sense of perspective on what's happening, hear the media narrative about the potential for energy prices. So you start to see that showing up in sentiment, but not activity. The other phenomenon on the retail side is it's obviously driven a much higher volume of mortgage applications. And as much as customers assume that rates might come down, now they're assuming that rates could or may go up.

So we've seen significant volumes of -- from a refinancing, remortgaging perspective of customers looking to secure rates in anticipation that they might go up. So that's probably been the most obvious and demonstrable kind of behavioral change. On the commercial side, I would say the commercial customers are very -- and corporate are very sanguine in as much as they've been through a lot of various kind of stressed events over the course of -- I mean, you could say the last decade, but...

Around the Morgan Stanley Conference. A strong correlation.

Always around mid-March, that's right. But the reality is customers are -- they feel more confident about their resilience. They're more used to dealing with events. So we don't see knee-jerk reactions, which is good. They take confidence from how they've managed through previous kind of stresses.

Where is the focus of their attention in the commercial base. Those who are exposed to energy prices, it's obviously very front of mind. They have a bit of a playbook from Russia and Ukraine in 2022. So that's obvious. On the wealth side of our business, again, a lot of client contact, kind of curiosity, interest in what's happening, some client behavior, but relatively limited, I would say. So it just -- it feels, again, the sentiment is affected.

So it feels relatively early from that perspective. I think as we go through the next 2, 4 weeks, I think certainly across the commercial and corporate client base, the planning will start to turn into playbooks. But the big thing everybody is wrestling with is kind of what's the duration point. And then on, I guess, the other big topic you referenced, which is private credit, very much topic du jour.

First thing I'd say on private markets generally is they are a really significant and important part of the U.K. economy and the world economy, but the U.K. economy. So if you look across infrastructure, real estate, private equity, private credit funds, there's no doubt they've played an increasingly important role over an extended period of time.

My view is that structurally isn't going to change. I think they will continue to play an important role. Private markets will continue to play a really important role in being a source of capital to the U.K. economy. I don't see that changing.

We've obviously seen the various cases and items that are in the public domain. We haven't been involved in any of those. Where we do participate in private markets, it's -- we've done so for a long time. We're very thoughtful in terms of the partners that we engage with. We look for structural protections, as you would expect, to make sure that -- and we stress against quite severe economic situations that would need to go well beyond the current situation to see any sort of stress.

So I feel comfortable with where we choose to play, whether it's subscription lines, capital calls, private credit supporting private credit providers. I feel very comfortable with the quality of the book, but we're very vigilant because it's obviously an area that's got a lot of attention.

The one thing I would add is we're very supportive and pushing around the Bank of England's what they call SWES, the stress, the kind of stress scenario. Why we're doing that? I just think it would be very helpful to get for investors, for analysts, to have more consistent disclosure in this space because I think that would bring more transparency to the market because there's a lot of things said about private markets and private credit, but people use the same phrases to mean different things. There's some very different structures. Where we are at the moment is when you've got a very big market, there's some higher-quality operators and some lower quality operators. Arguably, there's some cyclical things going on. You've got the Middle East conflict. You've got some of the, I guess, the perceptions of risks in relation to AI.

You've got the end of the rate cycle. So it feels like there are -- there's definitely different issues weighing on the sector generally. But from our perspective, we feel very comfortable with where we've chosen to participate.

Great. I want to move on to costs. You have an EUR 8.2 billion costs guidance for this year and the less than 45% cost-income ratio for 2028. That was definitely better than expected. You said at the full year that you would expect further progress beyond 2028. That was -- that's a point in time sort of target.

Where do you see the potential in the sort of more longer term for those cost efficiencies? Obviously, AI is a big sort of debate even greater than last year. So how is that going to help? And how should we think about the trajectory of the workforce?

Yes. It's obvious we've got good momentum in our, I guess, in our cost management and in our cost-income ratio. So it dropped 5 percentage points last year, which is great. We're now down at 48.6%, I think, 48.5% at the year-end. So we're the most efficient large U.K. banks. So that feels a good place to start from. I think it's down 21% over the course of the last 3 or 4 years.

So it feels like we've got -- I think we have got a good cost management culture across the firm. What I would say is that's been delivered through a variety of things, but what I would call is just good disciplined cost management. We pulled a lot of levers to get to those numbers, whether it's simplification of the technology estate, whether it's simplification of the footprint, sensible things like organizational health, how we organize, removing duplication. So we pulled a lot of levers on good cost management. But I still think -- and the management team still think there's a way to go on that.

There's still complexity in the organization that to me doesn't fit the relatively simple business that we are. And we keep going after that. And I think that will help drive us down to -- and that's why I was confident to say less than 45% in 2028. What I would say is we've put those numbers out there without any big -- I'm not assuming some kind of massive AI dividend that we can't yet see the path to.

So I'm very confident we can get to those numbers without, let's say, the potential of but not the ability to see it. So I think any AI efficiencies will amplify that. I guess that's why I talked about beyond '28 and maybe the potential to go lower. But these things take a lot of hard work, Alvaro. Cost management is tough. You need to keep going after things. We've right-shored things. We've eliminated legal entities. We've simplified management structures. We've really tested ourselves on a whole host of things to make sure we're driving a really effective operating model.

When I think about AI, I'd say '25, we started to see some definite I'd say, scale opportunities emerging. They'll be the ones you've heard from, I guess, a lot of my peers. So whether it's coding assistance, customer contact centers, summarization tools, kind of risk, financial crime operations.

So to me, the opportunities that are coming into site. And I think there was cost opportunities there anyway, but I think AI just amplifies the opportunity around that. I think what you'll also see more generally in AI is some of the -- that's really focused on productivity and efficiency.

What we're starting to see and what we're starting to release to market now is capability that's driven by AI, but it is really to drive a better customer experience or to hopefully drive revenue growth as well. So I think you'll see a flex between AI for productivity kind of benefits and sake, but also AI to help improve the customer experience and deepen the relationship and drive more revenues. On the FTE outlook, I think it's too early to say. I've seen lots of forecasts out there, seen lots of people saying it will be this or it will be that.

What is absolutely sure -- what I'm absolutely sure on is the work -- the nature of the workforce is changing quickly. If you think about us as a bank, we have 60,000 staff. Now we've got over 12,000 software engineers. You rewind even 5 years ago, certainly 10 years ago, the composition of the colleague base is very different.

So I think it will continue to evolve. The mix of people -- the mix will change. You can see whether it's operations, whether it's services and functions, whether it's engineering, you can see that mix kind of constantly changing. But it definitely lends itself to a more efficient and more productive bank. And I could present it both ways as in the kind of bull case and the bird case. But I think my view is that there will be significant efficiencies and productivity to be driven off the back of some of the technology developments. I think my point of view is that I'm not convinced 100% of that will drop to the bottom line of banks. I think what you'll see is some of that dropping to the tech companies or the model providers. I think they will expect from a -- if there's a lot of value being created, I think it's not unreasonable to think some of that value will be captured by the technology partners and vendors.

And the other thing which history suggests would happen is if you see those the extent of some of the productivity gains. And rightfully, some of that will find its way back into the customer pricing, product proposition. And I think that's what will evolve over the course of the kind of next 12, 24, 36 months.

So I don't think it's crystal clear yet. I think there are -- there's undoubtedly productivity and efficiency gains. How those gains will be shared between the different kind of participants, I think, will play out over the course of the next 2 or 3 years.

The audience here, we, of course, polled about this. I think it's AI is a net benefit for banks. So I think...

I'd buy that, yes.

You're in a friendly environment here. But of course, there's been discussions that and we've seen in some of the share price moves before the Middle East around AI being a potential disruptor. You've touched on it briefly, but maybe we can deep dive a bit more, how do you think that's going to impact competition because there's fears both on the deposit gathering business, but also wealth. You can -- maybe you can touch on both and the opportunity there?

Yes. So as you allude the audiences, I'm definitely kind of an optimist and net positive on AI. I think it is going to transform the way that we engage with our customers across our retail bank, our wealth business and parts of our kind of corporate and commercial business. And as I mentioned, I'm high conviction that will be around the customer experience as well as the kind of efficiency side.

So from that perspective, we're positive. To be able to take advantage of that, you have to have invested in your technology and data foundations. So I'm delighted we've been doing that over the course of the last kind of 3, 4 years, ensuring you've got the right technology architecture, ensuring you've got the data clean in one place, all of our retail data is in one place.

All of our private bank and wealth manager data is in one place because without that, it's very hard to deploy some of the tooling and capability. So I think the benefits will lend themselves to the scale operators because they have the customer relationships, they have the data. They have the investment dollars to be able to use the models at scale to the benefit of their customers and to their colleagues and to the productivity of the organization. In terms of wealth, there's been a lot of debate about that.

I'm sure you've got some of the kind of listed wealth providers here over the next couple of days. But I think it's going to amplify. One of the biggest challenges in the U.K. is that not enough people have access to good quality, low-cost financial advice. To me, AI can be a real accelerant of that.

I think there'll be clients and customers who are very happy to go through that process, led by the technology. I think for really big significant moments, the human adviser will be very important. But I do think it's a great accelerant to bring advice, good financial planning into the hands of much more than the 9% or 10% of the population that currently get it.

On deposits, I have quite a strong view. My view is that -- for customers who have savings, liquidity and want to get yield, it's a very competitive market. You look at term products, you look at ISA products. There's -- and we saw that during the interest rate cycle of second half of '23. We saw the amount of our deposits that went into term up to 16% or 17%.

And it's remained pretty flat for the last 7 or 8 quarters. So my view is the -- for those customers who are seeking yield, it's very easy to get it. There's a large volume of competitive providers. So I don't see that being -- so it may influence search, but I don't see that influencing the kind of the margin or product pricing.

You may have to make sure you're discoverable in some of the models, for example. So that might be a kind of marketing consequence. And then you get to the operational balances. And my view on that is that the operational balances, first of all, they are a small percentage of the overall balances.

Secondly, we're literally talking about, for us, 19 million or 20 million accounts with low average balances. And what the customers who have those accounts, normal checking accounts, they have those accounts for other utility for the debit card, for Apple Pay, for ATM access, for the mobile app, everything that comes with it.

So the marginal benefits on small balances of yield pickup, to me, I don't see a model where that's worth it relative to all the other value that is being received. So I worry less about that. We're mindful of it. You take a lot of our high net worth customers, be in our Coutts business or Premier business, they have automatic sweeping facilities. That's pretty BAU in those type of accounts. So yes, so as you can see, I'm not -- I guess I don't really see a case of material change there.

Great. Last one for me and then a lot of good questions. It's about capital allocation. You've done a deal, obviously, you're guiding to high capital generation from here on. How are you thinking about the distribution and balancing that with the returns of greater than 18% in 2028?

Yes. So we -- I guess the business we have, the model we have is highly capital generative. So 250 basis points of capital, just over 250 basis points of capital last year. We've been explicit with our guidance of greater than 200. So we have a low-risk business model generates a lot of capital. So that's great.

The acquisition, in my view, gives us a chance to be higher growth, higher returning and higher cap -- higher capital generative too. In terms of the capital hierarchy, it's very simple from my perspective, it hasn't changed. So we'll deploy to grow. We've got a scalable platform. So the returns on growth are good, hence, the kind of greater than 4% target.

So we'll do that in a disciplined way. We increased the ordinary dividend to around 50%. So that's next. And then we'll distribute surplus through buybacks. We've got the EUR 750 million buyback happening at the moment. We've guided that we look to return to buybacks half 1 '27. But as a Board and as a management team, we're committed to returning to buybacks at the earliest opportunity with surplus capital. I should maybe finish, sorry just on that.

So that's the hierarchy. But I guess then if you take the step back, you look at our delivery in 2025 19% return on equity. So we've now got 3 years greater than 17%. We've now put targets out greater than 17% for this year, greater than 18% in '28. So you'll have 6 years of return on tangible equity greater than 17%. So that's quite a strong record, high returns and significant distributions off the back of that.

Compounding business. Who wants to ask the first question? As I mentioned, it's a quiet crowd today. I've got an uncomfortable question around U.K. politics if nobody asks the question.

That will discourage them because I go for it.

Yes. Obviously, U.K. government has been pro financial sector. I remember the Mansion House speech last year. Do you worry about some of the initiatives that some of these initiatives that are underway may store if there's a leadership challenge or if the political sort of leadership changes?

It's difficult to know. I would -- I agree with you that the -- I'd say the last 2 years, I think the kind of the government's posture, the treasury's posture, the chancellor's posture, I think, has been very helpful for financial services, not just the bank sector, but more broadly. I think financial services has been very much and the banking sector has been very much positioned as part of the solution in terms of trying to unlock growth and productivity. So we welcome that.

I think there's also not just in the political environment, I think there's also been some positive changes on the regulatory side as well. I think if you look at the FCA, whether it's the changes to some of the mortgage changes, we touched on the significant opportunity around the changes in the advice guidance and boundary review.

So I think there's positive changes there. There's a lot of consultations on the -- out on the Prudential side. So we will await to see the outputs of them. Will things change? My answer to that is I hope not. I think there is some momentum around the policy environment and the regulatory changes that are coming. I think people can draw the link between those changes and the opportunity around economic growth.

Some of them are already in train. So the reality is that they will continue. I think what it's beholden on the sector to ensure should there be any change in kind of political leadership or political posture, I think it's beholden on the sector to make its case, explain how it supports the wider economic agenda, the role we can play, whether that's helping more people save and invest, whether that's helping more businesses to borrow or to start.

So I think it's beholden on us to if needed, to remake the argument that we successfully made over the course of the last couple of years. But as I've said before, the strong economies need strong banks and vice versa, strong banks need strong economies.

So we're very committed to playing our part in the U.K., and we need a regulatory and policy agenda that is supportive of that because ultimately, that's what's the best. That drives the best outcome for U.K. PLC.

I give the audience one more chance to ask a question. If not, we're coming to the end of the session. Sorry, there's one back there. Apologies. I've just seen the hand.

Apologies on the question.

If I haven't seen you before. Go ahead.

I have 2 questions. The first one is on deposits. You said that you're expecting more pressure on deposit margin. And so far, U.K. banks were saying that they are seeing stabilization in deposit mix. So does this mean that you are expecting more headwinds on the deposit margin front?

And the second question is on your investment on U.K. deals. What is the impact on your investment in yields in terms of the volatility we have seen so far?

Yes. Thank you for the question. So on the first question, what I was saying there is I'm expecting it to be a -- the reality is the -- we haven't seen a significant change in the mix of our deposits. What we've seen and what we believe will continue is it will be a competitive fixed-term savings product market. It already is.

We're expecting that to continue. And because there are some one-off changes happening in the ISA market this year, we expect it to be a very competitive, we don't know, but we expect it to be a very competitive ISA market, both on cash fixed rate ISA. So that's what I'm alluding to there. So we do think there will be a lot of competition on that side. But there already is. So in my view, it's a continuation of the existing competition rather than some fundamental change from the status quo.

On the second question, I assume what you're alluding to is -- in terms of the hedge, we've chosen to invest a little bit more in gilt given the yield pickup relative to swap rates. We have done that. We talked to that at the year-end. Obviously, that flows through into the net return on the hedge.

We don't kind of -- we don't disclose the component parts of that, but that supports the hedge returns over the course of -- remember that it's a 5-year period. It's not a '26 thing. Hopefully, that helps.

I think we've got to leave it here, but thanks very much, Paul for very insightful.

Thank you.

Good afternoon, and welcome to the NatWest Group Full Year Results 2025 Fixed Income Update. Today's presentation will be hosted by CFO, Katie Murray; and Treasurer, Donal Quaid. After the presentation, we will open up for questions. Katie, please go ahead.

Good afternoon, everyone. Thank you for joining our full year 2025 fixed income results presentation. I'm joined today by Donal Quaid, our Treasurer; and Paul Pybus, our Head of Debt IR. I will take you through the headlines for the year. Donal will take you through the balance sheet, capital and liquidity, and then I will go through the forward look and targets, and then we'll open up for questions.

So turning to the headlines. We delivered broad-based growth across our 3 businesses, adding 1 million new customers during the year, with customer loans up 5.6%, deposits up 2.4% and assets under management up 20% for the year. Strong income growth of 12%, combined with modest cost growth of 2% drove positive jaws and operational leverage of 10%. The cost/income ratio reduced to 48.6%. This performance led to strong capital generation before distributions of 252 basis points, a CET1 ratio of 14% and return on tangible equity of 19.2%. These results underpin our track record of delivering shareholder value. Earnings per share grew 27% to 68p. Dividends per share increased 51% to 32.5p, and tangible net asset value per share was up 17% to 384p.

I'll now take you through the performance for the year. Income, excluding all notable items, was up 12% at GBP 16.4 billion. Total income included GBP 241 million of notable items. Total operating expenses were 1.4% higher at GBP 8.3 billion, and the impairment charge was GBP 671 million or 16 basis points of loans. Taken together, this delivered operating profit before tax of GBP 7.7 billion and profit attributable to ordinary shareholders of GBP 5.5 billion. Our return on tangible equity was 19.2%.

Turning now to income. Full year income, excluding notable items of GBP 16.4 billion exceeded guidance of around GBP 16.3 billion. Across the 3 businesses, income grew by GBP 1.8 billion. This was largely driven by higher net interest income as balance sheet growth and the benefits of the structural hedge more than offset the impact of Bank of England rate cuts. Net interest margin was up 21 basis points to 234 basis points, mainly due to deposit growth, coupled with margin expansion. Noninterest income grew 1.3%, reflecting solid customer activity as we supported their investment, FX and capital market needs.

Turning to growth. Our 3 businesses have a strong track record of growth over the last 7 years with customer assets and liabilities, or CAL, up 4.6% a year. We have grown customer lending at 4.5% a year from broad-based organic growth as well as acquisitions, which support scale in underweight areas. Customer deposits have grown 3.9% a year, supported by a boost during COVID as well as new propositions and an improved digital offering. AUMAs have grown at 12% a year and have more than doubled since 2018. This track record gives us confidence that we can continue to grow CAL in the future.

Let me take you through the last year for each of these elements in turn, starting with lending. Gross loans to customers across our 3 businesses increased 5.6% or GBP 20.9 billion to GBP 392.7 billion. There was broad-based growth across mortgages as we increased our flow share of the first-time buyer and buy-to-let markets with strong retention as well as new business flows. Unsecured lending growth was supported by the addition of � Sainsbury's Bank balances and the first full year of our personal loan offering for the whole of market. In commercial and institutional, we grew in all 3 businesses with lending up GBP 14 billion, excluding the repayment of government loan schemes. This reflects our leading position as the U.K.'s biggest bank for business with growth across social housing, residential/commercial real estate, infrastructure, project finance and fund lending.

I'll now turn to deposits. Customer deposits across our 3 businesses increased 2.4% to GBP 442 billion with a stable mix throughout the year. Retail banking deposits increased GBP 7.8 billion or 4%, reflecting growth in savings and current account balances, supported by balances acquired from Sainsbury's Bank. Private Banking and Wealth Management increased by GBP 300 million in 2025, also reflecting growth in current accounts and saving balances. And C&I deposits increased by GBP 2.3 billion, reflecting growth within large corporates and business banking.

Moving now to assets under management. We are pleased to see delivery on the plans we talked about at the June spotlight. AUMAs increased almost 20% this year to GBP 58.5 billion and net flows of GBP 4.6 billion were up 44%. Fee income from higher AUMAs grew 11% to GBP 300 million. Moving now to the continuing tailwind from our structural hedge. In addition to our product structural hedge, we also have a longer duration equity structural hedge. Together, they are GBP 198 billion in size and an important driver of income growth. In 2025, product hedge income was GBP 4.2 billion. This is GBP 1.2 billion higher than the previous year and GBP 3.2 billion more than 2021. Our equity hedge income was almost GBP 500 million, which is around GBP 50 million higher than the previous year and up around 25% more than 2021.

The yield on both hedges has increased significantly over the last few years as interest rates rose. This slide shows our expectation for future yield progression based on our current macroeconomic assumptions and hedge durations together with associated income growth. We expect yield to increase from 2.4% in 2025 to around 3.1% in 2026 with further increases thereafter. Our illustration here assumes steadily increasing average notional balances for both product and equity hedges, driven by growth in CAL and higher levels of capital held to support that growth. This expectation of increasing yield and notional balances drives higher annual income through to 2030. We expect 2026 total hedge income to be around GBP 1.5 billion higher than 2025. And for 2027 to be around GBP 1 billion higher than 2026, reaching total income of around GBP 7.2 billion. Exactly how this develops will be subject to prevailing reinvestment rates each year as well as the composition of growth in CAL.

Turning now to costs. Other operating expenses were GBP 8.1 billion, including onetime integration costs of GBP 96 million, in line with our guidance. We are pleased with our delivery of around GBP 600 million of gross cost savings, which has allowed us to invest and accelerate our simplification programs. Our cost/income ratio reduced 4.8 percentage points to 48.6%. In 2026, we expect other operating expenses to be around GBP 8.2 billion. Turning now to our updated macro assumptions. Our base case outlook for the macro environment in 2026 assumes moderate growth, slightly lower than our previous view. We expect unemployment to peak in 2026 at levels we are comfortable with in terms of lending risk appetite. And we expect to reach a terminal bank rate of 3.25% by the end of 2026.

Our balance sheet remains well provisioned with expected credit losses of GBP 3.6 billion and ECL coverage of 83 basis points. Stage 3 is 1.1% of loans, down on the prior year, reflecting management actions in personal portfolios and lower defaults in nonpersonal. Our remaining post-model adjustments for economic uncertainty are broadly stable at GBP 246 million, and we assess these quarterly. Our latest scenario also shows that even if we were to give 100% weight to our moderate downside scenario, Stage 1 and 2 ECL would increase modestly by GBP 54 million.

Turning now to impairments. Our prime loan book is well diversified and continues to perform well. Our net impairment charge was GBP 671 million, equivalent to 16 basis points of loans. There were no significant signs of stress across our 3 businesses and impairment levels across our products have performed broadly in line with expectations. In 2026, we expect our loan impairment rate to be below 25 basis points. This guidance is not dependent on post-model adjustment releases or any material shift in risk appetite. It simply reflects a normalization in impairments and lower one-off releases as well as growth in the book and ongoing changes in mix.

And with that, I'll hand over to Donal.

Thank you, Katie. Good afternoon, and thank you for joining today's call. I'll start by sharing some highlights from 2025 before moving into more detail on the balance sheet, covering capital, liquidity and funding. I will then update you on our funding plans across the group for 2026. Starting with an overview of the key metrics on Slide 15. We ended the year with a strong capital, MREL and leverage position, comfortably above the regulatory minimum with a CET1 ratio of 14%, a total MREL ratio of 31.9% and a leverage ratio of 4.8%. Our average liquidity coverage ratio was 147%, giving us comfortable surplus over minimum requirements. Our average net stable funding ratio was 135% and primary liquidity was GBP 157 billion. The group's funding is very well diversified. Our loan-to-deposit ratio was 88%, and we have a strong retail, private and corporate deposit franchise with around GBP 442 billion of customer deposits across our 3 businesses.

We successfully completed our 2025 funding plan with GBP 7.1 billion equivalent of benchmark issuance from NatWest Group across senior MREL, AT1 and Tier 2 capital securities and GBP 7.9 billion equivalent from NatWest Markets. Thank you for your continued support of NatWest in both the primary and secondary markets. We were pleased with the strong NatWest Group performance in this year's Bank of England stress test, where we had the lowest capital depletion under stress. 2025 marked another positive step in our credit ratings journey as Fitch upgraded all rated entities while affirming a stable outlook, and S&P upgraded the senior unsecured AT1 and Tier 2 ratings for NatWest Group.

Moving to capital generation on Slide 16. In 2025, we generated 252 basis points of common equity Tier 1 capital before distributions. Strong earnings added almost 300 basis points, partially offset by 89 basis points from growth in risk-weighted assets. Distributions, including the accruals for our ordinary dividend payout of around 50% and the share buyback of GBP 750 million announced on Monday accounted for 213 basis points of capital. We ended the year with a common equity Tier 1 ratio of 14%, up 40 basis points on last year. Risk-weighted assets increased by GBP 10.1 billion in the year to GBP 193.3 billion, in line with our guided range of GBP 190 billion to GBP 195 billion. This included GBP 3.8 billion from operational risk, including GBP 1.6 billion in the fourth quarter, reflecting an acceleration of our annual operational risk recalculation from Q1 2026.

You should now expect us to include this in the fourth quarter each year. GBP 11.1 billion of business movements, which broadly reflects our lending growth across the year and GBP 7.3 billion from CRD IV model inflation, of which GBP 4.8 billion was in the fourth quarter. These movements were partially offset by a GBP 10.9 billion reduction as a result of RWA management, which included GBP 5.7 billion in the fourth quarter. Basel 3.1 implementation comes into effect from the 1st of January 2027. And based on our latest recalibration of a higher balance sheet, we currently expect the impact on risk-weighted assets to be around GBP 10 billion. The majority of the RWA uplift from Basel 3.1 is due to operational risk and the removal of the SME and infrastructure support factors. We do expect an offset in our Pillar 2 requirements for these elements, but the net result will still require us to hold a higher nominal amount of CET1 given the offsets are at a total capital level.

Turning now to our CET1 target on Slide 17. Our approach is to review our capital targets as part of our annual ICAP process and risk appetite review, taking into account any changes or expected future changes to our capital requirements, given that our regulatory requirements can and do change on an annual basis. Our 13% to 14% CET1 target has been in place since 2019. Today, we are holding considerably more capital despite the restructuring and derisking of the balance sheet as average RWA density has reduced from 55% at the end of 2019 to 46% at the end of 2025. Since the end of 2021, our risk-weighted assets have increased by around GBP 32 billion from CRD IV model changes, increasing nominal capital by over GBP 4 billion. The successful restructuring of the bank and derisking is evident from the consistent and material improvement in our Bank of England stress test results, which I'll cover in a moment.

The performance of the business has also materially improved, and we have demonstrated a track record of strong earnings, high capital generation and returns. We expect growth to consume more capital proportionally as we deliver on our strategy. There are also more regulatory changes to capital requirements to come. As we finalize CRD IV and implement Basel 3.1 over the next 12 months, our nominal CET1 requirements will increase further through higher RWAs. As of full year '25, our minimum CET1 requirement stood at 11.6%, but we do expect this to reduce further with the implementation of Basel 3.1 next year with a reduction in our Pillar 2 requirements, as I just mentioned.

As a result of all these considerations and having taken into account the views of stakeholders, including debt and equity investors and rating agencies, we have announced a reduction in our CET1 target to around 13%. The revised target takes into consideration the expected reduction in Pillar 2 on the 1st of January 2027 and the capital impact of the Evelyn acquisition we announced earlier in the week. The CET1 target of around 13% continues to represent a healthy buffer over our MDA and supervisory minimum requirements.

Turning now to our stress test performance on Slide 18. We were pleased with the strong NatWest performance in this year's Bank of England stress test. NatWest had the lowest capital accretion under stress for both CET1 of 250 basis points versus the aggregate of 430 basis points and 30 basis points of leverage versus the aggregate of 90 basis points. We were the only U.K. bank with no strategic management actions required. The results reflect the continued strengthening of our balance sheet since 2022, 2023 stress test, underpinning our ability to support our customers and the broader economy, including under a severe stress scenario. This exercise has highlighted again the strength of the NatWest Group's balance sheet, supporting customers and delivering sustainable value creation.

Turning to our capital position on Slide 19. Our total capital ratio of 19.3% reflects the strength of our CET1 ratio and more normalized levels of AT1 and Tier 2 capital relative to our minimum requirements. We currently have an AT1 ratio of 2.4% with GBP 4.6 billion of securities outstanding. During the year, we called $2 billion AT1 securities, including the $1.5 billion AT1 in December, resulting in a CET1 benefit of GBP 90 million through an FX retranslation gain given the security was equity accounted. Redemptions were partially offset by GBP 1.25 billion new issuance during the year. Our Tier 2 ratio is 3% with GBP 5.8 billion of securities outstanding.

Turning to our total MREL position on Slide 20. Our total MREL is very healthy at 31.9%, significantly higher than our risk-weighted asset requirement, leaving us well positioned for the growth in risk-weighted assets I mentioned earlier. Having built out the maturity curve of our MREL stack, we have an annual refinancing requirement of GBP 3 billion to GBP 5 billion over the next few years.

Turning to liquidity on Slide 21. Our liquidity position remains very strong. At the end of the year, the LCR was 147% on a 12-month rolling average, reflecting around GBP 50 billion of surplus primary liquidity above minimum requirements. Our total liquidity portfolio was GBP 238 billion, comprising primary liquidity of GBP 157 billion and secondary liquidity of GBP 81 billion. Primary liquidity decreased slightly during the year, driven by an increase in lending, including the purchase of the consumer loan portfolio from Sainsbury's Bank, partially offset by issuances during the year. Secondary liquidity increased as more eligible collateral was prepositioned at the Bank of England.

During the year, we continued to transition the portfolio from cash holdings into securities, which provides a tailwind to income. The percentage of primary liquidity held in Central Bank balances has reduced from 87% of full year 2022 to 52% at the end of 2025, inclusive of net repo positions. Our Central Bank balances are held at both the Bank of England and the European Central Bank with 74% of balances held in sterling. Looking at the composition of the securities portfolio, 65% are held to collect and sell at fair value through other comprehensive income and 35% are held to collect and held on the balance sheet at amortized cost. The remaining primary liquidity is a smaller percentage of Level 1 high-quality covered bonds and Level 2 securities.

Turning to Slide 22 and our funding composition. Although customer deposits account for over 80% of the group's funding, we also have access to stable and diverse sources of wholesale funding across a range of products, maturities and currencies. Of the GBP 88 billion of wholesale funding outstanding, the large majority is senior holdco and regulatory capital issuance from NatWest Group and senior unsecured issuance from NatWest Markets. Drawing under the Bank of England's TFSME scheme are part of our funding mix, and we repaid GBP 3.8 billion during 2025. Our current drawings are GBP 8.2 billion with GBP 5.2 billion repayable in March 2027 and GBP 3 billion in March 2031.

On Slide 23, you can see that we were very active in 2025 in the wholesale funding markets, including benchmark transactions from both the group holding company and NatWest Markets. From NatWest Group, we have issued GBP 5 billion equivalent in holdco senior against our guidance of GBP 4 billion to GBP 5 billion for the year. In addition, we also issued GBP 1.25 billion of AT1 and GBP 0.9 billion equivalent of Tier 2 capital during the year. Sterling is, of course, our home currency, and it was pleasing to see such strong support for our sterling capital trades this year. While for NatWest Markets plc, our benchmark trades totaled GBP 7.9 billion across euro, dollars, Aussie dollars and Swiss francs, which included some prefinancing of 2026 requirements.

Turning now to our 2026 funding guidance on Slide 24. From NatWest Group, we expect our holdco senior issuance to be around GBP 3 billion this year, primarily to refinance maturing securities. On capital, we plan to be active in both AT1 and Tier 2 this year and expect to issue around GBP 1 billion equivalent in each, providing flexibility for expected increases in risk-weighted assets and looking ahead to the upcoming AT1 call in 2027. Actual issuance, as always, will be subject to both the evolution of risk-weighted assets, market conditions and any decisions on calls. Credit markets started strongly in 2026. And as a result, we took the opportunity to issue EUR 1 billion senior unsecured towards the NatWest Markets plc 2026 funding plan, leaving a requirement of around GBP 4 billion for the remainder of the year. And for NatWest Bank, we anticipate a return in 2026 to the secured credit markets with an expected requirement of around GBP 1 billion.

And finally, turning to credit ratings on Slide 25. It was pleasing to see progress in our credit ratings during the year with our group senior rating now rated in the single A category across all 3 rating agencies. In June, Fitch upgraded the rating of NatWest Group plc to A+ from single A and upgraded all rated operating companies, including the issuing entities, NatWest Markets plc, NatWest Markets N.V. and RBSI Limited to AA- with a stable outlook. In September, S&P raised the rating of NatWest Group plc to A- with a stable outlook, acknowledging the group's strong profitability, disciplined risk management and sound funding and liquidity profiles. That was followed in November by rating upgrades on NatWest Group plc's AT1 and Tier 2 capital instruments to BBB- and BBB+, respectively.

With that, I'll hand back to Katie.

Thanks, Donal. Let me summarize our guidance for 2026. Excluding the impact of Evelyn Partners acquisition, in 2026, we expect income, excluding notable items, to be in the range of GBP 17.2 billion to GBP 17.6 billion. Other operating expenses to be around GBP 8.2 billion, the loan impairment rate to be below 25 basis points, capital generation before distributions to be around 200 basis points and return on tangible equity to be greater than 17%. I'd like to finish with our plans for the next 3 years and 2028 targets. With our strong performance in recent years, we have refined our 3 priorities as we raise our ambition for the bank. We remain committed to pursuing disciplined growth with an emphasis on returns. First, by focusing on key customer segments; second, by making it easier for customers to engage with us; and third, by broadening our propositions to ensure we serve more customer needs.

Our second priority has evolved to leveraging simplification, and we will continue to invest, in particular, in AI to drive growth, improve productivity and enhance the customer experience. And we will continue to manage our balance sheet and risk well by redeploying capital to drive returns with a greater emphasis on dynamic pricing as we increase our speed and agility with more advanced data and analytics. The purpose of these priorities is to deliver growth and attractive returns. And for 2028, having considered our acquisition of Evelyn Partners, our aim is to grow customer assets and liabilities at an annual rate greater than 4% from 2025 to 2028, reduce our 2028 cost-income ratio to below 45%, while generating more than 200 basis points of capital before distributions and operating with a CET1 ratio of around 13%. We are targeting a return on tangible equity of greater than 18% in 2028.

And with that, we'll open up for Q&A.

[Operator Instructions]

Our first question today is: Thank you for your slide on risk density. It's a very helpful disclosure. You have had a very strong couple of years on capital actions and SRTs. Going forward, how do you think about risk appetite and quantum of RWAs that can be optimized?

Thanks, Oliver. Donal, would you like to take that one?

Yes, sure, Katie. I'll take that one. Thank you. Yes. So again, in 2025, we said we executed 5 SRT transactions in our C&I business, and we said GBP 4.6 billion of RWA optimization. We also executed in our retail business, the securitization of Stage 2 and Stage 3 mortgages, delivering a further GBP 2 billion of RWA benefit. So we see significant risk transfer as a very important capital and risk management tool going forward and one of a number of levers we have to manage and optimize our capital base and risk profile. We continue to see good demand for SRTs across multiple asset classes. So going forward, we do see further potential to do more transactions in 2026 and '27 to further increase the capital velocity of the business and contribute to our ROTE in BAU and performance under stress.

In terms of risk appetite, we assess and consider the quantum and timing of risk weights accreting back on to the balance sheet. And we also consider the duration of the transaction against the duration of the underlying asset pool, which is very well matched. So if you think 2026 will be the third year since we reestablished the program. So we're getting closer over '26 and '27 to what we would say would be more of a steady state given the underlying transactions roughly have about a 4-year duration. So I do expect more to come in that space next year -- this year.

Our next question comes from Dan David of Autonomous.

Congrats on the results. I note the CET1 target cut, and I appreciate the disclosure and the time in which those targets have been set. However, if I look at your numbers, I think the leverage headroom is a bit tighter and leverage appears to be the binding framework. We also see this in MREL. So I'm just interested, how do you set the leverage buffer target in relation to the capital target or the RWA framework? Can you maybe just talk us through that? And then I guess, in relation, you've got an AT1 in the plan this year and no calls. Should we see that as net new to provide leverage headroom?

And then finally, more broadly, do you think that the PRA is going to cut your leverage requirements as a result of the comments in the [indiscernible].

A couple of elements there. Please share if I miss any element. Yes, I think if you're looking at kind of the total MREL, there's not a lot really between kind of our risk weight and leverage requirement. I think one way I would probably think about it is given the guidance we've given you on Basel 3.1 today on risk weights, what we would do is we would expect risk -- once that comes through the GBP 10 billion on the 1st of January 2027, expect risk weights to be our binding constraint on a look-forward basis. So we don't see leverage as binding over the medium or medium term. Secondly, I think from an AT1 perspective, in terms of the guidance we've given you, just think about that in terms of both the growth aspirations again that we outlined this morning, the uplift in risk weights from Basel 3.1 and then the upcoming call, as you mentioned, in May of next year. So in effect, it's primarily driven by the refinancing with a little bit of growth in plan as well.

And then I think the final element of that question in terms of the FPC review, I think what was quite clear from the outcome of that FPC review was that leverage requirements in the U.K. are higher than across kind of a peer comparison across Europe and the U.S. So I think I would be hopeful that we will see something on leverage buffers in particular, I think, from the FPC this year. I hope that answers all elements Dan.

I think it is. Thanks Dan.

Our next question comes from Gildas Surry of Credit Agricole.

Congratulations on the results. So just wanted to follow up on SRT. So I understand that you are more in a ramp-up mode. You indicate GBP 4.6 billion of RWA. So if we factor that into your CET1 ratio, it's about a bit more than 30 basis points. So if we sort of project that into 2 or 3 years, should we expect maybe the SRT CET1 savings to land around maybe 60 to 80 basis points or if you could guide us maybe, please?

And the second question would be on liquidity, in particular, your LCR. So when we look at the digitalization trend, in particular, what you indicated this morning, 82% of your customers in retail are actually banking entirely digitally. When we compute the LCR, in particular, the denominator and we look at the mix of stable deposits and less stable deposits, so you basically have 61% of stable deposits versus 39% of less stable. And yes, just curious to hear more context about how we can reconcile the trend towards digital, so 82% in retail and the mix of stable versus less stable deposits that is actually very sort of set in stone because of the 5% and 15% outflow rates that are factored into the LCR calculation. And typically, if we factor a higher portion of less stable deposits to reflect the 82%, there's a massive move in the LCR. So I just wanted to hear your feeling about the way LCR reflects adequately what is happening in the digital shift within retail?

Perfect. So Donal, why don't I start off on that one, and then you can come and finish off and then go on to the SRT question. Perfect. Look, I guess as we look at the kind of the sort of split between [ NIBs and NIBs, ] it's been obviously incredibly interesting to kind of watch. But what I would say we've kind of seen the level of stability, I would say, within the last couple of years, and we've kind of started with that kind of 17% that's sitting in the kind of fixed term and about 30% that's sitting in the noninterest-bearing.

What we have talked about today in terms of our greater than 4% increase in CAL, which is our lending, our deposits, our assets under management, we do expect to see an ongoing increase on that noninterest-bearing deposits. So they kind of the numbers which are more appropriate for us in terms of that liquidity value in terms of their kind of stickiness. So we do expect that to continue to grow a little as we move forward from here, which I think is helpful. But it has been interesting that the percentages overall haven't really moved around a lot, and we do continue to see growing deposits across all of the bank, I mean.

Donal, do you want to talk about the specifics of percentages and then maybe go into SRTs?

Probably the only other thing I would add is the -- in terms of the digitalization, that's not something new in the U.K. kind of digital banking has been around for a number of years. And when we look at the underlying behavior of deposits, yes, there has been some movements, as Katie mentioned, across, particularly in the -- probably in the fixed term is where we've seen kind of a lot of competition and kind of customer behavior changes over the last kind of 12 to 24 months. But if I look at the underlying composition of stable and non-stable from a world of digitalization, we haven't seen a huge change in customer trends. So I'm not expecting in the near term anyway for that to have any material impact or change in our LCR metrics on outflow assumptions.

On the second question on SRTs, we haven't kind of guided to the exact CET1 impact. But what you -- the math you've done is not too far away, GBP 4.6 billion of risk weight benefit this year, I think about GBP 4 billion last year. If I was kind of run some quick sums on that, that's about a 50 basis points benefit to CET1. Kind of your 60 to 80 basis points doesn't seem kind of too far away given our aspirations to kind of execute more transactions over this year and next year. But obviously, you also need to consider there the accretion of the existing transactions back onto our balance sheet as well. So hopefully, that answers those questions. Thank you.

[Operator Instructions]

Our next question is: Could you take me through the rationale for moving your impairment change guidance to 25 basis points? If I look at the past couple of years, it has been significantly below that. So my question is, what is driving it higher?

Yes. Thanks very much. That's great. And Rick, so we are guiding to less than 25 bps for 2026. We've always guided you to a through-the-cycle guidance of 20 to 30 basis points. So that's unchanged. I would say, as we look at why is our guide higher than 2025, there's a few things that it represents. First, there has been a broader kind of normalization in impairments, which will include sort of less one-off releases than we've seen. We've also got a growth in the loan book coming through and particularly from particular sectors. So if I look at things like our retail unsecured mix has grown from around 6.5% in 2023 to over 8% in 2025. And those unsecured balances grew more than GBP 3 billion in 2025.

And so as you know, when you look at your impairment level, they naturally attract a larger impairment charge. And that was, of course, the change was supported very much by the acquisition of the Sainsbury's Bank unsecured book. So I would say is our guidance isn't dependent on post-model adjustment releases. There's no material shift in risk appetite. We also aren't anticipating or seeing any particular stresses in our 3 businesses at this stage and not expecting that in 2026. So it really is just a normalization of the historic kind of practice, and I wouldn't see any particular reason to be too concerned about that.

Our next question comes from Robert Smalley from MacKay Shields.

Great. Just one more follow-up on RWA density. Especially with the acquisition announced earlier this week, both commercial and industrial and retail banking, you have ways that you can offload RWAs. But in the Private Banking and Wealth Management area, might be a little harder to do. I'm wondering, especially given the acquisition, are you looking at increasing lending there? And as a result, RWAs and RWA density goes up in that segment? That's my first question. And then just secondly, on issuance simply, senior holdco number is a little bit less. But when I look at maturity profile over the next couple of years, we ratchet back up. So can we expect 2026 to be kind of a low in terms of senior holdco issuance and then a couple of billion more in 2027 and 2028?

So I take the first one, Donal, and then you can jump in. So Rob, if I talk to kind of RWA density, we've actually included a slide at the back of the equity slides earlier, which is on Slide 44 in equities, and apologies that may well be in the fixed income side, which kind of gives you...

It's on 33.

Lovely you're already there, but it shows you the density and actually, it's been really quite stable. And so we're not expecting that to particularly change as we move forward. We are expecting obviously growth in our RWAs as we grow the book. And then if you look at the private banking, you can see that, that they only account for GBP 11 billion of our RWA pool. They are obviously -- they're kind of 51% sort of density. So not a number that's particularly out of line with some of the C&I, slightly better than there. When I think of the Evelyn acquisition, we'll carry a little bit of RWAs in terms of operational risk within there. Obviously, the actual product that they have is very -- is a capital-light business.

So they're not -- we're not going to be allocating capital to it in the same way. What we do expect to do some sale of our banking product through to them. So we might see a little bit of a pickup in the RWAs that we're carrying within private banking, but I'm not overly worried about that. The pool itself is quite small, which would be harder to do some kind of SRT type transaction on, but we certainly push the business to make sure that they are managing those SRTs very efficiently. They're on a standardized basis, which is why you would see relatively compared to other bits of the group, they might appear a little bit higher. But we're very comfortable with the level of density that we have and comfortable that it's pretty stable.

Donal, do you want to talk to [ Coles]?

Yes. Just on issuance for the plan. Robert, I think your summary is spot on, to be honest with you. So as we've guided to GBP 3 billion for this year, we're normally around that GBP 4 billion to GBP 5 billion requirement. And as you said, it's purely just driven by the maturity profile. So I would expect beyond '26 for us to be back up probably at that roughly GBP 2 billion higher.

Thank you for all your questions today. I would now like to hand back to Katie for any closing comments.

Lovely. Thanks very much. And look, thanks very much for joining the call. It really means a lot to us to get this opportunity to speak to you directly. As you know, Paul Pybus is available within our Debt IR team if there's any other questions. We'll meet many of you over the coming months as we do some IR road shows, but we are always very appreciative of our debt investor support, and I thank you for another strong year of that, and we look forward to working with you closely in 2026. Take care. Thank you very much.

Thank you.

That concludes today's presentation. Thank you for your participation. You may now disconnect.

Good morning, and welcome to NatWest Group's Full Year 2025 Results Management Presentation. Today's presentation will be presented by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions.

Good morning, and thank you for joining us today. As usual, I'm here with Katie, who will take you through the full year performance. After that, I'll talk about our strategy and our new 2028 targets. But first, let me start with an overview of 2025 and a year in which we delivered another strong performance and made good progress on each of our strategic priorities.

Highlights of the year include a return to private ownership in May opening a new chapter for the bank with a focus on driving growth. Continued organic growth, together with successful completion of the Sainsbury's Bank transaction, improving operational leverage with a reduction in our cost income ratio of 4.8 percentage points, together with strong capital generation, enabling total distributions to shareholders of GBP 4.1 billion. You will also be aware that we announced the acquisition of the financial planning and investment firm, Evelyn Partners earlier this week, which I'll talk about later.

So let's turn to the headlines. We added 1 million new customers during 2025, and delivered broad-based growth across all 3 businesses. Lending grew 5.6% to GBP 393 billion. Deposits were up 2.4% to GBP 442 billion. And assets under management and administration increased 20% to GBP 58.5 billion. This activity resulted in strong income growth of 12% to GBP 16.4 billion. costs grew 2% to GBP 8 billion, resulting in positive jaws of 10%. The cost income ratio reduced to 48.6%. This led to operating profit of GBP 7.7 billion and attributable profit of GBP 5.5 billion.

Earnings per share grew 27% to 68p and dividends per share increased 51% to 32.5p, and tangible net asset value per share was up 17% to 384p. Our CET ratio was 14% and return on tangible equity was 19.2%. As you can see here, these results are even in line with or above our strengthened guidance. Our strong risk management is evidenced by a loan impairment rate of 16 basis points, and total distributions announced in 2025 of GBP 4.1 billion comprised buybacks of GBP 1.5 billion and dividends of GBP 2.6 billion, in line with our payout ratio of around 50%.

This includes the buyback of GBP 750 million announced on Monday, along with our acquisition of Evelyn Partners. These results continue our track record of delivering value for shareholders. Over the past 4 years, earnings per share have more than doubled, growing at a rate of 26% a year. Dividends per share have more than tripled, increasing at a rate of 33% a year and TNAV per share has grown 41% at a rate of 9% a year. At the same time, our share count has reduced from over 11 billion to just under 8 billion.

Turning now to our 3 strategic priorities. I'll start with disciplined growth. We now serve over 20 million customers across our 3 businesses, and 2025 marks our 7th consecutive year of growing customer balances. In Retail Banking, our customer base increased by more than 5%, and customer assets and liabilities grew 4% to GBP 421 billion. This includes the addition of around 1 million new customer accounts from the Sainsbury's transaction, which contributed to our unsecured stock share growing from 6.4% to 7.2%. Including an increase from 9.7% to 10.6% in credit cards.

In Mortgages, we increased our flow share of first-time buyers from 10% to 12% and of the buy-to-let market from 3% to 6%. We are also extending our reach through NatWest Boxed, which provides embedded finance to companies such as the AA and Saga.

In Private Banking and Wealth Management, over 50,000 customers invested with us for the first time in 2025. Net new flows to assets under management grew 41% and assets under management and administration increased 20% to GBP 58.5 billion. AUMA is now 49% of client assets and liabilities, up 4 percentage points on the prior year and customer assets and liabilities grew 10% to GBP 119 billion.

In Commercial & Institutional, we extended our expertise in FX to a further 700 mid-market customers during the year. Many of them by our online platform for FX agile markets, where the number of users grew 13%. This contributed to FX revenue growth of around 20%. Lending balance growth was strong at 10% or GBP 14 billion. We lend GBP 4.6 billion to the U.K. social housing sector, where we reached our GBP 7.5 billion ambition ahead of schedule and have announced a new GBP 10 billion ambition to 2028.

We are also the leading lender to U.K. infrastructure projects, and we delivered GBP 19 billion of climate and transition finance towards our 2030 target of GBP 200 billion, of which GBP 16 billion was in Commercial & Institutional.

I'd like to turn now to our second strategic priority, bank-wide simplification. We continue to invest to improve customer experience and increase efficiency. During the year, we made gross cost savings of around GBP 600 million, which is over 7% of our 2024 cost base. And we created GBP 100 million of investment capacity in 2025 to reinvest and further accelerate our transformation.

Taking a look at each business. In Retail Banking, our award-winning app has a Net Promoter Score of 51. And as we continue to invest to improve customer experience, we launched more than 100 new features during the year. We also launched generative AI enhancements in our digital assistant core. As a result, the number of queries that can be resolved has increased by 20 percentage points. The cost/income ratio in Retail Banking decreased from 50% to 45%.

In Private Banking and Wealth Management, we doubled the number of enhancements on the app, increasing our rating on the App Store to 4.4% and our Net Promoter Score to 54, up from 50 at our spotlight last June. In addition, we are leveraging group capabilities to simplify our operations. For example, we rehosted our core banking platform from Switzerland to the group data center in the U.K. and we are co-locating our people with other NatWest teams. So we are relocating our tech team from Switzerland to the U.K. and India. The cost income ratio in Private Banking and Wealth Management reduced 10 percentage points to 64%.

In Commercial mid-market banking, we are investing in our digital platform Bankline to give customers a single point of access to a wide range of products. We have now integrated our asset finance, invoice finance, payments, commercial cards, FX and trade platforms within Bankline. and customers access products via Bankline around 300,000 times last year. We also took steps to reduce our legal entities and branches in Europe. The cost income ratio in Commercial & Institutional reduced from 52% to 49%.

Turning now to our third strategic priority, managing capital and risk. We generated 252 basis points of capital during the year, supported by reducing RWAs by GBP 10.9 billion through capital management. This includes 5 significant risk transfers in Commercial & Institutional and a GBP 2 billion mortgage securitization in Retail Banking. We have a high-quality lending book in all 3 businesses with a low level of impairment at 16 basis points of loans. And all this enables us to recycle capital into areas where we have chosen to grow.

The successful implementation of our strategy gives us the ability to invest in the business, support customer growth and deliver attractive returns to shareholders. As I mentioned earlier, we have announced total distributions of GBP 4.1 billion for 2025, representing 75% of attributable profit.

With that, I'd like to hand over to Katie to take you through our financial performance.

Thank you, Paul. I'll start with our performance for the full year, where, as Paul said, we have either met or exceeded our third quarter guidance. Income, excluding all notable items, was up 12% at GBP 16.4 billion. Total income included GBP 241 million of notable items. Total operating expenses were 1.4% higher at GBP 8.3 billion and the impairment charge was GBP 671 million or 16 basis points of loans. Taken together, this delivered operating profit before tax of GBP 7.7 billion and profit attributable to ordinary shareholders of GBP 5.5 billion. Our return on tangible equity was 19.2%.

Turning now to the fourth quarter compared with the third. Income, excluding all notable items, was up 2.5% at GBP 4.3 billion. Operating expenses were GBP 2.2 billion, including the annual bank levy. The impairment charge was GBP 136 million or 13 basis points of loans, bringing operating profit before tax to GBP 1.9 billion. Profit attributable to ordinary shareholders was GBP 1.4 billion. Our return on tangible equity was 18.3%.

Turning now to income. Full year income, excluding notable items of GBP 16.4 billion exceeded our guidance of around 16.3%. Across the 3 businesses, income grew by GBP 1.8 billion. This was largely driven by higher net interest income as balance sheet growth and the benefits of the structural hedge more than offset the impact of the Bank of England rate cuts. Net interest margin was up 21 basis points to 234 basis points, mainly due to deposit growth, coupled with margin expansion. Noninterest income grew 1.3% and reflecting solid customer activity as we supported their investment, FX and capital requirements.

Turning to the fourth quarter. Income, excluding notable items, grew 2.5% to GBP 4.3 billion. Across our 3 businesses, income increased by 2.8% or GBP 116 million. Net interest income grew 4.5% or GBP 148 million, reflecting the trend over the year or volume growth alongside margin expansion. As a result, net interest margin was up 8 basis points to 245 basis points. Noninterest income across the 3 businesses was down 3.7%, mainly driven by Commercial & Institutional, reflecting typical seasonality after a strong third quarter.

Turning to 2026 guidance, which excludes the impact of Evelyn Partners. We expect income, excluding notable items, to be within a range of GBP 17.2 billion to GBP 17.6 billion, and our current forecast is within this range.

Turning to growth. As you heard from Paul, our 3 businesses have a strong track record of growth over the last 7 years. We have grown customer lending at 4.5% a year. This includes broad-based organic growth as well as acquisitions, which support scale and underweight areas such as mortgages and unsecured lending. Customer deposits have grown 3.9% a year supported by a boost during COVID as well as new propositions and an improved digital offering. AUMAs have grown at 12% a year and have more than doubled since 2018. These 3 elements together make up customer assets and liabilities, or CAL, which has grown at 4.6% a year.

We focus on this metric as it reflects the breadth of balance sheet solutions we offer to meet customer needs. This track record gives us confidence that we can continue to grow CAL in the future, and Paul will talk more about our 2028 target shortly.

Let me take you through the last year for each of these elements in turn. We delivered another year of strong lending growth. Gross loans to customers across our 3 businesses increased 5.6% or GBP 20.9 billion to GBP 392.7 million. There was broad-based growth across Mortgages as we increase our flow share of the first-time buyer and buy-to-let markets with strong retention as well as new business flows. Unsecured lending growth was supported by the addition of Sainsbury's Bank balances and the first full year of our personal loans offering for the whole of market.

In Commercial & Institutional, we grew in all 3 businesses with lending up GBP 14 billion or 10% excluding the repayment of government loan schemes. This reflects our leading position as the U.K.'s biggest bank for business with growth across social housing, residential commercial real estate, infrastructure, project finance and fund lending.

I'll now turn to deposits. Customer deposits across our 3 businesses increased 2.4% to GBP 442 billion with a stable mix throughout the year. Retail Banking deposits increased GBP 7.8 billion or 4%, reflecting growth in savings and current account balances, supported by balances acquired from Sainsbury's Bank. This includes growth in the fourth quarter of GBP 6.8 billion, reflecting strong growth in savings of GBP 6.4 billion, supported by our limited edition Saver and term products and growth in our current accounts of GBP 0.4 billion.

Private Banking and Wealth Management increased by GBP 300 million in 2025, also reflecting growth in current accounts and saving balances with progress driven by both deeper engagement with our existing customers and new customer acquisition. And C&I deposits increased GBP 2.3 billion, reflecting growth within large corporates and business banking.

Moving now to assets under management. We are pleased to see the plans we talked about at the June spotlight delivering for our customers and shareholders. AUMA increased almost 20% this year to GBP 58.5 billion and net flows of GBP 4.6 billion were up 44%. Fee income from higher AUMAs grew 11% to GBP 300 million.

Moving now to the continued tailwind from our structural hedge. As you will be aware, in addition to our product structural hedge, we also have a longer duration equity structural hedge. Together, they are GBP 198 billion in size, GBP 4 billion higher than last year, and are an important driver of income growth. In [indiscernible] GBP 4.2 billion, this is GBP 1.2 billion higher than the previous year and GBP 3.2 billion higher than 2021.

Our equity hedge income was almost GBP 500 million which is around GBP 50 million higher than the previous year and around 25% more than 2021. The yield on both hedges has increased significantly over the last few years as interest rates rose. This slide shows our expectation for future yield progression based on our current macroeconomic assumptions and hedge durations together with associated income growth.

We expect yield to increase from 2.4% in 2025 to around 3.1% in 2026, with further increases thereafter. Our illustration here assumes steadily increasing average notional balances for both the product and equity hedges, driven by growth in Coal and higher levels of capital held to support that growth. This expectation of increasing yield and notional balances drives higher annual income through to 2030.

We are sharing our expectations for this year and next as more of the near-term income growth is locked in. We expect 2026 total hedge income to be around GBP 1.5 billion higher than 2025. And for 2027 to be around GBP 1 billion higher than 2026, reaching total income of around GBP 7.2 billion. Exactly how this develops will be subject to the prevailing reinvestment rates each year as well as the composition of growth in CAL.

Turning now to costs. Other operating expenses were GBP 8.1 billion, including onetime integration costs of GBP 96 million, in line with our guidance. We are pleased with our delivery of around GBP 600 million of gross cost savings, which has allowed us to invest in business growth and accelerate our simplification program. Costs grew 1.8% if you exclude onetime integration costs. Our cost income ratio reduced to 4.8 percentage points to 48.6%.

In 2026, we expect other operating expenses to be around GBP 8.2 billion. Staff costs will be a key driver of overall cost growth. We also made significant investment in the business each year with a range of initiatives to drive operating leverage. We expect further supplier contract inflation and increased business transformation costs this year. Delivery of around GBP 8.2 billion in 2026 will be supported by another year of significant gross cost savings.

Turning now to our updated macro assumptions. Our base case outlook for the macro environment in 2026 assumes moderate growth, slightly lower than our previous year. The unemployment rate increased slightly above our expectation for 2025 and we now expect this to peak in 2026 at levels we are comfortable with in terms of lending risk appetite. We also expect inflation to come down at a slightly faster pace given the most recent print. And we expect lower rates reaching a terminal bank rate of 3.25% by the end of 2026.

Our balance sheet remains well provisioned with expected credit loss of GBP 3.6 billion and ECL coverage of 83 basis points. We are comfortable with 1.1% of Stage 3 loans, which is down on the prior year, reflecting management actions in our personal portfolio, together with lower defaults in our nonpersonal portfolios. Our remaining post model adjustments for economic uncertainty are GBP 246 million, broadly stable in the third quarter.

We will continue to assess these provisions each quarter and release as appropriate. Our latest scenarios also show that even if we were to give 100% weight to our moderate downside scenario, this would increase Stage 1 and 2 ECL by GBP 54 million.

I'd like to turn now to the impairment charge for the year. Our prime loan book is well diversified and continues to perform well. We're reporting a net impairment charge of GBP 671 million, equivalent to 16 basis points of loans. There were no significant signs of stress across our 3 businesses and impairment levels across our products have performed broadly in line with our expectations. In 2026, we expect our loan impairment rate to be below 25 basis points. This guidance is not dependent upon post-model adjustment releases or any material shift in risk appetite. It's simply a reflection of normalization in impairments and lower one-off releases as well as growth in the book and ongoing changes in the mix.

Turning now to capital. We ended the year with a common equity Tier 1 ratio of 14%, up 40 basis points on last year. In 2025, very strong capital generation of 252 basis points took our CET1 ratio before distributions to 16.1%. Distributions accounted for 213 basis points of capital, including accruals for our ordinary dividend payout of around 50% and our buyback of GBP 750 million that we announced on Monday.

Risk-weighted assets increased by GBP 10.1 billion to GBP 193.3 billion, within our guided range. GBP 3.8 billion of higher operational risk-weighted assets includes GBP 1.6 billion in the fourth quarter as we brought forward our annual operational risk recalculation from the first quarter in 2026.

You should now expect us to include this in the fourth quarter each year. GBP 11.1 billion of business movements broadly reflects our lending growth across the year. This was largely offset by a GBP 10.9 billion reduction from RWA management, including GBP 5.7 billion in the fourth quarter. So in essence, our actions this year have funded the growth in our lending book. Other movements include GBP 7.3 billion from CRD IV model inflation, of which GBP 4.8 billion was in the fourth quarter. We are now largely done, so we await PRA approval of our models.

There was also GBP 1.2 billion of other risks and FX movements. Going forward, we expect a further impact on RWAs with the implementation of Basel 3.1 in January 2027. Based on our latest recalibration of a higher balance sheet, we currently expect this to increase RWAs by around GBP 10 billion. The majority of the RWA uplift from Basel 3.1 is due to operational risk and the removal of the SME and infrastructure support factors. We do expect an offset in our Pillar 2 requirements at the same time for these elements, but the net result will still require us to hold a higher nominal amount of CET1 given the offsets are at a total capital level.

We also expect future growth to consume more capital in the form of RWAs. Despite this, we are confident in our ability to continue generating strong capital from earnings and to manage risk-weighted assets, and we are guiding to capital generation of around 200 basis points before distributions in 2026.

Turning now to our CET1 ratio. Our CET1 target of [ 13% ] has been in place since 2019. As you know, we've been actively looking at this over the last year or so. Today, our minimum CET requirement stands at 11.6%. And as you know, there are no changes to the capital requirements in the latest FTC review. So our supervisory minimum remains 11.6%. And we expect this to reduce further with the implementation of Basel 3.1 next year with a reduction in our Pillar 2 requirement, as I just mentioned.

Today, we are holding considerably more capital despite derisking. The successful restructuring of the bank is evident from the consistent and material improvement in our Bank of England Stress Test results. The performance of the business has materially improved, and we have demonstrated a track record of strong earnings high capital generation and returns. So as a result of all of these considerations and taking into account the views of stakeholders, including investors, rating agencies and regulators we are reducing our CET1 target to around 13%. This represents a healthy buffer over our MDA and supervisory minimum requirements and also reflects the expected reduction in Pillar 2 requirements on the 1st of January 2027.

Turning now to our acquisition of Evelyn Partners. As we outlined on Monday, we see a strong strategic rationale for this acquisition. It brings GBP 69 billion of AUMA scaling our Private Banking and Wealth Management to 20% of group CAL, a third growth engine for the group. It increases fee income by almost 20% on Day 1. And ultimately, it makes us a faster-growing, higher-returning bank with higher distribution capacity for shareholders. Operationally, it is deliverable, culturally, we are aligned and financially, it delivers for shareholders.

So let me show you how we expect to deliver a return on invested capital above that generated by our share buyback by year 3 after completion.

Evelyn Partners, 2025 income, costs and earnings before interest, tax depreciation and amortization, or EBITDA, Revenue synergies include bringing Evelyn Partners a broad range of financial planning and Wealth Management solutions to all our customers, enhancing our D2C investment offering via Best Invest. leveraging Evelyn Partners technology for portfolio management solutions and providing Evelyn Partners customers with our full range of banking solutions and combined wealth management offering. The business has grown AUMA at more than 7% a year for the last 2 years and bringing the combined capabilities to our customer base of more than GBP 20 million is a significant opportunity to create value.

The benefit of being part of NatWest Group should deliver income greater than GBP 700 million. We expect to realize around GBP 100 million of cost synergies by removing duplication in shared services and technology applications. where there is high alignment between our platforms as well as efficiencies of scale. The cost to achieve of approximately GBP 150 million will be phased over 3 years. This means we expect costs to fall in absolute terms to less than GBP 300 million by year 3. Together, this drives EBITDA of around GBP 400 million.

When assessing the transaction, we look at the returns accruing to capital. In other words, the return on invested capital. We do not include the amortization of purchased intangibles since amortization does not flow through to capital and does not impact our distribution capacity to shareholders. The cost of intangibles are taken in the day 1 impact of around 130 basis points on the CET1 ratio. Amortization is included in return on tangible equity. This is a capital-light business with very high returns on tangible equity, clearly accretive to the group in year 1 and beyond. Beyond year 3, we see further improvement in returns, driven by compounding net new money growth, driving higher assets under management and ultimately, stronger income growth.

Turning now to returns. This shows the drivers of return on tangible equity in 2026. The notable items in 2025 income and tax credits, which together account for around 1.3 percentage points of ROTE. Clearly, the year-on-year change in some P&L lines will impact ROTE more than others with income growth being the biggest driver. Naturally, the level of return will also be impacted by growth in the denominator average tangible equity. This will be driven by earnings, balance sheet growth and further unwind of the cash flow hedge reserve.

Overall, in 2026, we expect to deliver a return on tangible equity of greater than 17%. So to summarize our guidance. Excluding the impact of Evelyn Partners acquisition in 2026, we expect income, excluding notable items, to be in the range of GBP 17.2 million to GBP 17.6 billion. Other operating expenses to be around GBP 8.2 billion, the loan impairment rate to be below 25 basis points, capital generation before distributions of around 200 basis points and a return on tangible equity greater than 17%.

With that, I'll hand back to Paul. Thank you.

Thank you, Katie. So you've heard about our guidance for 2026. I'm now going to talk about our plans for the next 3 years and 2028 targets, which include the impact of the Evelyn Partners acquisition. You will be familiar with this slide, as you've heard about each 1 of our 3 businesses over the past year in our investor spotlights.

We are building on strong foundations with a customer base of more than 20 million and leading positions in each of our businesses, all of which deliver attractive returns. Our Retail Bank has a track record of growing share profitably, with an opportunity to align areas such as mortgages, savings and unsecured lending more closely with our 16.5% share in current accounts.

Private Banking and Wealth Management as a leading private bank with a strong brand and acts as a center for excellence within the group for investment products and solutions. With the acquisition of Evelyn Partners, a market-leading financial planning and investment management firm, we are creating the U.K.'s leading Private Bank and Wealth Manager. The combination increases assets under management and administration to GBP 127 billion and CAL to GBP 188 billion. It both transforms the scale of the business and the breadth of our financial planning and investment offering to meet more customers' needs across the group, further accelerating growth in assets under management.

Commercial & Institutional is the U.K.'s biggest bank for business with a 25% share of deposits and 20% share of lending. We are a leading bank for start-ups in the U.K. with the largest presence in the mid-market sector where we see significant opportunity. The scale and strength of our customer franchise gives us a strong base to build on with plenty of capacity for further growth. We believe the macro economy in the U.K. provides a supportive environment, consumers in aggregate are managing well.

You can see here that households are paying down debt and savings rates are high. Despite a challenging environment, particularly for sectors such as retail and hospitality, U.K. corporates are delevering and investments is steadily increasing. In addition, there are reasons to feel confident about the broader economy. In the housing market, interest rates are coming down, the government have set ambitious building targets and is committed to investing in social housing. There is a huge shift of generational wealth to younger generations underway.

Whilst the FCA's advised guidance boundary review opens up an opportunity for thousands of people who currently receive no financial advice. And the U.K. is home to high-growth sectors and businesses with an innovation sector that is growing faster than the U.K. economy. It's against this backdrop that we have been thinking about our strategy and 2028 targets.

Our strong performance in recent years demonstrates that our strategy is working. However, we review it on an ongoing basis and have refined our 3 priorities as we raise our ambition for the bank and target a 2028 return on tangible equity greater than 18%.

So let me talk about each priority in turn. We remain committed to pursuing disciplined growth with an emphasis on returns. First, by focusing on key customer segments; second, by making it easier for customers to engage with us; and third, by broadening our propositions to ensure we serve more customers' needs. Our second priority has evolved to become leveraging simplification, reflecting the advances and progress we have made. We will continue to invest, in particular, in AI to drive growth, improve productivity and enhance the customer experience. And we will continue to manage our balance sheet and risk well by redeploying capital to drive returns and by putting a greater emphasis on dynamic pricing as we increase our speed and agility with more advanced data and analytics.

The purpose of these priorities is to deliver growth at attractive returns for shareholders. Our increased ambition on returns is underpinned by 3 new targets growing customer assets and liabilities at an annual rate greater than 4% from 2025 to 2028, reducing our 2028 cost-income ratio to below 45% and generating more than 200 basis points of capital before distributions, whilst operating with a CET1 ratio of around 13%. These targets take into account the acquisition of Evelyn Partners.

So let me talk more about how we aim to achieve this, starting with disciplined growth. In Retail Banking, our focus is on youth families and the affluent segment. In the youth market, we are building on the success of our RoosterMoney app, which has grown its customer base 15x to well over 0.5 million. We bank 1 in 3 families in the U.K. and want to build on connections within families and households through savings and mortgage relationships, for example. We also have a clear opportunity to grow in the affluent segments. We have around 1.2 million affluent customers in the Retail Bank, yet just 0.5 million use our premier proposition. So our aim is to grow our premier customer base to 1 million and travel the number of Retail customers who choose to invest with us.

The Evelyn Partners acquisition will help accelerate the delivery of this ambition. It both enhances our direct-to-consumer investment platform with BestInvest and broadens our financial planning and investment offering. Private Banking and Wealth Management aims to increase the number of clients with more than 3 million of assets and liabilities by more than 20%. This will be supported by tripling the number of referrals from Commercial & Institutional.

In Commercial & Institutional we want to remain the leading bank for U.K. startups and for the commercial mid-market. We serve over 1 in 4 businesses in the mid-market segment, businesses that are growing at a higher rate than the U.K. economy. We have an unparalleled presence across the U.K., enabling us to build deep relationships based on strong local and sector knowledge and we are building on our position as a leading lender to U.K. infrastructure and U.K. social housing as well as our strength in trade and climate and transition finance.

Our second lever to deliver growth is making it easier for our customers to engage with this by combining our best technology with the support of our people. In Retail, most customers bank digitally but we also have over 1,000 personal bankers and relationship managers with a 24-hour call service for premier customers. Private Banking and Wealth Management has 250 advisers and [indiscernible], together with an award-winning gap supported by Coutts 24, which answers calls 24 hours a day. Evelyn Partners adds 270, financial planners, 325 specialist investment managers and its own direct-to-consumer investment platform, best invest. Again, it combines expert, personal service with digital excellence.

Commercial & Institutional as a digital platform bank line, an unparalleled network of around 1,000 relationship managers in commercial mid-market banking and a network of 12 accelerator hubs around the U.K. to help entrepreneurs grow and scale their businesses. We continue to invest in enhancing the digital experience for customers as technology advances and expectations evolve. For example, we are transforming our digital assistant core by deploying generative AI so that it can resolve more complex customer needs. We are moving our data onto a single platform to deliver more personalized propositions. And in Commercial & Institutional we are investing GBP 100 million over several years to transform Bankline into a state-of-the-art digital platform giving business customers a single point of access to many of our products and services.

Ultimately, we want a joint of experience, which adds value for the customer, however they choose to engage with us. We also want to meet more customers' needs by broadening our offering. For Retail Banking, this includes areas like home buying with more support for first-time buyers with family backed and shared ownership mortgages, offering more flexible savings accounts, developing tailored propositions for premier customers and entering point-of-sale lending. Private Banking and Wealth Management is primarily focused on investments. We are broadening our investment proposition to attract both high net worth clients and customers in the retail bank.

We are preparing our response to the FDA's recommendation for targeted support following their advice guidance boundary review and we are broadening our deposit offering. In Commercial & Institutional we see the U.K. innovation economy as a key opportunity. Last year, we created a dedicated venture banking team to support innovative venture back scale-ups and we opened new business accelerators last year with 4 leading universities, which acts as incubator with a plan to expand this to 10 over the next 2 years.

By continuing to deliver disciplined growth, our aim is to grow customer assets and liabilities across our 3 businesses at a rate greater than 4% a year, equivalent to more than GBP 120 billion of balance sheet growth by 2028. This will be a mix of broad-based lending growth, higher customer deposits and strong growth in assets under management and administration. We have already demonstrated our track record of growth.

Retail Banking makes up 44% of our customer assets and liabilities, where we have grown more than 5% a year over the past 7 years. Private Banking and Wealth Management is currently 13% of CAL with a strong growth rate of 8.3%. This will grow to around 20% of CAL with the inclusion of Evelyn Partners and Commercial & Institutional represents 37% of CAL with a growth rate close to 3%.

Moving on now to our second strategic priority, leveraging simplification where I'll start with architecture and data. We expect to drive a further GBP 100 million of investment capacity in 2026 by leveraging technology together with further streamlining our processes and governance. We have already made significant progress simplifying our systems and reducing duplication. For example, we decommissioned 200 business applications across the group last year. and we successfully migrated 1 million customers from Sainsbury's Bank covering multiple products. Last year, we announced the collaboration with Amazon Web Services to accelerate our data, analytic and AI capabilities.

This collaboration will give us a single view of each customer's relationship with the bank as well as the tools to analyze data and enrich our customer understanding. Deployment of AI is not only helping us to automate routine work such as call summarization, it is also helping our coders to be more productive. Over 12,000 software engineers are now able to use AI assistance to generate code. This transformation has enabled us to improve the deployment frequency of updates across the group by more than 4x since 2021 and more than trebled in new features on our commercial banking digital platform bank line.

This investment is also increasing our operational resilience. We have reduced the number of critical incidents from 9 in 2021 to 1 last year. Our ambition is to become the leading bank delivering personalized customer propositions powered by the responsible deployment of agentic AI. So we are building out our capabilities across the bank. Last year, we set up an AI research office focused on improving customer experience and efficiency by accelerating the use of AI in fields such as multi biometrics, audio visual conversational AI using proprietary small language models and ensuring algorithmic furnace as well as data safety.

This shift to a agentic AI marks a transition from simple chatbots to autonomous systems that can execute complex banking workflows on behalf of our customers. By prioritizing these capabilities, we can move beyond basic automation towards a simpler, data-driven experience that meets rapidly evolving customer expectations. Many of the building blocks that will make this vision a reality will go live this year.

This quarter, our customers will be able to ask questions about their recent spending in their own words on their app. And later this year, we will launch voice to voice conversations and more agentic fraud support. By delivering income growth ahead of cost growth, we expect to reduce our cost income ratio below 45% by 2028. Our track record of tight cost control gives us competitive advantage as it enables further growth. So our ambition is to strengthen our position as the most efficient large bank in the U.K.

Turning now to our third strategic priority, active balance sheet and risk management. The strength of our capital funding and liquidity position provides significant opportunity to deliver continued balance sheet growth, together with attractive sustainable returns for shareholders, whilst operating with a CET1 ratio of around 13%.

Our loan-to-deposit ratio of 88%, demonstrates the strength of our 3 businesses and our capacity to deliver material lending growth to support our customers and the U.K. economy. We continue to recycle in efficient lower returning capital into attractive growth areas to drive higher returns, and we have been active in significant risk transfers and credit risk insurance to increase capital efficiency.

You can also expect to see a greater emphasis on the use of advanced data analytics to drive faster pricing, credit and asset enablement decisions. In addition, data analytics will help us manage risk dynamically, whilst optimizing risk-adjusted returns. We will continue to deliver our through-the-cycle cost of risk of 20 to 30 basis points aligned with our risk appetite. And we also want to maintain our market-leading position in customer fraud prevention with multi biometric authentication.

Our aim in pursuing disciplined growth, leveraging simplification and managing capital and risk is to drive strong growth and returns for shareholders. Given our strong track record of delivery, we are raising our future ambitions.

So let me sum up with our 2028 targets. We aim to grow customer assets and liabilities at a rate greater than 4% a year as we continue to drive disciplined growth. We are targeting a cost income ratio below 45% as we drive positive operating leverage and we aim to generate more than 200 basis points of capital before distributions, whilst operating with a CET1 ratio of around 13%.

Strong capital generation gives us the ability to support customer growth, invest in the business and deliver attractive returns to shareholders. We are targeting a return on tangible equity greater than 18% in 2028, and we expect to maintain our dividend payout ratio of 50% with scope for surplus capital to be returned via buybacks.

Thank you very much. We'll open it up now for questions.

[Operator Instructions]

Our first question today comes from Sheel Shah from JPMorgan.

I've got 2, please. Firstly, on costs. The GBP 600 million of cost saves that you've seen in 2025. Could you talk about where that's come from and how we should think about the level of cost saves coming in 2026, particularly with regards to some of the technology developments that you've spoken about? And should we be thinking about a cost growth towards the out years of around sort of a 2% level going forward?

And then secondly, in terms of the greater than 4% customer assets and liabilities target, I was wondering if you can disaggregate this across the divisions? And maybe more specifically, would you expect all of the business areas to be at this target level? And maybe sort of pointing up the corporate business here. Looking at that, it is slightly below target in recent years. So I'm just wondering whether you expect a pickup in this business.

Thanks, Sheel. I appreciate it. So, Katie, I'll talk generally about cost, you maybe want to come in around the outer years on cost and then I'll cover the CAL piece as well. So Sheel, on the -- first of all, I'd say we're very pleased with the momentum in the cost line. Obviously, nearly 5% reduction in the cost/income ratio this year. That's 20% plus over the last 4 years. So it feels like we've got a really good flywheel going in terms of driving out efficiencies and productivity in the business, reinvesting some of that capacity but making the bank more productive and more efficient going forward.

In terms of your question around what levers are we pulling. It's a really broad range of levers, I would say. A key part of it is the kind of historic and current tech investment. That's driving a lot more digitization, automation. We continue to decommission a lot of applications. We've consolidated a lot of platforms. So that's really helping.

We've also become a lot more efficient in how we do change. We talk about that in the presentation, GBP 100 million of benefits. In effect, we can do more change at lower cost, which is great for the customer, but also great for the cost outlook. And we're also continuing to simplify the business more generally, Sheel. So property consolidation would be one organizational simplification, legal entities, et cetera. So there's a whole range of costs -- a whole range of levers. And that's why for '28, we've said less than 45%, but we still -- and we see opportunity beyond that because we're very comfortable that this flywheel is heading in the right direction.

Katie?

Sure. Thanks very much. So look, Sheel, as I look to it, obviously, operating costs GBP 8.2 billion in for next year. It's very much as Paul says, it's the ongoing cost savings that we have, the higher investment spend on data and tech and the kind of -- as well as the higher business transformations and the benefits that we're seeing on that. We do expect -- you would be surprised to hear me say to continue our really cost type management as we go out into 2028 and really ensure that we're getting the benefits of that investment spend and that they are realized.

We do expect positive jaws in each year. We've brought in the cost/income ratio target of below 45% versus the very strong 48.6% we've already printed for 2025. That target does include the cost and, of course, income from Evelyn Partners, including our ongoing investment in that business. And I would say, if I had to look beyond 2028, I would expect to see further improvement in that ratio from here as well. So as ever, a very tight cost picture.

Great. Thanks, Katie. And then, Sheel, on your second broader question around CAL or customer assets and liabilities. We're not going to give you the exact -- and you probably don't expect it, the exact kind of split of growth. But what I'd encourage you to think about is we're very confident about growing across all aspects of CAL, lending, deposits, assets under management. given it's a 3-year cycle, we're going to push hard to grow where the opportunities present themselves.

Obviously, the environment will change. So different opportunities will be attractive at different times. I do think it's reasonable to expect that some areas will grow faster than others. If you look -- as you alluded to, if you look at our growth over the last couple of years, assets under management have typically grown at a higher CAGR. So a 12% on average over the last 7 years. Evelyn will obviously accelerate that given the compound growth in that business of 7%.

On lending, I'd say a broader picture, Sheel, very confident we captured -- I mean, historically, NatWest is a lending and credit franchise, and we can capture demand when it's there. So I'd expect lending growth across mortgages and retail, unsecured, but also, as you can see the growth in the Commercial & Institutional lending book in '25, GBP 14 billion, up 10% up. So we're not going to give you the breakdown, but I would plan across both lending, deposits and AUMA, and we're very confident that it will be greater than the 4% each year target for '28.

Our next question then comes from Benjamin Caven-Roberts of Goldman Sachs International.

So just wanted to ask a first one on profitability and a second 1 on the hedge. So if we look at the 19% return on tangible in 2025, I know there were a few factors which helped that result, including very low impairments, strong markets results, higher average bank base rate than likely in future years and a slightly lower effective tax rate than is modeled by consensus for the medium term. But aside from those, what would you call out as factors that you might see as being less favorable year-on-year in all elements of conservatism that effectively contributes to the sequential decline in RoTE on the lower end of your 2026 guidance. Put differently, is it fair to think of underlying RoTE is continuing to go up from here?

And then secondly, on the hedge tailwinds through to 2030, has anything changed in the structure, duration or notional assumptions of the hedge to facilitate that very strong uplift in '26 and '27 and then the continued uplift through 2030?

Thanks, Ben. Katie?

Yes, absolutely. So I'll start off with RoTE. So obviously, looking to our RoTE guidance of greater than 17% in 2026. You can see that we've got a record of high teens percent returns in there. So I wouldn't get too focused on the underlying versus this and that kind of coming in. We're very confident on delivering on this guidance. We did have a little bit of a boost in the year, but things come in at different points.

I think the important thing to remember is that we will continue to build capital both through this year as we get to the end of 2026 with Basel 3.1 coming in on January 1. That's the next GBP 10 billion of rent capital along there. And then alongside our P&L guidance, you should expect that average growth coming through on the tangible equity as well, which kind of is what pulls your RoTE back a little bit. It's important not to forget that.

But obviously, also, it's guiding you on the strong capital generation that we can see coming through and there will be the movement during the year of 130 bps as we have CET1 coming in. But overall, I guess as I look at the number, there's not one thing I would say, look at that as a negative or a drag particularly, but I would encourage you to think of CAL growth and how it feeds through to the TNAV growth.

If I then kind of take you on to the hedge in terms of where we are and the kind of -- how it's kind of structuring as we go forward from here. Look, when we look at the hedge, there's a number of different things that we kind of bring into that -- one of the debates we've been having is around the hedge duration and what we've been looking at, we are very stable at 2.8 years. It's important to reflect -- remember that, that reflects the product hedge at 2.5 years and the equity hedge at 5 years, which puts obviously 5 and 10 in kind of duration.

We spend a lot of time looking at the behavioral life of different deposit types, different cohorts across the deposit franchise of our 3 businesses. We're very happy to see the deposit stability and the growth over this last year. We look obviously backwards, but we also look forward in terms of what we're expecting there. We give consideration of how things might evolve in the future as we go forward from here. So conversations, you'd expect us to be having around things like digital currencies, stable coins, tokenized deposits as well, of course, the absolute competition that we see in this market.

We continue to dynamically monitor that and assess that over time and how we reinvest the hedge at the different lifetimes. And I think the other thing that's important, that I'm not sure you all think about enough as well as also the relative size of both of those hedges in terms of how they sit and what that then does to your kind of this averaging out of the age of the hedge.

I'd say one thing in addition, we do review our hedging instruments as gilts have repriced, we have actively been reinvesting our maturing 10-year swaps into 10-year gilts, which provides a pickup in yield that increased -- that contributed about GBP 50 million additional income from the equity hedge in 2025. Very comfortable with the approach we have while is kind of mechanistic and we talk about it is that a lot. It has a huge amount of thought that goes into the background to make sure we deliver the really quality returns that you see coming from this hedge year after year.

Our next question comes from Robert Noble of Deutsche Bank.

On Evelyn, did you look at anything else in the space as a potential acquisition? There are a list of wealth managers that trade at lower multiples. So what makes this specific one worth of premium compared to others? If I could ask about AI as well, there's been a route in the market this week and wealth managers and then more generally across the last kind of few months. Could you talk specifically about the risks from AI in this space? And then if we could broaden it out to traditional banking, what risk do you see from AI on deposit spreads, particular or any other material risk you see in banking from AI as well?

Thanks, Rob. So we got Evelyn, AI and Wealth and then more broadly on I guess, AI impact on banking. Okay. To the first question, as you'd expect, Rob, we monitor a number of participants and actually have done for a number of years. As you alluded to, there's private entities, there's listed entities, there's different business models. In terms of Evelyn, we absolutely thought it was the right fit for NatWest, very strategic acquisition, creating one fell swoop, the #1 combined private bank and wealth manager in the U.K. It transforms our wealth business, increases the scale of 2x from an assets under management perspective. And most importantly, or as importantly, brings key capabilities that will complement our proposition a direct-to-consumer platform, BestInvest, the largest employed financial adviser network in the U.K. and a broad suite of investment products and propositions.

So it was the combination of the scale, Rob, but also the capabilities that it brings. And it positions us, I think, excellently, for what is obviously going to be a growth area over both the short, medium and long term. We know that customer demand is increasing around financial planning, financial advice. As you see intergenerational wealth transfer that's only going to increase. I think it's an area that's going to be amplified by tech and AI, and I'll come back to that because I think it's going to make advice more accessible and more affordable. And it's obvious we have regular -- helpful regulatory tailwinds as well, whether that's the FDA's advice, guidance and boundary review, whether it's the targeted support developments, which will drive advice to more people that start in April.

So for us, it felt like the right partner, the right capabilities, creating a really substantial private bank and wealth management to complement the #1 business bank we have. In terms of the broader picture on AI and Wealth Management, that's been on our minds for banking. It's been on our eyes -- it's obviously been on our minds in the context of Wealth as we thought about the Wealth space over the last couple of years.

I actually think the winners in the Wealth space in respect of AI will be those who have scale and have data. When you think about 20 million customers that NatWest has, that's 200x the times of Evelyn. So the ability to use that scale and data, I think AI is a big accelerant and opportunity. Secondly, what all the customer research and customer insight tells us, both independent and our own is that the winning combination is going to be a combination of I guess, AI-driven digital wealth advice, but also expertise through humans and people for those big financial decisions, the complex aspects of financial planning.

So to me, you bring both together, you see AI really helping us get closer to our existing customers in the wealth space, which is great, but also access new customers at relatively low marginal cost. But then combined from a hybrid perspective with excellent advisers for the more complex financial needs. So that's how we think about it. So we have -- net-net, we think AI will be an accelerant and a winner and will be a winner in terms of our wealth aspirations. And we think the customer need is really this hybrid need.

And then more generally on AI, I mean, it's already affecting the sector. We've embraced it. That's from a colleague perspective and a customer perspective. I think it's going to change how customers engage with us or how they find us and discover us. I think what it plays to is, again, my point around scale. I think the winners here will be those who've got significant sized customer bases, 20 million for us, a long-standing relationships data. So you can bring products, propositions whether directly to your own channels or through other channels. I think that is going to be successful. And we're very thoughtful about that in terms of how we're building our capabilities. I hope that gives you a quite a big picture on all those big topics. Thanks, Rob.

Our next question comes from Amit Goel of Mediobanca.

So the first question is just on the broader capital generation targets. So one is more -- well, part of it is just a clarification. When we talk about the circa 200 bps for 2026, I guess does that exclude the Basil 3.1 effect, which comes 1st of Jan '27, or is that in there? And more broadly, just looking at the 2028 capital generation target, greater than 200 bps -- and just curious, it seems to be on the low side, especially if I think about the kind of RoTE target, greater than 18%.

So -- just if you can talk to your ability to meet or beat or how you reconcile to? And then just the second question, just a shorter follow-up. But, when we talk about the circa 13%, CET1 target going forward, is that a level where you'd be happy to operate one quarter or the other quarter with 12% kind of handle starting point? Or is it basically you'll look to be at 13% plus throughout your kind of operating period on a quarterly basis?

Thanks, Amit. So let me knock 2 of them off pretty quickly. So on the cap generation, yes, it excludes the 1st Jan '27 increases from Basel 3. So hopefully, that gives you the clarity there. We've also said that we believe that will be around circa GBP 10 billion. So x is the answer there. On the third question or the kind of sub question on CET1 and 13%, obviously, we've been thinking about that for a couple of years. It's around 13%. So the way I would think about it is it's not a hard floor. So that's the way to think about it.

And then on the broader question of '28 and capital generation. A couple of things. One is, it's important to remember it's on a growing balance sheet, so it includes the growth that we've talked about. So please bear that in mind. And I guess just a bit of context. Obviously, you can see 19% RoTE this year. You can see the capital generation at above 250 basis points. That's our third year of greater than 17% RoTE. It's on a balance sheet that continues to grow to the compound rate, and you need to bear that in mind when you think about capital generation going forward. And that obviously flows through to EPS, DPS and higher TNAV per share.

So that's how I would think about that. And as ever, we're very clear. Our target is you can see how we position our targets. The intention for '28 is to be greater than 200 basis points. Hopefully, it gives you a good picture.

Our next question comes from Christopher Cant of Autonomous.

If I could ask one on RWAs, please. So really pleasing to hear the detail around how you're expecting to grow. I think that's an important part of the story. But obviously, you're now talking about this CAL concept for growth, which makes it quite hard for us to think about the capital intensity of growth. Obviously, capital intensity of AUMA or deposits within that number quite different to lending growth.

I ask this new guide on the Basel 4 RWA impact, which I think is probably a bit above where consensus was. So if I could just invite you to comment on the consensus RWA expectations. I think we're at [ 223 ] in 2028. That would be appreciated just so we can sort of understand how you're thinking about the RWA piece of the puzzle?

And then on rates assumptions, please. Your base rate assumption is 3.25% flat, Fair enough as a planning assumption. Could I just understand what reinvestment rates you're assuming on the hedge within those gross income increments you've given us, given the flat base rate assumption, I assume you're assuming a lift swaps curve or a reasonably low reinvestment rate?

Very clear, Chris. Thanks, Katie.

Sure. Thanks very much. So if I deal first of all, you kind RWA outlook kind of point. I guess, as we look ahead, 2026 has obviously been underpinned by the disciplined balance sheet growth that we've got, the increasing regulatory clarity as well as the kind of further active kind of management, the primary driver will be the lending growth. One of the slides we have included in the appendix pack is, I think, on Slide 57, a bit of a detail on risk density to show you that the risk density of lending is stable. However, the volume will increase. So therefore, your volume of RWAs will follow through in that.

And so you need to kind of bear that in mind as you go through. There could still be a couple of small additional impacts from CRD IV in 2026, we think that's largely done. But obviously, our models are in that final stage of the PRA and there can be a little bit of movement as you get them kind of finalized.

I would also expect to see some further RWA management. I would say we've had a really stellar year this year on our WA management, so I wouldn't necessarily put that number into your model at quite that kind of high level, but it's something you will continue to see as we move forward from here. And then if I go to the hedge and in terms of that kind of reinvestment yield that we see, look, as you know, we talk a lot about the tailwind that's coming through on the hedge.

And if I look at our current economic assumptions, there's in the -- of the 5-year average of reinvestment rates, 3.5% in terms of the product hedge and the 10-year gilt reinvestment rate of 4.5% over the next 5 years. So we do expect that hedge to deliver on an annual year-on-year tailwind into 2030.

The second thing you need to think about as well is not just those rates, but also the size of the hedge we are assuming an increasing notional balance coming through. So we're GBP 190 billion in 2025. We expect that to grow to GBP 200 billion in 2026. And then I expect it to grow steadily as we move forward to 2030, supported by that CAL growth.

Obviously, some of that will be going into the hedge eligible deposits and others will be into the increasing size of the equity hedge. Chris, you if you were starting with me to probably say, those rates feel a little bit low. If I were to mark them today, they'd be a little bit higher, That's a fair statement, and I kind of accept that. However, kind of sitting where we are today, I'm comfortable with the rates for our base assumption. We'll see that as it comes through. But overall, we are really confident of this tailwind that we see coming through on the hedge in the next couple of years, but also all the way out to 2030. Thanks very much, Chris.

Our next question comes from James Invine of Rothschild & Co Redburn.

I've got a couple, please. The first is on the guidance. I mean, if we -- sorry, the revenue guidance that is. So if we start with your GBP 16.4 billion revenue that you printed for last year, you guided to the hedge being an extra GBP 1.5 billion, so we're up to GBP 17.9 billion. There's decent balance sheet growth. So that's another tailwind for that.

I know you've talked about Bank of England rate cuts. But I think from what I can see, the second one only comes right at the end of the year. So I was just wondering what are the headwinds you've got kind of factored into the 2026 revenue growth, please?

And then the second one is just on costs. So Paul, I think on one of your slides, you talked about doubling the number of coders to 12,000, but also the AI is now writing about 1/3 of their code. So from here, what are you expecting for where that number of coders needs to go? I can see reasons for why it might go up a lot, but also why it might come down a lot. So I'm just wondering what your view is, please?

Great. Thank you, James. Do you want to take income '26?

Yes, sure, let me kick off. Thanks, James. So as we look at that kind of guidance, [ GBP 17.2 billion to GBP 17.6 billion], we're very confident on it. We will deliver in that range. And if you look at it, what we will be delivering as a kind of 5% to 7% top line growth. So very good.

Let me help you a little bit on a little bit of your math. And there's a couple of things in there. First of all, and the most important thing in reality is customer activity. And where we kind of land in that range is going to be very dependent upon that kind of activity, I would say. But we have a strong multiyear track record of growth. You can see the growth that we're talking about this morning, what we've delivered in 2025, we would expect that to continue as we move into 2026.

Obviously, the mix will ultimately contribute into the income contribution. You're aware, we may talk about it more this morning as well, a little bit of pressure that there is on mortgage margins at the moment. We talked about that in Q3. And there's also some continuing competitive pricing going on in the savings products.

The second bit is on rates. 2 rate cuts, they're actually penciled in my forecast in April and October. So Q2 and Q4 as they come through. So they will have a little bit of an impact. However, I think you've also got to remember that we're not at the start of the rate cutting journey. We're quite some way through it. So if you think of our sensitivity, we give you, we give you year 1, we give a year 2 and year 3. The way I think about that number, it's a kind of negative [ GBP 500 million ] against that positive of the hedge coming through because you've just got the cumulative effect of those rates coming through. So I would bring that in.

And the third thing I would think about -- you heard me talk already about the RWA management action. They do come at a cost. And as I look into 2026 numbers, I would say the cost -- additional cost of the RWAs that we've done would be an extra kind of GBP 100 million as well. So I would take that off. And that will get you very nicely into the range that we're talking to you about the [ 17.2 to 17.6 ] and it's -- we're very confident that we're going to be able to deliver that. So thanks, James. Hopefully, that helps.

Paul, so I hand back to you.

Shifting gear to quite a different topic. I guess, engineering and productivity of software engineering, James, is something we spend a lot of time on as a management team. It's definitely a topic du jour. And it's pretty obvious the AI developments have been transformational for us. All our engineering and coding teams have got access to AI tools. As you alluded to, we have around 12,000 engineers and that's been increasing over a number of years. But now we're at a situation where circa 35% of the code is written by AI.

So I think over time, there will be choices around how you use that capacity. I think it's still an evolving picture. We've got a couple of quite exciting pilots running in 2 of our businesses in our international business and also in our financial crime area, where we're where we're, I guess, what we call doing fully agentic press play software, and that's actually delivering 10x productivity gains. So that's where you've got agentic workflows, autonomous agents, their planning, building code, testing code, but obviously then overseen in a responsible way by human.

So this space is, I think, exploding pretty quickly. And I think it's inevitable there'll be a change both in the profile of, let's call it, engineers in terms of the activities that they do. And then I think there'll be some choices about how you capture that productivity benefit to capture so of it to go faster, deliver more products and services to your clients and enhance the customer proposition. Or do you also see opportunities for -- we also see opportunities for productivity and efficiency.

And I think all of the things being equal, that's a reasonable expectation over the short to medium term, that there'll be some productivity and efficiency opportunities moving forward. Hopefully, that gives you a flavor for it. But very excited by the work that's going on there. But we are very mindful that we're a regulated industry, and we're doing it in a very responsible and thoughtful way. Thanks, James.

Our next question comes from Aman Rakkar of Barclays.

I had a question actually back on Evelyn. So Yes. I guess the market reaction to Evelyn has been what it is and coming in the backdrop of broader cross currents. But the feedback I've been getting is around potential execution risk around the deal. So I was kind of interested in your take around your comfortability to your confidence in your ability to kind of integrate this business and also extract value from it.

If you could bring a bit more to life around perhaps the revenue synergy that the degree of confidence that you have that in 2 years' time will give me looking back and think there's a good deal. And the kind of related question is a repeat of a question from earlier this week. But could you -- can you help us with your assumptions around attrition? I think that is essentially a key unknown variable here. How are you thinking about attrition risk in the investment practitioners? And what kind of strategic actions are you going to have to take to ensure that your your staff, but also your customers kind of don't leave. If you could help us with that, I think it would really help.

Great. Thank you, Aman. So let's start with integration. And then I'll come on to revenue synergies, and then we'll talk a little bit around, I guess, the value creation and ensuring we retain both critical people, but also customers. On integration, very high confidence, Aman. We've known the business and track the business for a number of years. We know people -- obviously, we know people in the business. So we know Evelyn very well. We've undertook quite extensive due diligence around it, whether that's the tech platforms, whether that's the cultural alignment. There's been a lot of investment since the, I guess, original combination of the business in 2020 into the tech capabilities.

We've seen that, to all intents and purposes, the tech and of integration is complete. The benefits of those investments are actually now coming through for Evelyn. There's a lot of congruence and alignment between the underlying platforms that our acute business use and Evelyn users, that gives us confidence about we know the platforms, we know the systems. We have experts on both sides of the transaction who know those platforms and systems. So we feel very confident about that.

And what we also have on both sides of this transaction, we have experienced people who have done M&A transactions and integrations. We've got our very recent experience and the team still on the park around the Sainsbury's acquisition. We've complemented that over the course of the last 12 months with individuals who've been involved in some really significant FS M&A activity over the course of the last 12 months.

Obviously, given Evelyn's history, they've built experience there as well, having to integrate different businesses. So we feel we feel pretty confident around that, what I call that alignment around integration and the ability net-net to create a lot of value out of that. So that's integration, high conviction, high confidence.

On revenue synergies, I guess we could talk a long time about that. Big picture, though, I think the really critical thing to remember here is there's a really big opportunity in helping a lot more people to save and invest for the future. We've got these regulatory tailwinds, which you know about the financial advice gap. And we also know that in the wealth industry, despite the historic kind of cautious investment culture, we've seen mid- to high single-digit growth in AUM.

If you look at our own business, we've seen 12% compound growth in assets under management. If you look at our 2025 performance, 20% growth in AUMA, net new money of 8.4%. So that's the big picture that gives us, I guess, a sense of confidence.

If you look at the drivers of income growth. You look at Evelyn's track record, over 7% since 2023 in terms of AUMA growth. And then on top of that, we've got the revenue synergies. So where do they come from? Three big opportunities, BestInvest. It's a really significant upgrade to our NatWest Invest digital platform. We have the opportunity to bring that to life for our 1.2 million premier customers and our 19 million, 20 million customers in Retail.

The breadth of the BestInvest offering versus our current offering is incomparable. At the moment, NatWest Invest has 5 funds. We've got 3,000 products with BestInvest, 19 funds versus 5 funds, access to U.S. equities. U.K. equities, ETFs, investment trusts. Plus, we have a relationship with those 19 million customers and the ability to surface these opportunities through the app. So that's the first big kind of, I'd say, opportunity.

Then you look at the excellence that Evelyn has in terms -- and the scale it has in terms of financial planning and the biggest adviser -- employed adviser network in the country. Again, we can bring that to our 1.2 million premier customers. We can bring that to our high net worth customers in Coutts. Again, the breadth of the proposition really adds to the, I guess, the wealth water front that we have in our Coutts business, and 2x in terms of our Premier business.

And then the third synergy is, obviously, if you look at what Coutts size you look what NatWest has, we have a range of banking products, lending and banking that we can bring and support Evelyn clients with. So, you don't have to make very -- when you work it through, as I'm sure you have a -- You don't have to make very big assumptions to see where the opportunities are, both in the underlying growth rate of the business but also in the revenue synergies and opportunities that there are, and that's why we're very high conviction on this from a strategic perspective and very high conviction that the value creation in both the short term and long term will be significant. Thanks, Aman.

Our next question comes from Jonathan Pierce of Jefferies.

2 questions, please. Apologies if I missed an answer on this already. I had a few issues this morning. The first is on tangible equity. Really looking at consensus out to 2028. There's lots of moving parts I guess, here versus what consensus might have been thinking before. So Evelyn sit down, lack of buybacks, push it back up, you're now talking about a bit more growth than people had in. The GBP 33.4 billion of average tangible equity consensus has in '28. How are you thinking about that? Is that an appropriate number to be applying the greater than 18% to? Or could that be a bit higher than that? That's the first question.

The second question is on the hedge. Can I just confirm and I heard correctly on the equity hedge that you're now showing the income from the equity hedge as though it was invested in 10-year gilts rather than 10-year swaps. Is that obviously is going to give you a better yield and a better tailwind than if it was swaps. And you've obviously dropped the disclosure on the maturity yield on the product hedge. Just want to get a sense as to what that is in 2028, please, because obviously, the notional is growing, that all else equaled that the hedge income is going to grow, but I'm not sure that is a sort of underlying feature. What's the maturity yields, please, on the product hedge in 2028?

Thanks, Jonathan. Katie?

Sure. Thanks Jonathan. So as we look, first of all, at the kind of the TNAV question, I think it's been -- it's important to look at the kind of T, the Evelyn versus share buyback and things of that, even with the capital allocation conversation as far as we're talking about in terms of TNAV. So it actually has no impact on your 2028 TNAV. And by that, I mean, if we haven't done even we distributed the capital because our belief is to access your capital to you. So it was already out of that TNAV calculation.

When you think of the TNAV, it's really CAL you've got to think about and within there, obviously specifically loan growth. There's a little bit of unwind of the cash flow hedge. But if you think of our loan growth that we've done over the last number of years, we're always -- we've been consistently above 4% within there. I could use that as a good proxy for TNAV I was used.

So therefore, I would say as I look at my number versus your number, I do try not to compare myself to consensus, I would probably guide you to that 4% a little bit and kind of lift up a little bit as you go through. I know you're absolutely right as well if I move on to the hedge. We have over this last -- well as we look as part of our kind of management of the hedge to sort of say where our opportunities. And so we have moved some of our equity hedge into gilts and because we felt we were getting a better return there and we can absolutely see that return coming through in terms of the the extra GBP 50 million that we report within there.

The equity hedge is GBP 25 billion in size. It's not by any means all in gilt, something we've just started to do relatively recently. And but we'll continue to -- we expect to continue that move as we see the kind of got return being a bit better than the swap return. We're not particularly constrained on the size of that. I would discourage you from [indiscernible], although start to do that on the credit hedge, the product hedge we won't just because it's a very different beast. We've got a lot of natural kind of product offset that we see within there, but it definitely is helpful to us in terms of that delivery.

And Jonathan, I'm going to disappoint you a little bit and not give you the numbers, I've chosen not to disclose this morning. But you can sort of see that what we have given you is that combined yield. We've also given you the the numbers as we go through. I know that one of the questions that has been going around is around actually that redemption yield and what it looks like specifically in 2028. So if I look at the kind of 2028 redemption yield for the structural hedge, it is slightly below 4%.

Currently, we do see '28 as a kind of peak and it's always a favorite analyst term, the kind of peak redemption yield level, but we see that falling then into '29 and '30. I would say it's the only year that we do see the redemption yield being above our reinvestment yield. And the difference is probably 30 to 40 bps on that number.

However, I think really importantly, there is a reason that we don't worry about this. It's more than offset by the compounding benefit of the hedge reinvestment over 2026 and 2027 and of course, the expected increase in our hedge nominal over the period, again, in line with our CAL guidance. And that's just why we are really comfortable about this annual income tailwind that we see through to 2030. I hope that helps you without giving you the exact numbers you're maybe searching for.

Our next question comes from Guy Stebbings from PNB Paribas.

The first one was going back to the income guide for '26, but refocusing on net interest income. I mean, I appreciate you don't split out the guidance as such. But if we think about [indiscernible] income perhaps broadly similar to to 25%, maybe a bit of growth as per consensus sort of ballpark 3.6%. Then it looks like you're thinking about an NI around [indiscernible] Q4 you're already sort of annualizing within that range, just. So I just want to check, is that the right way to think about it, and you're not really anticipating a lot of NII growth is the Q4 annualized run rate and the rate cuts, I guess, less than on SRT or mortgage return could almost be offset the hedge and volume growth, still a touch conservative. I just want to check my thinking there.

And then on rate sensitivity. You're now talking to an increase to GBP 157 million on the managed margin sensitivity. I think that's 30% to 60% deposit pass-through. I appreciate the capacity reasons, you're not going to say exactly what you're assuming in the future, but maybe you can talk about how that's trended in particular in terms of the December rate cut. And I'm not sure, Kattie, you mentioned something about a buildup of rate sensitivity as time progresses. I wasn't sure if that was sort of related to this point or something else. So perhaps you could elaborate.

If I miss any of them, do come back and forgive me. So I guess, as we look at the income guide, First -- my first guidance would be, and you've heard say before try to look at the 3 businesses. You remember that in the center, we've had a lot of sort of movement between noninterest income and NII. And that kind of -- if you just take the total NII that does kind of confused it a little bit. We talked a little bit about Q3 that we put in some hedge accounting to help resolve that. And what you will see as we go through the next few quarters as you won't see those big flips kind of going from NII to non-NII which is why I would say, really look at the 3 businesses. We are confident on the momentum that we see in the underlying customer activity and the underlying momentum we have in the business. But we would not -- we would expect to see noninterest income across the 3 businesses growing into 2026 from here as well.

If I look then to the rate sensitivity, we've issued new ones today. The change in the amount is very much reflective of the sort of the size of the balance sheet as well. We work on a pass-through. I would say broadly, when you look across a number of rate cuts, we're definitely -- we're in that sort of space as we come through from there. So that's not particularly changed. And I think that's a good proxy for you to continue to work on.

And then I think your last point was very much around the income, and you've got this -- what's happening on the rate sensitivity. So if you look to 2026 income, what we've got is the impact of the rate cuts that we had in 2025, you will now have a full annual impact of those. And then I've also got 2 rate cuts in 2026. April, October, as I said earlier, when I look at those and kind of do my kind of math on them, I kind of see them as a drag of GBP 500 million, against the kind of income numbers that we've got through there. Obviously, going against the hedge, which is adding GBP 1.5 billion. So still strong growth, but that's why we're talking about in that part. It wasn't specifically on pass-through and things like that or our traditional rate sensitivity disclosure. Hope that helps. And I think I got all.

Our last question today comes from Ed Firth from KBW.

I had 2 questions. One was on detail. You mentioned that one of the reasons for the -- I guess, reasonably cautious income expectations from '26 was the cost of capital actions. I'm just wondering if you could give us roughly some idea of what we we are assuming that, because obviously that was a big driver of risk onetimes from '25 would be helpful. And to get a guide for '26 if that would be helpful.

And then I guess the second question was, you in common with a lot of banks, when you look at up in your AI slides at the [indiscernible] lot to talk about 10x [indiscernible] and massive production is that. And yet, when I look at the cost expectations for the sector as a whole. The actual efficiency improvements in terms of cost to loans, cost of risk weight now barely moved in the last 4 or 5 years. And expectations are to be barely moving going full as well, a few basis points here and there.

And so I mean, are we avigate to get this to a quantum shift in the cost of delivering banking that we're talking? And I mean not just like inflation above like in theory, the unit cost of delivery in banking products should go down massively with a digital delivery. And yes, we don't ever seem to be seeing -- and so I'm just wondering, you're thinking, is there a time like post '28 where we can suddenly see this transformation? Or do we have to accept -- but actually, you're just replacing cheap brand staff with expensive software engineers.

Can I take the first?

Taking -- quickly do income, and then I'll give my thesis on efficiency.

Yes, thank you'd expect me to say this, I would say to you that our 2026 income guidance is certainly very reasonable. -- and not cautious. I think I've given you the maths and all the building blocks as to how you can see that. In terms of the specific question on the cost of the capital actions, what I said earlier is you should think in your model of a negative [ GBP 100 million ] in 2026 in terms of that additional cost. We're they make great sense to do. You can see that we actually, in effect, paid for all of our lending with those capital actions, and that's taking off lower performing capital and replacing it with higher performing. So we're really pleased with the performance of the business on that piece. But think of it as an additional GBP 100 million.

And Paul, would you like to...

In terms of [indiscernible]

So in terms of that, so I think the numbers that it's GBP 10.9 billion was what we took off this year. I'm strongly to remember the number from the previous year, I think it was around GBP 7 billion. And that's the kind of level that we've seen. What you -- those are multiyear transactions. So some of that risk weight as we roll into 2026. Obviously, there's a little bit of unwind within the year, and then we'll do some further transactions in the year as well.

Thanks, Katie. And then, Ed, on your -- I guess, your question around, I guess, unit cost of our assets that as different versus cost income ratio. That's actually that's because of management team we spend time on because we do think that's a very valuable and useful ends. I think the -- you can see by the numbers we've shared today. The cost income ratio has come down -- part of that is income going up. But the reality is the absolute cost base has gone up a little bit, well below inflation, well below wage inflation. The targets we've set out imply less than 45%. That makes us the most efficient large U.K. bank. So by definition, our expectations are that costs will continue to be continue to be well managed.

And I've signaled today. I think Katie said it as well, and we see opportunity beyond '28 to go beyond that. I do think that genuinely is a significant change going on, where you can see a business model and operating model that operates at a much lower cost base with a higher income base that drives obviously with greater returns on equity, but also, we'll start to see the unit cost over assets because you've got the growth coming through reduced as well.

Time will tell where that plays out. But I think what we've laid out today. And I do believe we've got this flywheel of kind of cost efficiencies going well. Time will tell, but I do think we've got very good momentum in terms of improving the underlying kind of unit cost base of the bank. So as you say, I mean we'll get there, but that's how I think about it. We use both lenses. Thanks, Ed.

Thank you for your questions today. I will now like to hand back to Paul for closing comments.

Yes, that seems to go quickly. So thank you, everybody, for joining us for the second time this week. As you've heard, we've delivered a very strong performance in 2025, continuing our track record of growth on both sides of the balance sheet and fees. Very attractive returns for shareholders. Our total distributions for the year were GBP 4.1 billion. That includes the GBP 750 million share buyback we announced on Monday alongside the acquisition of Evelyn Partners. That creates the U.K.'s leading private bank and wealth manager, we're very excited by that because it gives us another growth engine for the group.

So hopefully, you've seen from today's numbers, we're ambitious for the business. We've set out new targets and we're determined to deliver returns greater than 18% in 2028. Thank you. Have a good weekend.

That concludes today's presentation. Thank you for your participation. You may now disconnect.

Good morning, everyone, and thank you for joining us at short notice following our announcement of the acquisition of Evelyn Partners. I'm here with Katie. I'll start with a short introduction before we take your questions.

With the GBP 2.7 billion acquisition of Evelyn Partners, we are creating the U.K.'s leading private banking and wealth manager. This accelerates delivery of the group strategy by increasing our exposure to a highly attractive growing market, supported by strong demographic, regulatory and technology trends.

Evelyn Partners is a market-leading financial planning and investment management firm. It has a 180-year heritage, a high-quality loyal client base and is a strong cultural fit. It brings a large regional network of 21 offices, employing 270 financial planners, 325 specialist investment managers and a highly regarded direct-to-consumer investment platform, Bestinvest. And it has a strong track record of profitable growth. In 2025, it delivered income of GBP 509 million with EBITDA of GBP 179 million at a margin of 35% and has attracted net new inflows of GBP 1.6 billion. So we see this as a business with strong prospects for future growth.

Combining Evelyn Partners with our Private Banking and Wealth Management business allows us to scale and broaden our financial planning, savings and investment capabilities and extend an enhanced offering to customers across the group. Evelyn Partners GBP 69 billion in Assets Under Management and Administration, combined with NatWest Group's GBP 59 billion brings total AUMA of GBP 127 billion and total customer assets and liabilities for the combined business to GBP 188 billion. This amounts to 20% of the group's total customer assets and liabilities, making Private Banking and Wealth Management a scaled growth engine for the group.

The transaction will also boost fee income by around 20% before synergies, making noninterest income a larger and growing proportion of our revenues. We see a significant opportunity for value creation. We expect to realize around GBP 100 million of cost synergies by removing duplication in shared services and technology applications where there is high alignment between our platforms as well as efficiencies of scale. The cost to achieve of approximately GBP 150 million will be phased over 3 years.

Revenue synergies include bringing Evelyn Partners broad range of financial planning and wealth management solutions to all our customers, enhancing our D2C investment offering via Bestinvest, leveraging Evelyn Partners technology for portfolio management solutions and providing Evelyn Partners customers with our full range of banking solutions and combined wealth management offering.

We have a strong record of execution and successful integration. We have tracked this business for a long time to get conviction on cultural alignment and how to execute, and we are very encouraged by what we have seen. This is a relationship business, and our approach will be client-led. We are clear-eyed on the risks and confident on our ability to deliver. So there is strong strategic rationale for the combination. It is operationally deliverable. And financially, it's a compelling use of capital.

Let me take you through the financial headlines. We are acquiring Evelyn Partners for GBP 2.7 billion in cash, an implied EV to EBITDA multiple of less than 10x, including run rate cost synergies. We have outlined cost synergies of GBP 100 million, equivalent to around 10% of the combined cost base with cost to achieve of approximately GBP 150 million. We are also confident in our ability to deliver significant revenue synergies. The transaction will be accretive to growth for the group. It is also expected to be accretive to group return on tangible equity in year 1 and to deliver returns above those generated through share buybacks.

We expect the transaction to reduce our CET1 ratio by around 130 basis points, and we remain well capitalized. We have a strong track record of capital generation and the transaction will strengthen this further. We are also announcing a share buyback of GBP 750 million today, showing both our confidence in the outlook as well as our ongoing commitment to return surplus capital to shareholders at the earliest opportunity. Our dividend payout ratio of around 50% remains unchanged. We will continue to review capital distribution and currently expect to make our next share buyback announcement at our first half results in 2027. The transaction is expected to complete in the summer, subject to the customary reg approvals.

Thank you. Matt, we'll open it up for questions now.

[Operator Instructions] our first question comes from Alvaro Serrano from Morgan Stanley. I think we have a problem with Alvaro. So I'm going to move on to Benjamin Caven-Roberts.

So I just wanted to ask two, please. So first, you mentioned the deal is expected to deliver returns greater than generated through a share buyback. Could you please just run me through how you're thinking about that calculation? Effectively, if you're comparing the GBP 2.7 billion being invested and then looking at the EBITDA figure of GBP 179 million, adding the GBP 100 million of run rate cost synergies and then assuming some revenue synergy effectively to get a profit figure, which is a return higher than your own earnings yield?

And then just as a follow-up to that, could you run through in a bit more detail some of the revenue synergies you're thinking about and which areas you actually think are most tangible over the next 12 to 24 months?

Thanks, Ben. Appreciate -- good to hear you, and thank you. Katie, why don't you talk about the return versus buyback, and then I'll talk about the revenue synergies.

Sure. Thanks very much. So as you look at the return in terms of the buyback, we've given you the numbers today based on our 3-year outlook. So when you think of our targets that we'll talk more about on Friday, they will include everything in relation to Evelyn and the benefit of the transaction within there. I mean, Ben, if you were to run the buyback today, I think you and I would both get to a return number that's around the kind of 11% number. And if you then take the Evelyn and take out to 2028, when we expected to see the synergies, the cost synergies delivered that GBP 100 million plus the cost to achieve GBP 150 million delivered as well along that. You're obviously with in terms of the EBITDA, you can see the income that they're bringing in from their 2025 numbers, and we additionally expect to continue to grow that. So when you put all of those things together, we're very comfortable with that in kind of 2028 run rate that will be at a level that is comfortably above the share buyback transaction.

Thanks, Katie. And then Ben on the revenue synergies, I'd start by saying we do see revenue synergies as a meaningful opportunity. There's probably 2 broad strands to the synergies. The first is bringing Evelyn's financial planning and investment capabilities to our customer base, not just within our wealth business, but more broadly within our retail and C&I business. So for example, servicing the best and best direct-to-consumer platform to around 19 million of our customers, extending market-leading financial planning capability from Evelyn to our affluent and Premier segment. So there the -- I guess, that's the first strand. So significant opportunity from the leading capabilities that Evelyn has to the customers of the group.

And then the second opportunity or the second strand of the opportunity is really supporting Evelyn's clients with the banking solutions that the group has, be they Coutts or NatWest. So it's the combination of those capabilities to the clients of each brand and each institution. So hopefully, that gives you a flavor of it.

We're going to try and go back to Alvaro Serrano from Morgan Stanley.

Hopefully, I've now managed. Can you hear me okay now?

Second time, lucky, Alvaro, we have you again.

Look, it's more of a follow-up from Ben's question. Can you talk us through maybe some of the sort of -- when I compare it to share buybacks, I struggle to get the numbers to be better, which I suspect may have to do with the revenue growth beyond the synergies that you think this business can achieve. So can you talk us through maybe what's a reasonable sort of revenue growth based on what you've seen historically from them? You pointed out the market growth, but maybe something like that, what you think is a reasonable prospect?

And also when you look at the client profile of your existing wealth clients versus what you're bringing on. Can you give us a bit of color on what is the differences and similarities of this client base versus what you have at the moment?

You go on the buyback.

Highlight if I miss anything. So as you kind of look at it, I mean, I kind of -- I'm clearly not going to be terribly precise on this. Otherwise, I'd have given you the number this morning already, but just to kind of help you kind of work your way through on it. I mean if you look at their kind of income number that they had just over GBP 500 million in 2025, we know that they've had strong growth, 7% CAGR in AUM over that period. We're looking to bring in our synergies run rate by kind of 2028. And at that point, we kind of get real comfort that actually it is better than the return of that kind of around 11% that we would kind of talk about in terms of the share buyback piece. So overall, we are very comfortable once you bring in those revenue synergies, the cost synergies, which we've clearly given you this morning are fully bedded in that actually, there's no concern around the strength of that return.

Great. And then Alvaro, on your second question, which my interpretation was kind of the similarities or otherwise of the client base. So a couple of broader points. Evelyn, as I said in my opening comments, we've been monitoring the business for a while. Evelyn has made significant investments in the business over the last couple of years. That's actually across multiple strands of the business, the technology platform, the adviser network, training and capability and also the brand.

The client base of the business, we spent a lot of time with in respect of due diligence. It's a high-value client base. It's a very loyal client base. I think probably the best way, given you know us, Alvaro, the best way to think about it is the client base segments well to both or part of the client base segment well to both our Coutts business, but also our Premier and Affluent business. That's probably the best way to think of it. So high value, high loyalty and segments really nicely with our Premier, Affluent and Coutts' client base.

Our next question comes from Sheel Shah of JPMorgan.

Just a question around amortization costs because I don't see any note of that in the press release or the presentation. Looking at Evelyn Partners in the 2024 report, that was running at around GBP 110 million per year. So I just wanted to get a handle on where you think amortization costs are going to be for the next few years and whether you've then marked up the value of the customer lists associated with Evelyn.

Yes, sure. Thanks very much, Sheel. So as you look at a transaction like this, obviously, it's going to be subject to standard kind of purchase accounting treatment as we bring both tangible and intangible assets on board. So you will see the amortization. It will obviously cause an increase for the group overall as we start to bring them in, and we'll give you more guidance on Friday in terms of that cost outlook. One thing I would remind you about though, of course, is that we deal with goodwill and intangibles and all the amortization, it's a statutory book result, not -- is capital neutral. So the way to think about it is this 130 bps impact on capital for the group, and you know our strong kind of capital generation as that kind of comes through. So I just kind of remind you about that accretion that comes through as a result of the strong addition of fee income that we'll see coming through into the results as we increase the group fee income by about 20%.

Our next question comes from Andrew Coombs of Citigroup.

So a couple. Firstly, just on the 130 basis points. I assume the bulk of that is due to the goodwill that's recognized, but perhaps you can talk us through the moving parts on the 130 basis points charge and just confirm if that includes the GBP 100 million for the CTA of that going to be on top of the 130 basis points.

And then secondly, can you just talk about the additional capabilities that it adds? Clearly, it gives you a whole new client base for cross-sell. But in terms of the capabilities, the products, the services, what does Evelyn have that you don't have?

Do you want to take the first, and I'll take the second, Katie.

Yes, sure, absolutely. So as you look at that kind of 130 basis points, as you can imagine, it's built up for me kind of for 4 things. You've got a little bit of kind of P&L impact. But goodwill, you're absolutely right. That's the main component of it. You'll then have the other intangibles that we'll recognize. There'll be a little bit of RWAs just because of kind of risk that will kind of come through. I'm not going to give you the detailed breakdown of all of those different things. But when you run that through in your full year 2026 capital position, it does work out to be 130 basis points impact.

Great. And then Andrew, on the capabilities, as you say, the client base, I probably list 4 additional capabilities that's worth bearing in mind. The first is financial planning. So they have the large -- so Evelyn has the largest employed adviser base in the U.K. So significant increase in the scale of our financial planning capability. And obviously, we can bring that to the clients of the group.

Second is the direct-to-consumer platform, which branded Bestinvest. So that's a clear enhancement to our own D2C platform.

Third, over 300 investment managers. So significant skills, expertise, investment managers, long history, many years of good investment and financial advice.

And then fourthly, slightly differently, we'll be able to leverage some of the great technology platforms that Evelyn has. Xplan would be one example. So that they will either replace or enhance the wealth management and financial planning platforms that we have. So quite a broad range of capabilities, which combined with what we already have with the group, gives us the confidence that this will be a leading private bank and wealth manager.

Our next question comes from Aman Rakkar of Barclays.

I had one follow-up question and then one separate one. Just on the -- could you -- I struggle a bit with EBITDA in banks land. Is there any chance you could just kind of confirm what the kind of net profit contribution of Evelyn in 2025 would have been to NatWest, including or ideally including the depreciation charge. I just want to kind of get a clean read on a kind of price to earnings multiple here. I think it's just a kind of a way of appraising this deal that I find a bit easier to make sense of. So what's the net kind of net profit -- attributable profit contribution of Evelyn in '25 as our starting base?

The second is just around costs. So could you kind of lift a little bit on exactly what you're looking to do on the GBP 100 million cost saves, where it's coming from? And specifically whether you've kind of assumed anything around the need to pay any retainers to some of the Evelyn staff? And have you made an assumption around attrition? Is there any kind of overlap in the customer bases here, please?

I'll take the second. Katie, can you take the first?

Should I kick off?

You kick off.

Perfect, lovely. That's great. So the way I kind of think about it, Aman, it's a little bit like PBT. There are some premature differences. I'm not going to give you the detail. But I mean you can see from their accounts that their EBITDA in 2025 was GBP 179 million. We will give you more detail on closing exactly what it will do for 2026. And when we talk about closing in the summer, it's clearly subject to some regulatory approval. So the exact date, it will obviously depend upon that. But I would say it's kind of immaterial for 2026 earnings. I do think we need to think about, though, is you do see this growing contribution in 2027 and then into 2028.

And clearly, if you were to look at the IRR of this business, you would see that it would continue to grow beyond there as we continue to get the real benefit of synergies and the revenue synergies coming through. And obviously, it's a portion of the bank that you would value slightly differently because of its capital-light nature as it kind of comes into the -- into your kind of sum of the parts model. So overall, very comfortable that it's going to be a real positive contributor to the group, both by 2028 and importantly beyond.

Thank you, Katie. Aman, so I'll treat the -- I guess there's 2 questions or 2 points, cost and people. On costs and synergies, yes, GBP 100 million, as you say, put that in context, that's 10% of the combined Private Bank and Wealth Management cost base. So we feel high conviction and high confidence on that. In terms of some of the key drivers, probably the primary one is technology consolidation and platform consolidation. Both businesses use common platforms, Avaloq and Aladdin, for example. So that's a big driver.

Secondly, as you'd expect, there's opportunities to deduplicate things like functions, licenses. There's a whole host of shared services as well, optimize things like marketing spend. So during the process of due diligence, we've got a very detailed bottom-up plan on the cost synergies. Hopefully, what we've demonstrated over the course of the last couple of years and the transactions we've executed on is we deliver on the synergies that we promised. I think we've got a good track record there. So we feel good about the opportunity around synergies, and we feel good about our ability to execute on them.

On the people, you know me, I'm very thoughtful and systematic. This is a people and relationship business. We've been impressed with the Evelyn management team and the Evelyn colleagues. So we've been very thoughtful on how to approach that. As is the nature of these transactions, we thought very deeply about ensuring we retain the right people and capabilities. So you can assume that's very well thought through and baked into our plan.

And then you also asked about attrition. Again, that's baked into the financials that we have shared today. There's a whole host of precedent transactions and where you can take some assumptions. And obviously, to the extent we can, we've looked at the kind of crossover between the client bases. But that's all baked into the financials that we've shared with you today and the opportunity we see to increase RoTE and deliver additional returns.

Our next question comes from Jonathan Pierce of Jefferies.

I've got two questions. Sorry, I'm going to come back on this point on amortization charges. So just to clarify that when you talk about the returns being better than the buybacks, you are presumably excluding those amortization charges. I mean I think people are asking about this because they were quite big last year, about GBP 90 million [indiscernible] , and this is a business that has driven some of its growth in recent years, small bolt-on acquisitions creating those customer list intangibles. So it's not entirely clear why one would ignore those amortization charges moving forward. And then, of course, some of that amortization charge is also software, which is just the P&L component of what you're spending to the balance sheet. So why are we ignoring that? And can I just check that you are ignoring that on your ROI comments relative to buybacks?

The second question, I guess, to some extent, thinking forward to Friday, the tangible equity in this business is about GBP 200 million, if you can confirm that. So I suppose there's about an 8% hit to the TNAV pro forma, which all else equal is going to lift the RoTE by about 1.5 percentage points versus what one might have thought would be the case stand-alone. But presumably, when you talk to us on Friday about longer-term RoTE targets that, that number is going to be 1.5 percentage points higher than whatever you may have thought previous acquisition. So they are the 2 questions.

Sure. Thanks so much. Jonathan, I guess, first of all, what you say is we do include the amortization in our returns. As a management team, Paul and I have always been really keen on making sure that we give you full numbers, and we don't do lots of ex this or ex that. So they're definitively kind of included in there. What we're trying to guide you to in terms of the return is when you look at it, their numbers, our delivery of our run rate synergies, the cost of delivering those synergies by end 2023, they're comfortable with that return. When we go beyond there and you kind of look at the IRR with the fully loaded price, that comp obviously increases.

And I know, Jonathan, you're going to be thinking both statutory and kind of CET1. So you're very familiar that the amortization doesn't affect that capital distribution capacity as we look at the CET1, and we know that, that will be clear. So obviously, the amortization for the CET1, we don't look at because it's not relevant, but for a statutory basis, it will be. So it's all part of that kind of technical accounting. We will give you the statutory EPS, and we'll continue to do so.

And certainly, when we look at our 2028 guidance that we'll do on Friday, I'm not going to be drawn today on what that might be. We'll save that for Friday if you don't mind. But what we will confirm is these numbers will be reflected within that guidance for 2028. As I said earlier on the call, for 2026, they're really not material. And given that you don't know exactly the date that they will settle on, the 2026 will be ex even. But as we know those dates and we know where we are, we'll update you as we progress through the year as we would expect to do.

Do we have any more, Matt?

Yes, we have Christopher Cant from Autonomous. We seem to be having some issues with Christopher. So we'll move over to Benjamin Toms of RBC.

Just one, please. The question is, are you now done on chunky M&A? Or are there other parts of the business which you think might need bolstering into the medium term? Or is it one big gap? I think you noted that the return on the buyback is 11%. So potentially, there's quite a lot of stuff out there, which would pass the initial sniff test of beating the return on a buyback.

Thanks, Ben. I'll take that. So obviously, our immediate focus is on the successful integration of Evelyn and making sure we deliver on the potential and value of that transaction. We also -- and we'll talk more about it on Friday, have ambitious organic plans for our 3 businesses. So that's also an additional focus.

In Wealth, obviously, the market remains pretty fragmented and scale matters. So I'll continue to be disciplined. But if there are value-accretive opportunities aligned with strategy, we'll put our usual kind of cold lens over it. But as you say, the near-term focus is going to be on the successful integration of Evelyn and delivering the organic plan across the 3 businesses.

We will try again to go to Christopher Cant of Autonomous.

Could I ask a couple of points of detail, please? On the 130 basis points, is that including the cost to achieve? What tax rate do you think attaches to this business? Should we be assuming the bank tax surcharge applies? And then in terms of the sort of CapGen piece, I guess, a variant on Aman's question in a way. What do you think the payback period is for the capital that you're deploying into the transaction? I appreciate that the amortization and that's a noncapital item, I get it. I also sort of struggle a little bit with EBITDA and banking context. But in terms of the capital you're investing, what do you think the payback period is?

Thanks very much. So if we look at it...

130 bps...

Yes, looking at 130 basis points, that's using the GBP 2.7 billion of the CET1 capital. And also, I mentioned earlier, there's a little bit extra in terms of some op risk there. Clearly, the kind of payback is a function of the growth and the execution, but we're working very much for a 3-year return. And it includes all of the cost to achieve associated with that day 1 and everything that's incurred in 2026 as we go through that. We'll give you more disclosure in terms of all of those numbers, as I said earlier, once we've kind of got them nailed down on 2026 and beyond, but we're very comfortable that this is a good use of capital.

Our next question is from Ed Firth of KBW.

Yes, I guess for me, the only query I'm just trying to understand the logic of announcing the GBP 750 million buyback today and then nothing until mid-'27. So I mean are we assuming by that, therefore, that in the summer, when you do this deal, you will be well below your capital limit, and you'll then take a year to build back up to it or build up to a level where you can be sufficiently above whatever your minimum is, which I guess at the moment is slightly open -- well, some uncertainty in the market, if not in your own mind. So I suppose the question is how should we think about that? Are we going to go below the level and then you're going to take time to build up? And why are you announcing a GBP 750 million today? Why aren't you waiting until you've got the capital and then just continue the buyback program as normal from sort of second half next year onwards?

Yes. Thanks, Ed. Katie...

Thanks Ed. Thanks very much. So as we look at it, I think you need to kind of take a step back and think of where we are on capital. So Q3, we're at 14.2%. We know that this transaction won't complete until the middle of the year. Sometime in summer, you can take your views of when that might be and obviously dependent upon timing. We know also that we're strongly capital generative. If you look at the capital that we generated in the first 9 months of last year, we can see that it would be there. So this is not a question of taking ourselves way below our capital number. We've always talked about operating within the kind of the trend line.

So very comfortable in terms of the level of capital generated, comfortable that this is a good transaction. We'll talk more about the earnings and capital framework on Friday as we go through from there, but this isn't a question of kind of pulling down. As we look at capital, we looked at the transaction. We're confident on our level. We've been very clear that we return surplus capital to our shareholders at the earliest opportunity, and that's simply what this GBP 750 million represents in terms of that.

And then sorry, just I have one question I'm going to go back to on Chris. Chris, you asked me the tax rate. I didn't tell you, forgive me, it's 24% that you'll be using for this business. So you can pop that in as well. Sorry to have missed that off last time.

Good catch. Thank you, Katie. Thank you, Ed.

We have no further questions. So I'll now hand back to Paul for closing remarks.

Okay. Thank you, Matt, and thank you, everyone, for joining at short notice on a Monday morning. We appreciate the questions, and we will see you again on Friday. Have a good week.

Thanks, guys.

Good afternoon, and welcome, everyone. It's great to see so many of you here at our Moorgate Event hub and also to those of you online. So this is the third and final deep dive session of the year. And we hope today to give you good insight into the retail bank, its strengths, the opportunities and, of course, how it supports the group returns. The presentation will run for about 45 minutes, and then we'll have plenty of time for Q&A at the end, which I'll host. And before I hand over to Paul, just to say you can download the slides using the QR code on the screen. [Operator Instructions] So thank you. I'll now hand over to Paul to introduce the session.

Thanks, Claire. Good afternoon, everyone. Good to see you all. A big warm welcome to Moorgate. Also a warm welcome to those online. We appreciate you joining us. We know it's a pretty busy week of U.K. financial news this week. So good to see everybody. As Claire said, this is our third and final spotlight for the year. They were designed to give us more insight into all of our businesses. So our aim when we set out and what we hope for today is that this complements the set and you've got a good sense of, I guess, our aspirations for the different businesses, but also for the group overall.

We are going to focus deeply on the Retail Bank today. We've decided to host the event here at our Moorgate premises. This is a great example of the spaces we have right across the U.K., where all 3 of our businesses, Retail, Commercial, Private come together, both from a colleague perspective, but also from a customer perspective. By way of example, we use this event for a number of things. We bring our Premier customers to give seminars on savings and investments. We bring our start-up businesses together to network between different business owners. And we also run funding workshops actually for business founders as well. So multipurpose, but we thought it was a nice opportunity to show you, I guess, the type of locations that are really at the heart of what we do in terms of our 3 businesses.

In terms of our agenda this afternoon, you're going to hear from Solange, who, as most of you know, was recently appointed as the CEO of our Retail Bank. Solange joined the group 6 years ago. She was my Chief Operating Officer when I ran Commercial Institutional. She joined my leadership team when I stepped up to be CEO last year. She's been Group Strategy Director prior to the retail job. So she's been pretty instrumental in designing the strategy of the bank, which you guys have seen over the course of the last 2 years. I'm delighted she's now running the Retail Bank. In addition to her sharp strategic thinking, she's got great track record around transformation. She's got a very deep understanding of the competitive landscape. And I'd say a very personal interest in technology and customers as well. So delighted that she's running the Retail Bank.

Solange will be joined by Barry Connolly, who's responsible for all of the lending in our Retail Bank. Barry has been with NatWest for over 20 years. He's been a member of the Retail Bank Exec Committee for almost a decade now. So he knows the business extremely well, but actually he knows all the customer segments very well. He's worked across both sides of the balance sheet. So very well placed, I think, to update you on our, I guess, the story so far in terms of growth, but also our ambitions for the mortgage business going forward.

And at the end of the presentations, we'll have a lot of time for Q&A. Claire will coordinate that. Stuart Nimmo, the Finance Director of Retail, will join us and also a face well known to many of you, Scott Marcar, our Group CIO, will also join the panel. And then hopefully, some of you will join us for drinks when we finish up in about 90 minutes.

But before I hand to Solange to take you through the detail, I do want to very briefly set the context. 2025 has obviously been an important year for the bank. As you know, we returned to private ownership 6 months ago, probably feels like much longer for most of us in the room, but it was only 6 months ago. So with the major restructuring of the bank now behind us, the aim is very simple, really, which is just to build and grow from the strong foundations. What are those strong foundations? We serve over 20 million customers across our 3 businesses. All 3 of those businesses have strong market positions and all 3 of those businesses have strong returns. The Retail Bank has a proven track record of delivering profitable growth, and we see plenty of opportunity for that to continue. As a group, we feel pretty excited about the potential and pretty ambitious about what it can do over the next couple of years.

We also have a leading private bank in Coutts, Emma is with us here today and will be with us afterwards. And as you all know, we have the U.K.'s #1 bank for business, Robert is also here and will be available afterwards for questions. So whilst the Retail Bank in itself is a strong contributor to the group, it also benefits a lot from its close connection to both the Private Business and also the Commercial Business.

This slide is a reminder of the group strategy. You'll all be very familiar with it now. You'll have heard about it numerous times from me over the course of the last 2 years. And the aim is very simple. As we pursue growth, as we pursue simplification, as we're very thoughtful about capital allocation and risk management, we want to generate attractive returns for our shareholders. And what you'll see today is how these strategic priorities come to life and what they mean for the Retail Bank in particular. And then finally, I know you're all very keen to understand more about the outlook for '26 and beyond 2027. Katie and I are going to update you on that at our full year results in February. For those of you accounting, that's only 11 weeks away. So we'll see you there for that. Without further ado, let me hand over to Solange and the team who are going to tell you about our great retail business.

Thank you.

Thank you, Paul, and good afternoon, everyone. I'm delighted to be here for the first time in my role as CEO of Retail Banking. As you'd expect, my first priority when I started in July was to get to know and understand the business from all sides. I visited branches, contact centers, met customers and colleagues across the regions and nations in the U.K., all of which has confirmed to me that this is a strong business with talented people and some great capabilities.

It's also confirmed to me the potential we have to grow the Retail Bank. So you won't be surprised to hear that my second priority was to determine the best strategy to deliver that potential. The aim is to combine the very best of our technology with the magic of our people in order to ensure we can increase how we connect and engage with our customers.

My third priority has been to put in place a new management team and operating model, one organized around the customers that can deliver and execute the strategy at pace. So let me start with an overview of the business. We have a strong track record of attracting new customers. We've added 2.3 million since 2021 and now serve 19 million in total. We've grown income at a rate of 10% a year over the past 4 years and increased lending at 5% a year ahead of the market with a high-quality book and a low cost of risk. And we delivered strong returns with a return on equity for the first 9 months of the year of around 25%. We are also an important contributor to group, accounting for around 40% of income, 45% of deposit balances and over 50% of lending balances.

You can see here though we are well connected right across the U.K., underpinned by strong and trusted brands. Given our history, we naturally have a strong customer base in Scotland, but our reach is broad-based and well aligned to the number of people who live in each of the nation and region. We see an opportunity to make more of our local reach through our relationship with the group, whether it's linking up with potential customers in our accelerator hubs with commercial and institutional or working closely with private banking and wealth management on investments.

Over 80% of our customers do all their banking online or via the mobile and almost all their needs can be met digitally. But as I said, a big opportunity is to combine the best technology with the magic of our people. So we have over 1,000 senior personal bankers and premier relationship managers. We're using our branches to offer financial health checks to everyone, and we're experimenting with how we engage with customers. For example, we've been running pop-ups in Sainsbury's stores in order to connect with our recently acquired customers. We're placing relationship managers for Premier Banking in branches to increase referrals, and we're providing financial foundation workshops for the employees of the group's commercial customers.

I've been struck by the very positive response to this and the clear demand for further financial support that results from them. Around 11 million of our customers engage with us regularly through our award-winning app, which they rate highly with a Net Promoter Score of 50. Most of them use them app for activities beyond simply making a payment or checking their balances. For example, many use it to check their credit score and then go on to apply for a credit card or loan with us. They might use the expense tracker to understand their spending habits, or they might want to set and track their financial goals each month.

And we're continuing to invest to ensure the app offers an excellent customer experience as technology continues to advance. We launched 38 new features so far this year. This includes creating virtual cards, managing subscriptions on the app, and the ability to separate money into different virtual pots to help customers meet their financial goals.

We are also trying a new way for people to engage with us on the app, enabling them to onboard even if they are not a NatWest customer. This allows anyone to use our Know Your Credit Score feature to benefit from the financial content we offer and to understand the breadth of the services we provide. In other words, we want to replace a product-led approach with a customer-led approach, as you'll see from this video.

[Presentation]

So you can see that I've been thinking deeply about the evolution of our customer base and their expectations, especially the impact of technology on customer behaviors and competitive dynamics, as well as considering the particular strengths that differentiate NatWest. This has helped to shape our strategic priorities, which are naturally aligned with those of the group: disciplined growth; simplification; and active balance sheet and risk management. And I'm also very pleased to set out today the Retail Bank's 2028 ambitions for each of the 3 priorities. So we're targeting disciplined growth in 3 ways to increase share and drive income.

First, by increasing share and deepening our relationships in key customer segments, youth, family and affluent. Second, by broadening our propositions and delivering more personalized solutions; and third, by using new channels to attract and engage new customers. We continue to simplify to make life easier for our customers to increase operating leverage and to reduce the cost-income ratio to below 40%. We're doing this by improving the digital customer experience further, streamlining our data and technology and accelerating the use of AI. And as we manage our balance sheet and risk, we are focused on maintaining our strong deposit franchise, increasing the agility of our pricing and credit decisions and recycling capital to drive returns and optimize risk.

I'll now bring to life each of these 3 strategic priorities in turn starting with disciplined growth. We see value and opportunity in 3 customer segments in particular, youth, families and affluent. We are already well positioned in the youth market where we are building on the success of our NatWest RoosterMoney app. This teaches children how to manage money with life tracking of tractions and a prepaid debit card available from the age of 6 upwards.

[Presentation]

Since we acquired RoosterMoney in 2021, we have grown its customer base 15x to well over 0.5 million. And we are building our share in the youth market with a broad offering, including Young Saver accounts, which any NatWest current account holder can open for a child under the age of 16, Adapt accounts for 11 to 17-year-olds, junior ISA accounts where you can invest in 1 of 5 funds and student accounts where we have a 21% flow share.

Our focus on families is an extension of our approach to the youth market. We bank 1 in 3 families in the U.K., and we want to deepen our levels of engagement. We want to be there at all the key moments in our customers' lives, from opening a first bank account, to buying a home, to saving for retirement or investing for the future. We also want to build on the connections within families and households. So we're designing propositions that are not just for one individual, but based on how people connect together.

For example, we know there's a demand from families and couples for financial planning. And we are also helping homebuyers through our Family-Backed Mortgage which you'll hear more about later from Barry.

We're seeing parents help their children with this, and we're also seeing siblings and friends helping each other get a foot on the property ladder. We know that joint accounts create more value, both for our customers, who stay with us longer, and for us. And we know that young customers are likely to remain with us, with youth retention rates of 97%. So you can see, we're at the family as a whole, in all its shapes and sizes. In addition to youth and families, we see a clear opportunity to grow in the affluent segment. We have around 1.2 million affluent customers in the Retail Bank, yet just 0.5 million use our Premier proposition.

In order to better focus on this segment, we have moved responsibility for our Premier customers from Private Banking and Wealth Management to the Retail Bank under a new Managing Director. Our aim is to grow our Premier customer base to 1 million. It's very clear that we have some really good propositions, which we are now tailoring better for Premier customers. For example, most of our affluent customers do not join the bank as Premier customers, so we're making that process easier.

We also know that our Premier customers love our Black Reward account, but at the moment they can't apply for it directly, they have to upgrade from another account. So we're improving that journey too. And we're reviewing the benefits offered to Premier customers, including preferential saving rates and lending limits. This is competitive market, but we have some key advantages, which I'll talk about more later. I hope this gives you a real sense of how we're looking at Wealth through the lens of the customer and organizing our business around them.

The second way in which we plan to grow is by broadening and personalizing our propositions. We already have a strong track record of profitable growth across the products you can see here. Yet if you consider our share of current accounts at 16.4%, we clearly have scope to grow in other areas whilst remaining disciplined about returns. In savings, for example, we aim to grow by broadening our offering. To increase assets under management we plan to treble the number of retail customers that invest with us. And whilst we have grown our card business significantly over the past 4 years, we still see an opportunity to extend our customer base. Where we participate in the personal loan market, our share is over 19%. We do not currently offer point-of-sale lending, which we see as an opportunity, and we are not in Motor Finance.

We also want to increase our share in mortgages, where we've invested in a scalable platform, enabling us to grow with minimal incremental cost. You'll hear more about this from Barry. So let me start with our core banking products. Current accounts and savings, which we see as key to building deeper relationships across our franchise. As I said, our share of the current account market is 16%. These are valuable relationships, as around 70% of current account holders have 2 or more products with us. And current accounts contribute 1/3 of our deposits. We offer a broad range of accounts, tailored to each segment of the market we serve.

Whether it's children, students, graduates, everyday accounts for adults, as well as fee paying accounts with benefits, which account for 30% of the total. More recently, we've also launched travel accounts, which allow customers to open a linked account for euros and dollars. So they can pay using the existing debit card in these currencies without paying transaction fees. These 2 currencies meet around 80% of our customers' need for foreign exchange.

By comparison, we have lower share of savings, so we're developing our proposition to attract more customers. As part of the Sainsbury's acquisition, we took on limited withdrawal accounts so we're now extending this to our own customers. We're also reviewing our range of term savings so we can give customers more flexibility, this includes preferential raise for Premier customers. And we're providing saving account to broader range of customers, for example, through NatWest Boxed, which provides embedded finance solutions for other companies. In addition, we want to increase the number of customers using our app, giving them more features and greater personalization to help them manage their money with us more easily.

Turning now to investments. We see an opportunity here to attract more customers in both the affluent segment and more broadly. As I said earlier, we have customers who are eligible for Premier Banking who are not Premier customers. We are putting more Premier advisers in branches to increase referrals and the investment penetration of our broader retail customer is low. Yet, we have some clear differentiators. We benefit from our relationship with Private Banking and Wealth Management, which acts as a center of excellence for investment products and financial advice. We already have a ready-made digital investment proposition through NatWest Invest, and we employ around 400 relationship managers, financial planners and investment advisers. Lewis Richardson is a boxer who won a medal at the 2024 Paris Olympic Games last summer. He turned professional this year and he is one of our Premier customers receiving advice on investments and savings.

[Presentation]

As you just saw, investments is an area where we can really play to our strengths. By combining the best of our technology with the expertise of our people. NatWest Invest currently offers 5 funds with varying risk-return profiles. These are easy to access online, but we are also increasing functionality and visibility on the app. And we are broadening the investment proposition. We're also well positioned to take advantage of the FCA's Advised Guidance Boundary Review. Over 90% of adults receive no financial advice. This review opens up the opportunity to provide them with guidance depending on their needs. We have all the expertise to support affluent customers in person with a full range of financial planning.

We also offer tailored advice on investments in person. In addition, we recently launched an online investment advice service to make it easier for customers to decide to invest. For a fee of GBP 200, they can meet virtually with one of our wealth managers to discuss which NatWest Invest fund would be the most suitable for them. This has been well received since we launched it earlier this year. So we are scaling it to make it available to more of our customers. So, we are well placed to treble the number of retail customers who invest with us.

Moving on now to lending. Our focus is on growing unsecured lending, both in cards and personal loans, all within our existing risk appetite. You have already seen us increase our share of cards from 6% in 2021 to 11% today. In that time, card balances have grown 4x more than the market to 8.4 billion. This includes both organic and inorganic growth.

We extended our credit card proposition from NatWest customers to the whole of market in 2023, which has increased the number of card customers we serve by over 700,000. We also added 1 billion of balances from the Sainsbury's transaction this year, growing our share by 1%. And for those who do not have an established credit history, we recently launched a new credit builder card to help them improve their score. Following our successful launch of cards to the whole market, we also extended personal loans to the whole market. Gross new lending has grown 12% this year as a result.

In addition, we added 1.4 billion of unsecured lending balances as a result of the Sainsbury's transaction and now have a share of 19%. Yet, there is more we can do to grow on secure lending. By expanding our coverage of comparison websites, our coverage for loans is just 40% compared to 95% for cards. By extending loans to new customers through channels such as NatWest Boxed and by launching new propositions such as point of sale lending, a small market that is growing in double digits each year. The fourth area where we are broadening our proposition is mortgages.

So I'll hand over now to Barry Connolly, who leads our business. Over to you, Barry.

Thank you, Solange, and good afternoon, everyone. I'm delighted to have this opportunity to share some deeper insights into our mortgage business. And I'd like to cover 3 things today. First, I want to share with you the drivers of our success so far. Second, I'll outline the areas where we are driving additional growth. And third, I'll cover how we are transforming our capabilities to compete in what is a very dynamic and competitive marketplace. Let me start by setting the context. This is a business we've grown successfully over the last 7 years to become the third largest mortgage provider in the UK, with a stock share of 12.6% at Group level, of which 11.9% is in Retail and a Retail balance sheet of GBP 200 billion. You can see that we've delivered steady, profitable growth over the years with strong returns, and we've done so with a persistently low cost of risk.

Our book is almost entirely owner occupied with just 7.5% buy to let. Around 65% of our mortgages are taken up through brokers, around 10% through our own advisers and the remainder through digital applications online. So how have we achieved this success to date? There are 3 key drivers. Firstly, we have a strong reputation and capability in the key intermediary market. We have broad coverage through 25,000 brokers and a well invested digital platform driving both speed and certainty for customers. The time to make an offer has improved 30% since 2024 as a result of this investment.

So we're seen as highly collaborative in building digital journeys that save time for brokers and for customers and highly responsive when issues need to be resolved. This is evidenced in our awards, which includes being recognized this month as a 5-star mortgage provider at the FT Advisor Service Awards. In a market where price is pretty competitive, this focus on service to reduce client and broker stress really matters.

Second, in our organic business, which is the flow from our own NatWest customers, we combined the very best of digital and human support. We have around 250 advisers available either via video or in person, and we've developed a digital self-service proposition, which we believe is the best in the market. Digital self-service, where customers are comfortable to make the application themselves, is a small but growing market. We have a flow share in new business of more than 25%.

And it offers clear benefits. For example, for some customers, we are able to offer a mortgage digitally the next working day. Third, we have successfully acquired and integrated 2 tranches of mortgages totaling over GBP 5 billion from Metro Bank, demonstrating our ability to grow inorganically when the opportunity arises. We are proud of this growth, and of our low cost of risk, which reflects the quality of our credit risk framework and our focus on good customer outcomes.

We are also proud of our progress on digitalizing our customer journeys, making our business scalable. We know that we can operate at a flow share of up to 18%, well above our current market share, with virtually no additional operating costs. And our integration capabilities are almost entirely automated, meaning we can add acquired portfolios again at very low marginal cost. We intend to keep driving steady growth with good returns in those areas where we are already successful, and we are executing plans for additional growth across 3 areas.

By broadening the range of customer needs we meet with new propositions, expanding the ways customers can start their journey with us, and innovating to capture more opportunity in a rapidly changing marketplace. So let's start with broadening our offering, and we plan to do this in 3 ways. We are doing more to support first-time buyers. In April this year we launched our first Family-Backed Mortgage, as Solange mentioned earlier. This helps first-time buyers get on the property ladder by enabling them to add a second person to their mortgage while retaining independent ownership. It's been well received, and we've had 1,800 applications year-to-date. But our customer research shows that 9 out of 10 parents and young adults are not aware of this pathway to home ownership. So we have invested in a high-visibility TV and social media campaign, which I'm delighted to give you a flavor of now.

[Presentation]

In addition to Family-Backed Mortgages, we've also launched shared ownership mortgages this month, allowing customers to borrow and buy a share of their home, which they can add to over time, whilst paying rent on the proportion they don't own. In 2025, we've helped 44,000 first-time buyers, 50% more than in 2024, and grown our market share from 10% to 12%. And we aim to sustain this higher level of lending to first-time buyers with a GBP 10 billion commitment in 2026. Second is buy-to-let, where retail banking has traditionally competed in just 65% of the market. With rental properties accounting for 20% of the UK housing stock, this is and will remain an important sector for customers. So earlier this year, we agreed a collaboration with buy-to-let specialists Landbay, who originate and manage buy-to-let mortgages for institutional partners.

Through our forward flow arrangement with them, we are now in 75% of the market, accessing the growth in buy-to-let lending to limited companies. This is focused on standard buy-to-let properties at this stage. And third, we're creating additional capacity for borrowers, reflecting how regulation has evolved, by increasing loan-to-value limits on new-build properties from 85% to 90% for flats and up to 95% for houses. And by introducing more appropriate stress rates, while still leaving plenty of headroom for customers.

Now, let's take a look at how customers start their journey with us. We are very focused on meeting customers as early in their research as possible when they buy a new home. So we're engaging with them on sites where they search for mortgages, with coverage across all of the UK's key aggregators. We have developed our digital platform capability to make our journeys plug and play for these platforms. And we're now introducing additional support in these journeys for customers who need it, via a live chat support function. Most of those who currently opt to make a digital application are existing NatWest customers, who want to save time and money, and are confident enough to move to a new deal online.

And as I mentioned, we expect more people to use this option, as enhanced digitization makes the journey easier. So let's turn now to other areas of innovation. We operate in a really dynamic market, so we've been preparing to take advantage of the opportunities this presents. The first is new regulation. The FCA's Advice Guidance Boundary Review is likely to enable additional support for customers before they hit the threshold for full advice.

Just as Solange talked about an online advice model for investments, we'll be able to offer a hybrid advice model for mortgages. So we're transforming how our digital assistant Cora works in conjunction with our colleagues to give customers the support they need to complete an application online. Saving time and cost for both them and for us. As technology evolves, we expect an increasing number of customers with straightforward needs to apply themselves. Most likely with the help of Cora, rather than an adviser.

Second, we are focused on unlocking the power of data to give customers increased speed and certainty at the stage of approval. The majority of our customers have to provide payslips to prove their income. But we are increasingly using direct access to current account data for customers, to make the approval process easier. For those with a steady income and a property which has a reliable automated valuation, directly accessing current account data enables us to make an almost instant approval.

And finally, we are looking beyond simply approving a mortgage to a completion process that is fully digitized, including conveyancing and settlement. We know that buying a new home is a huge cause of stress because of delays and uncertainty. So we've been looking at best practice. The average time it takes to complete a house sale in the UK is over 100 days, whereas in Australia it's just 35. That's why we are collaborating with a number of partners, including PEXA, a digital property business who are market leaders in conveyancing and settlement in the Australian market.

PEXA's platform connects lenders and conveyancers, enabling seamless registration of properties with the land registry and automated financial settlement. This means no NatWest customer will have to sit outside their new home on moving-in day, waiting for funds to clear. The entire process will be faster, safer and more predictable. That's one of the reasons we expect more customers to stay with us. In short, we are reimagining how the power of digital platforms and AI can make home buying more joyful and less stressful.

And before I hand back to Solange, this short video demonstrates the customer experience we are building towards.

[Presentation]

Thank you Barry. As you've just heard, we are boosting our organic growth by collaborating with other organizations. This includes the businesses Barry mentioned, such as buy-to-let specialist, Landbay and PEXA. We are also partnering with Sainsbury's to provide their customers with access to financial services, including loans, savings and cards. In addition, we are building fruitful collaborations through NatWest Boxed, providing companies like the Saga and The AA with embedded finance. The AA and Saga alone enable us to expand our reach to up to 24 million customers. The scale and technology of our business make us an attractive partner for all these organizations.

You've also seen how we've been able to add greater scale and new customers through a series of acquisitions, including RoosterMoney, Sainsbury's and Metro Bank. We will continue to consider acquisitions, but only if they meet high hurdles. And all these initiatives share one thing in common: they enable us to access new customers and expand our reach with marginal additional operating costs. This leads me to our second strategic priority of simplification. You can see here how we have already improved our operating leverage over the past 4 years by reducing our cost-income ratio and serving more customers with minimal additional costs. By increasing our operating leverage, we're able to create capacity to reinvest in the business to accelerate our transformation.

Over time, I expect to improve the cost-income ratio to below 40% as we continue to improve the digital customer experience, streamline our data and technology and accelerate our use of AI. Again, I'll talk about each driver in turn, starting with customer experience. Over 80% of our customers do all their banking online or via their mobile. So we now have 325 million digital customer interactions a month, with around 3 million that are not digital. Calls to our call centers have reduced by around 1/3 over the past 4 years, and there are over 20% fewer branch visits. Whilst the use of our digital assistant Cora has increased by around 60%. We've made large investments digitizing the journeys that customers use most frequently, such as opening an account or applying for a credit card or loan. These sell processes are now digitized end-to-end, including automated credit decisions. So almost all of our customers now serve themselves on these journeys. We now plan to digitize journeys that are used less often so that we can give customers more choice.

For example, we're starting work on allowing power of attorney and bereavements to be registered digitally. And we do not yet have end-to-end straight-through processing for more complex mortgages. We're also investing to meet customers' changing expectations in other ways. You've heard us talk about our digital assistant Cora since its launch in 2017. Last year, we launched an enhanced version which uses Generative AI to provide a more intuitive conversational experience. For example, previously, when a customer asked Cora about a mortgage product, they would get a link to a general page where they had to research and scroll through different options.

Now, Cora can understand the nuances of queries to provide a more accurate and personalized response. Some customer journeys on Cora currently use AI, and as a result, the number of interactions solved without any human intervention has increased. So we're now in the process of transitioning the remaining journeys so that Cora becomes a fully smart digital assistant powered entirely by AI. And we also want to make sure that we connect customer experience across our physical and our digital channels. So, for example, if someone takes part in a financial health check, in a branch or on a video call, the outcome and any follow-up should be available in the app, creating a seamless experience for customers, however they choose to engage with us.

But none of this could happen without having a secure, resilient platform. And we have made great progress simplifying and modernizing our estate. We have replaced 4 online banking platforms, 1 for each brand, with a single online banking platform. We've reduced the number of telephony systems from 20 to 2. And we replaced our mortgage platform last year, which connects via API to 25,000 brokers. This allows us to update pricing in 2 days rather than 10. We have also transferred around 50% of our group technology to the cloud. All this means we have been able to increase the speed of deploying new features and services from several weeks to around 7 days.

Over the past 4 years, we have also aggregated all of our customer data onto 1 platform. Earlier this year, the group announced a collaboration with Amazon Web Services and Accenture to accelerate our data, analytics and AI capabilities. This collaboration will give us a single view of each customer's relationship across the entire bank, as well as the tools to analyze data and enrich our customer insights. We continue to enhance our core banking platform by building more modular functionality so that everything can be done much faster with far greater agility.

And we aim to accelerate the deployment of new propositions and features further. We are also accelerating our use of AI. All of our colleagues now use AI to reduce routine admin and free themselves up to spend more time with customers. For example, we save over 60,000 hours a year by using AI to summarize calls. We also have over 8,000 software engineers across the group accessing AI systems to generate code.

In addition to using large language models, we are also developing small language models using our own data to deliver specialized agentic capabilities, which we can then deploy to meet customer needs better. And we continue to be thoughtful in our approach as we drive a responsible and ethical adoption of AI across the bank. This includes the prevention of fraud, where AI has a critical role to play. We perform above our peer group on fraud prevention with a leading position in the UK's Payment Systems Regulator's league tables. Our customers recognize this and give us a high Net Promoter Score on fraud of 60. The number of calls we receive about potential scams has halved since 2021.

You can see on the slide, we have also launched a new feature in the app to help prevent fraud. We believe our ability to send fraud alerts securely within the app, like the ones you can see here, will help increase customer rates. You can see how much easier it is for customers to verify transactions via the app than via a phone call or a text. And now they can now manage subscriptions too on the app, they can also see more easily what they've signed up for.

In addition, we are innovating by working with OpenAI to automate the diagnosis, investigation and resolution of fraud. So our continued investment in simplification is essential to maintain a secure and trusted platform, as well to enhance customer experience and increase operating leverage.

Let me move now to capital and risk management. I see great potential for the Retail Bank to recycle capital using the same capabilities as Commercial & Institutional, to increase our balance sheet velocity and support capital generation for the group. We currently have 60 billion of Credit Risk Weighted Assets, 40 billion of which are mortgages. The risk rating of mortgages has increased significantly as a result of regulation, so we increasingly focus on managing these assets efficiently. I'm very pleased to announce that we have just completed a 2 billion mortgage securitization, which has helped us both to recycle capital and manage risk by removing Stage 2 and Stage 3 loans from our balance sheet. This has created capacity for new lending at an attractive cost of capital.

And as I think about the balance sheet, there's also scope to use our data and technology to be more dynamic in our pricing and responsive to market conditions. You can see the strength of our balance sheet and risk management on this slide. Looking at assets, we have a prime lending book, 92% of which is secured. Our mortgage book has a low average loan to value of 56%, almost all of which is fixed rate. We have very low levels of impairment in both our mortgage and unsecured book, and we believe our low cost of risk gives us a competitive advantage.

Turning to liabilities, we have a stable deposit mix with around 2/3 interest bearing and 1/3 non-interest bearing. And as you know, we are carefully balancing volume with the value of deposits for both customer relationships and group liquidity value. We've been able to increase our Loan to Deposit ratio to 110% over the past 4 years, and as we benefit from the Group's strong liquidity, we're able to continue growing our share in lending. So, I hope today has given you further insight into how we are combining the strength of our technology with that of our people to deliver for our customers and our business.

We start from a strong position with a proven ability to grow and deliver attractive returns. We see a clear opportunity to grow further by focusing on valuable customer segments and broadening our propositions to increase share and income. We are investing in simplification to enhance customer experience and reduce our cost-income ratio to below 40%. And we are actively managing capital and pricing in order to drive sustainable returns. Thank you very much.

And with that, I'll hand it back over to Claire for Q&A.

Thanks, Solange. And so we now have Stuart and Scott joining Solange and Barry for the Q&A. [Operator Instructions] So I think we'll have our first question from Ben.

Ben Caven-Roberts from Goldman Sachs. 2 questions for me, please. First on deposits and second on revenues overall. So, on the deposit piece, could you just talk a bit about how you see competition evolving over the next few years and what role you think technology has to play within that from an industry perspective, particularly say tokenized deposits as one example.

And then on the revenue piece, could you just talk about how you see the hierarchy of the revenue opportunity, particularly if you're comparing some of those greater market share opportunities you spoke about and how you'd compare that, say, with some of the cross-selling opportunity, particularly around investments.

Thank you, Ben. So, Solange, why don't you take the revenue opportunities and maybe start off deposit, but maybe Scott, you can come in a bit on the technology side.

Thank you very much for the questions, Ben. So, I think on revenues, clearly, as you saw on the slide, we have room to grow in a number of areas. And that's quite deliberate. I think it's important that we are able to be dynamic and agile, but there's clearly room to grow in a number of areas. Clearly, some of those markets are much bigger than others. So, you know, a percentage share increase in mortgages is obviously going to translate differently into revenues than it would do on investment or on unsecured.

And the other thing I would say is we're also looking at it, as I said, from a customer perspective. So we think about it both ways. And we do think around the Premier area and focusing more on there, like on families. That will help drive income across not just one product, but several. So we feel confident that we can drive both that share and income. But we will remain disciplined, which, again, it's why as the cycle moves, you get different dynamics of margins on the assets and the liabilities.

We think we can grow profitably on both sides. We will continue to be flexible. So I think what you're seeing here really is focusing on customers, broadening so we can have a bigger addressable market. So we're not just growing share in the specific products within those areas, but we're broadening the waterfront. So I feel very comfortable.

On deposits, it is a competitive market in the UK. I think the UK has always been a competitive market, and I believe it will continue to be. And we've thought about it really from the customer perspective. So I think when we think about current accounts and instant access, more and more customers don't really differentiate between what's the app, what's the product. This is things we worry about. And so I'm very confident that as we've released more and more features, many of them really on the money management side, If you think about the spending or budgeting pots of virtual cards as the subscription management, that's really driving engagement, and we can see customers responding very well and using those features.

We are broadening on savings where we clearly have an opportunity, and it's been a busy market for savings this year. I think there's a lot more awareness from customers. And we see from the discussions we have actually, it's an area where our financial health check, whether it's for Premier or Retail customers, even with more sophisticated customers. I think the level of understanding on some of those products, as you saw from the video, is limited.

But in terms of technology more broadly, Scott, I know you and I have discussed this.

Yeah, I would say, I think it's a great question. Firstly, I think there's really 3 areas where we think technology is going to play a major part in the growth story. The first is, and you saw this in some of the videos and some of the sessions already, is around customer engagement. The rate at which technology is evolving, and particularly has evolved in the last year, has been nothing short of profound. And we are seeing major advances across a number of technology elements. Everything from evolution of devices, you're seeing wearables, you're seeing the impact of glasses.

You can see a more immersive experience for customer engagement more generally. We need to be part of that, and we see those channels absolutely evolving. You saw, again, I would say, if I pick on the mortgage video, I think what you saw there is, again, the customer engagement really changing when you can actually have a really personal relationship with the bank.

As we see Cora evolve from just being a primitive chatbot to one that's more immersive with GPT, to now one which is actually talking to you and responding. And then ultimately, you're seeing the avatars and the next stage of evolution. So, I see a real fundamental shift in customer engagement that will drive, we think, a growth story along the way as customers have a more personal relationship with the bank. The second is around capability. And you saw a number of new capabilities in there, the things that just haven't been possible before, before some of the advances we've seen in AI.

The ability, as you saw in the mortgage video, to be able to go and book your viewing appointment or book your removal or having agents that can do things for you, again, is a capability that hasn't existed before and has required many of the advances in agents and agentic technology to make that real. And that's really coming and coming at pace. And we're seeing a lot of the investments in the big technology companies. And I would put the discussion around tokenization of deposits and other things in that kind of new capabilities.

And for sure, we think that's going to happen. We're putting some money behind that. We are absolutely preparing to support the model as that evolves going forward. So, I think capability is the second. And the third one is really around efficiency of our people. So, there's a lot of opportunities, we think, to actually create more time for our Relationship Managers, for our Premier bankers, to actually free up their time, provide them with more information to be able to service our customers better.

Which then ultimately will enable them to do their jobs better and provide better service to the customers. We think really 3 key areas. And there's lots of examples we can go into around each of those. But 3 key areas where we think technology is going to have a major impact on driving the growth agenda forward.

Thank you, Scott. Ben, we'll come to you.

Ben Toms from RBC. 2 on mortgages, please. Your current market share of mortgages is around 13%, I think. And you've talked about wanting to increase market share. But I think you also talked about capacity constraints around flow share at 18%. Maybe you can just talk a little bit about what happens as you approach that 18% level. Is it a case of having to invest in technology or is it a case of just hiring more people?

And then, secondly, just in relation to the ROEs you gave on the mortgages, currently at 15%. Historically, you've done more like a 20% kind of number. To what extent do you expect to close that gap? And do you have any appetite to lean into risk in the mortgage segment?

Perfect. So, Barry, shall we start with you maybe? Stuart, I guess you can help us with the returns as well. But I thought it was an interesting perspective on the 18% constraint.

No problem. Well, we'll start with our capacity for growth, first of all. I think, as you said, we're at 12.6% overall as a group, 11.9% in Retail. And it's important to bear in mind that we've managed to achieve that by -- and we haven't been participating in the whole market at that stage as well. There were still areas of the market we weren't participating in. So, we're well used to, in the markets we are in, working above our natural market share.

The 18% represents kind of where we have got to as a result of the digitization to date. And what we -- at 18%, we're still delivering really, really fast decisions for customers and dealing with resolving issues as we go with absolutely no problems. We have further plans to develop our technology. So, it's a never-ending, relentless digitization of the journeys.

And I think, as Solange mentioned, for example, while we've got a lot of our very simple mortgage journeys relatively straight through, the degrees of complexity that you experience in a mortgage journey mean we have to continue to chip away at that. So, we expect our capacity to continue to grow. What matters for us today is when the conditions are correct, and we have the opportunity, we're able to punch well above our weight, and we take every opportunity to do that. That said, margin conditions are pretty tight, so there are moments where that's not the case.

And maybe, Stuart, you want to talk to the margin piece a little bit?

Yeah, absolutely. Thanks for the question, Ben. And I might come back to you on that broadening in terms of risk appetite as well. So, yes, 15% return on the book at this point in the cycle. We give you good disclosure on our mortgage balances and income alongside our quarterly results. So, you can see that that's also about a 70 basis point margin on the book at this point in the cycle as well. We have come from over 20%. I would emphasize the over from 2021.

Clearly, there's been a couple of really key dynamics that have been at play since then. The first thing would be the risk intensity on the book. We've shown you that it increased significantly from 2021. That measure we gave you back then actually included a view of that increase. But clearly that's been a journey we've been on.

And the other really key dynamic has been mortgage margins tightening as the interest rate cycle has worked its way through. Now our income and NIM overall as a business has increased, but mortgage margins have become a bit tighter. As Barry just alluded to, right now, we're writing a little bit below that 70 basis point level. But we're very thoughtful about our pricing decisions and our returns.

We look at an all-in product return and margin. And that includes things like procuration fees paid to brokers if it's intermediary channel. And we don't include any cross-subsidization in those calculations from, for example, deposits where income and margins are wider at the moment. We focus on in-deal return on equity when we make our pricing decisions. But we also consider a lifetime lens, so we take account of retention on a book, which is at good levels and at positive economics for us.

Barry's outlined our digital share in terms of -- and the quality of our digital journey. So we're happy that margins have stabilized around a level that's above cost of equity for us. So we've grown the book GBP 5 billion year to date and as Barry's outlined, there's areas we can expand into. Do you want to pick up the risk appetite point?

Yeah, the risk also. While we're broadening into new areas, it's important to recognize they are areas we really understand. So when it looks like you move into an area, such as the Family-Backed Mortgage, what we know from our data is that behaves very similar to a joint mortgage that we do in the core book. And that's as you would expect. There's 2 parties on the mortgage, the only difference being there's 1 person on the title deed. And similarly, in our buy-to-let expansion, customers are solving their investment in buy-to-let a different way because of tax reasons. So we're just seeing more customers start their buy-to-let portfolios as limited companies, whereas previously they started them as individuals.

But the underlying asset and the behavior is very similar. So again, where we are expanding, we're very thoughtful and data-led in understanding how that's likely to perform from a cost of risk perspective as well. Does that help?

I'll come to you, Chris.

It's Chris Cant from Autonomous. Thanks for the session. I think last time we had a PBB seminar, we ended up spending quite a lot of time talking about the 15% ROE on mortgages as well. So I wanted to ask one on that too, just to keep up tradition. You talked about the mortgage platform having a lot more capacity for flow. But I think you said -- I can't remember whether you said minimal or de minimis or something like that, in marginal cost. So when you're thinking about product ROEs, what maths are you actually doing there in terms of cost allocation? Because I think it's a question that quite a lot of us in the room get periodically.

I always think it's a bit like, how long is a piece of string? But what maths are you doing when you're thinking about marginal product ROEs when your systems and more straight-through processing mean marginal cost is so low?

And then on professional buy-to-let, I understand the move and given the answer to the last question. But in terms of partnering, we've seen some of your UK peers seek an acquisition to buy in a capability in the professional buy-to-let space. So with Landbay, are we looking at that as sort of dipping a toe into that segment or is that something you see as a long-term model in terms of forward flow arrangements? Do you not want to bring that capacity in-house or capability in-house at some point?

Perfect. So Barry, should we start with you a bit on the forward flow arrangement and then we can maybe broaden it out with Solange and maybe, Stuart, you'll take the cost allocation, the ROE calc.

Certainly. I mean, just to think about how we've approached growth, we're looking to constantly develop a range of options for customers and trying to do those all at once from a technology perspective, even though we are becoming a lot more agile, still requires us to kind of sequence how we approach those. And what we've decided to do is to build out our capability around shared ownership and Family-Backed Mortgage first, but we didn't want to wait to learn about this limited company buy-to-let market. We felt it was an area our customers needed our support on and that we wanted to get into and learn about as quickly as possible.

So at this stage, we're in learning mode while also generating value for customers and for ourselves on Landbay. And we're keeping our options open as we learn about that market and kind of ally it with what we already know from what was still a reasonably significant buy-to-let business that we'd already built ourselves. So we're keeping all options open, I would say, in terms of how we develop into that market. But at all times, we're trying to sequence exactly where we apply our technology for greatest value as we expand our proposition.

In terms of -- sorry, Solange, would you want to go?

I was going to say just on inorganic. So, what we've presented today, including all the ambition, that is purely organic. We will continue to deliver attractive returns. As you might expect me to say, to do anything inorganic, the bar would have to be very high and ensure that we provide compelling shareholder value. We've talked a little bit about today, about how we've used different partnerships. We're playing on multiple fronts with different partnerships and collaborations. We'll remain agile.

And as Barry said, we remain open. If there are opportunities, and obviously we look at opportunities to accelerate the strategy we've outlined in the plan, whether it's by adding capabilities of scale, we will look at it. We will look at it against alternative uses of capital, both within the Retail Bank, but also with Paul and Katie at Group level. So I think we're very pleased with what we've learned so far, how we're able to be in more of the market, help more customers, and we'll keep things under review as we evolve the plans.

Perhaps on the maths of the 15%, I'll perhaps start at the portfolio level and then explain a little bit around how we make the marginal decisions. So, the 15% that we've given you today is all-in. It's got all of Barry's cost base, if I put it like that, and also our technology cost base allocated to the business and other operational costs in there.

So you know from our regular reporting what the margin on the book is, the cost of risk, as we've outlined today, is very low over the last 4 years, and you know the risk density on the book. So you can, from that, estimate what the fully loaded cost-income ratio is on the business, and it's relatively low, lower than the franchise overall, which I guess you would expect.

In terms of making pricing decisions, we consider both marginal and fully loaded cost allocations. As I've said earlier, it's an all-in view of the product, so that includes the margin. We take a small liquidity premium charge for tying up funds across the life of the mortgage. We apply the marginal cost you would expect, so that might be an adviser cost if it's an organic mortgage through the advised channel.

It might be a broker 37-ish basis point procuration fee and then we apply cost of risk and other costs such as the application of additional tier 1 capital costs into the profitability calculation. So it's a full marginal calculation. Hopefully that helps.

And I think just for all the products we've talked about today, so we're very disciplined in looking at the return just on a product basis, and we've talked just now about how we do that for mortgages. And then obviously we then also take a lens at a portfolio basis, so we try to manage both.

We will come to this side of the room. James.

It's James Invine here from Rothschild & Co Redburn. 2 questions, please. The first is you talked about more aggregators, originating mortgages through The AA and so on. Is there any difference in the economics of those mortgages versus the more traditional intermediaries?

And then the second question is just about branches. So we've heard a lot today about digital. So what are your plans for the branch network? I think you've got around 400 at the moment. What do you expect that number to be in, say, 3 years, please?

Perfect. Passing both to you, Solange.

That's fine. So just to clarify, with The AA, we are doing kind of loans and deposits, we're not doing mortgages. So, look, the economics can vary by channels, but we apply the same discipline. We have arrangement with our partners, but we think it's important for us to give us reach to different types of customers, but really also understanding those customer behaviors as they evolve. So I think we're pleased with that, but NatWest Boxed does not kind of look at mortgages. And I think, Barry, what you talked about is more how do you capture the flow and engage with customers as early on as possible in the process.

In terms of branches, so since I started in July, I think I've made my way around to about 35 branches, including a few hubs and even a trip on one of our mobile vans in Scotland. And it's been fascinating to really hear and see firsthand our customers use them and hear from colleagues how that has evolved over time. It's made it clear to me that they are valuable.

We need to show up in the right places and show up in the right way. And we're definitely evolving and experimenting in a number of ways about how we use the space for Retail customers, but also for Business Banking, for example, or for Emma Crystal's customers in Private Bank & Wealth Management. We've talked a little bit about, we host a lot of financial foundations workshop, which means that we offer education and other services to the employees of Robert's Commercial clients.

And often on the back of that, we see more engagement and more needs, so that's been a successful one. Having more Premier relationship managers, actually, and being able to hand off customers to the right person at the right time has helped drive referrals. So we definitely see value. And now that our channels are all in a great place, like you've seen with the app, we really want to connect them more. Because what we're learning is you may have a customer that never walks into a branch and then one day, 3 years on, they do. And we know where we'd like to be yet in terms of that seamless engagement. But I think it's important, and we'll continue to reimagine, like we've done for many years, how we use those important connections with the local community that we have.

Thank you, Solange. We'll go to Guy.

It's Guy Stebbings at BNP Paribas. The first question was around the competitive dynamics in the mortgage market. I'm mindful that, at the moment, Q4 and then into next year, we're in a period at an industry level where there's some quite high-spread 5-year fixed mortgages that are maturing. Normally, one, maybe would expect that new business spreads would sort of rise to compensate for that. We're not seeing it at the moment. If anything, we're seeing slightly the opposite. Just wondering how you're thinking about that. There's a bit of a narrative out there that maybe this is a partial giveback from the structural hedge tailwinds, which would seem natural, but just interested to get your views around that.

And then the second question was around the retention of youth customers to adults. I think it was 97%, which seems very, very high and impressive. I'm just intrigued as to -- I don't know if you have the data on it, but how much of that would be still primary banking customers, whether you have that level of insight?

Thanks, Guy. So, Stuart, should we come to you first on mortgage margins and then Solange on the youth?

Yeah, absolutely. So, firstly, on the mortgage margin and the rollover of 5-year business from 2021. Yes, that is a feature we expect to play through the book over the next few quarters through 2026. In terms of seeing that as a giveback of the structural hedge, as I described earlier, we're very thoughtful and focused on how we make our pricing decisions. So, where we write the new business at, the retained business at, we'll apply that rigor to.

What I would say is that business rolling off, particularly a 5-year mortgage has been paying down for 5 years, so it typically comes in at much lower LTV and the risk models are very sensitive to that and therefore the risk weight against those mortgages will be lower and the economics and the return on that business is more favorable, as I described earlier, in terms of retention of the business. So, I wouldn't think about it as a giveaway of the structural hedge, but I suppose if we were to think about it technically, the dynamic that is happening is we are reinvesting the structural hedge month-in, month-out into 5-year money and some of that hedge is internalized, as you'll know, from our accounts, so you could think of it as a repricing to higher customer rates than certainly the customer was on back in 2021 and that being analogous to the rollover of the structural hedge.

So, on youth, we're very pleased with that business. We're pleased with having grown our flow share of students. I think it's almost just over double over the last 4 years and we've had a very successful campaign this year. I think the retention more broadly for youth is high. We've looked into the number of 97% and it is testament to the functionality that we've built and how customers evolve with us.

Clearly, now in the UK, it's much more common for people to have more than one bank account, but I think, again, there's a lot we've learnt over the years from some of the competition and then when I look at the features and the functionality and the personalization that's starting to come through, I think it's given a reason for customers to stay with us, but we clearly, it's something we think about a lot, we are very active, which is why we really do have that focus across the whole age range and we see more broadly than from students to graduates or adults, we see now more customers being there at Rooster and going on to Adapt as they get older and then staying with an account with us.

The other thing we're saying is, more broadly than just the current account, is we've seen a lot more interest, for example, from some of the Rooster customers into Junior ISAs, so I think we're really broadening how we think about the youth sector because we're designing for 2 customers, we're designing for the kid but also for the parent who are making the decision, so I think there's more we can do there, very pleased with the progress and we'll continue to stay as ahead of it as we can.

Great, thank you. Sheel?

Two questions, please. Sheel Shah, JPMorgan. First, personal loans, you've got an -- it was an 18% market share. You're speaking about growing this market share. Where do you think that could go towards? This is clearly an area where you are overweight relative to the deposit business. And then secondly, you talk about capital efficiency and capital velocity. It's a topic we often hear about on the wholesale side rather than the retail side, so I'm interested as to what you're thinking about doing in this area. I can see data quality, for example. Where are the data inefficiencies in the retail business?

And then just on the securitization. You've done it on the Stage 2, Stage 3 balances. This is a relatively low-risk book on the mortgage side. We're not going to see a build up on Stage 3 balances. Is there an economic benefit on doing on the Stage 1 balances?

Great, thanks, Sheel. So Solange, do you want to talk maybe about our unsecured market share ambitions, maybe a bit on point-of-sale as well as the personal loans, and then moving on to the securitization and opportunity, move on to maybe, Stuart, do you want to take that one?

Thank you very much. Personal loans, we're actually at 19% market share now, following some of the book we acquired from Sainsbury's. I think 2 areas there where we can see further potential. One is coverage of aggregators. And I think what you can see is a journey we've been on cards. We're replicating and learning on loans. We're on 40% of aggregators.

On cards, we're at 95%. So we went live on an additional one, I think, last week or the week before, and we can see that working quite well. The second one is NatWest Boxed. I don't know if many of you know what Boxed is. Boxed is a business we set up a couple of years ago. It's combining very modern technology together with our balance sheet and our banking expertise, where we partner with commercial customers to allow them to offer lending and saving products to their customers. We went live with The AA over the summer.

And again, we've seen good performance. We're pleased with that, including on the risk appetite, where we've been very thoughtful. So that's another area. On point-of-sale, we're not currently in point-of-sale. But again, as we've learned from Boxed and the discussions we've had, and as we understand how customers are behaving, we see an interesting opportunity to build on those capabilities, because we know there's demand often from retailers to provide more flexible solutions. And so I think that's something we can go into and learn from.

So I think we've got plenty still to do. Very pleased with where we've got to. On capital, I'll hand over to you, Stuart. But I think there's a lot more that we can do. It's the wholesale, but we see other banks having done stuff on the retail side. And Stuart, you've been giving it a lot of thought.

Yeah, absolutely. So thank you for the question. Absolutely delighted with the securitization transaction, as we've outlined, deconsolidates GBP 2 billion of mortgage loans from our balance sheet, as you've pointed out, Stage 2 and Stage 3 assets. If I just unpack that a little bit, the Stage 3 assets make up about 40% of the portfolio, and Stage 2 is about the other 60%. And that 60% is all above 85% LTV. So the risk weight on the portfolio is significantly higher than the prevailing risk weight on the book as a whole. It's several times higher than the prevailing risk weight.

So really pleased with the transaction. As we've outlined, positive economics, a very low cost of capital release for us. So delighted with the transaction. As we look forward, we're investing in our balance sheet management capabilities and we're investing in our data transformation capabilities. The product of those investments, I expect to broaden the capital management opportunities we have in front of us. Looking forward, you would expect to see us look at transactions across both secured and unsecured portfolios, and I would expect to see synthetic transactions feature as part of that as well. So, as we've outlined, focused on doing more in the capital management space going forward.

Great, thanks Stuart. Amit.

A follow-up question on the mortgages. I'm just kind of curious. I mean, I suppose there's going to be a few changes tomorrow, but I was just wondering, you know, for example, if we would see something like limitations on cash ISAs, things like that, which could impact Building Societies and the like, do you see that potentially having a positive impact on mortgage margins?

And then secondly, again, just coming back on the capital optimization point, again, just when I'm just thinking about Group capital, I mean, it's still, you know, and potentially on the 2nd of December, we might see even better capital requirements than what we currently have. You know, so if the Group's not so constrained, I'm just kind of curious how much you -- how you think about that capital optimization piece and, you know, how your -- how much optimization you really want to do or need to do on income give-up versus just continuing to grow the book?

Well, Stuart, shall we maybe come to you around the dynamics of potential ISA changes, what that might mean for mortgage margins, and then Solange as you can talk about how we think about capital optimization more broadly and the economics.

Yeah, absolutely. Thank you. So I guess the first thing I'd say is, you know, we'll be listening intently tomorrow to see what changes are forthcoming. Structurally, as a business, we are underweight ISA. So if I look at our market shares on ISA, they're below our overall deposit market share. And as you've pointed out, that's different to Building Societies who may be more dependent on ISA funding to drive asset growth.

So I would say structurally, we start from a positive position. As to whether that adds a little bit of pressure in terms of -- or opens up the mortgage market a little bit and eases pressure on margins, we'll need to see how that plays through. And we'll be listening extremely carefully tomorrow to see what changes may or may not be announced.

Yeah. I think for us, just picking up on the ISA changes, what's important is we think about what the customer needs. We are able to help them with all of their savings and investments. There's clearly been a lot of education going on this year about what an ISA is, and we are well-placed to position that. So we feel comfortable and we'll see how it plays through once we know for sure tomorrow.

In terms of capital allocation and optimization, so it's something I and we have been thinking a lot about within the Retail Bank, first of all, because we need to make sure we continue to deliver those attractive returns by driving income, but also that operating leverage that I've talked about today.

On capital optimization, trades like the one we've announced today, we are very pleased. They are very attractive cost of capital, so that's the right thing to do. In terms of balance sheets and returns and volume, I think what we've been able to set out today in terms of the drivers of where we see that income and that share and having the breadth of the opportunities that we have allows us to be dynamic, as I said earlier about how we'll manage that.

And then obviously I spend a lot of time with Paul and Katie around making sure that we're doing what makes sense from a Retail perspective, but also helping support the Group meets its own RoTE target, which you'll hear more about in February.

Great. Aman.

I might try 3, if that's okay. Yes, Aman from Barclays. So you're clearly thinking very thoughtfully around deposits. I wanted to get a sense of the rationale around deposits as a kind of loss-leading product. We've observed that you've priced fixed-term deposits above the swap rates for a decent chunk of the year, and I think you still are loss-making on ISAs currently. Your one-year fixed-term ISA at 4.2. What's the strategic commercial rationale around doing that? Presumably there's a cross-selling opportunity.

And then a related question. So much -- so current account market share. So that 16-ish percent that you've got currently, do you think that's sustainable long-term? And the way in which people consume, particularly the younger cohort, is changing rapidly. Is it sustainable to think that in 5 years' time we've got the same quantum of current account balances in the system that are non-interest bearing and that NatWest has got 16% share of them?

Because there's lots of entrants that presumably want to go after that business, and it kind of relates into the third part, fee income. It's missing, basically, from the revenue mix. I think it's around 6% of your revenues is fees. I mean, are you thinking enough around fee income? I mean I would have thought I would have heard around subscription models, for example. That's clearly a business model that exists, and businesses are enjoying success there. Are you thinking about these things?

So, Solange, do you want to start on those? I think, yeah, a lot there.

Do you want to remind me of the first one? Because by the time we got to the third...

I guess really just around our good position in current account share, how sustainable is that in this competitive environment? How does that feed into our propositions on price, particularly with the ISA rate that you've spoken to?

So I think, current accounts, we're pleased with that share, we've maintained it, it's a competitive market, it has been for a long time. I mean, I think some of the neobanks, it's over 10 years now. It's definitely meant that we had to up our game. It's provided a better outcome for the customer. And as I've talked to a number of times today, I think we are continuing to build on the app. We have a lot more features now. I think you can do most of what you can do elsewhere with us.

And again, you can see from the breadth of our use proposition that we are a compelling offer for them. But we are absolutely not complacent. We're building both on the engagement and the personalization. So we haven't gone into detail about what we're doing on personalization. But now that we have all of our data in one place, that's been really powerful. We've been building a tool, which we call CITA, where we can take that data and we use AI to really be able to deliver in one day now, which used to take several weeks, personalized insight based on what the customer is doing and the context of doing it.

And so, for example, one thing we've done recently, which has been successful, is some of our younger cohorts, if we see they've had a salary increase for a few months and we don't think they have any big kind of expenses to repay, we'll prompt them as to whether there's better options for them. So we definitely think that engaging with them across the breadth of the savings, because again, for people, we know we have loads of different products, accounts and interest, non-interest bearing, customers don't necessarily think about it in those buckets.

So we're looking at the whole and Stuart can talk a little bit about the ISA pricing. And again, it's always been a balance of managing for the customer relationships, and we've had very, very strong retention on our book, as well as, obviously, the fact that we benefit from the group liquidity. So we'll continue to build on it, but we feel confident. Again, on savings, we're really broadening the propositions. And maybe bridging on to the fee income and then maybe we'll go back. So around 30% of our current accounts are fee paying, you may have seen on the slide earlier. And it's definitely an areas as we think about Premier in particular, where we are continuously reviewing and we're thinking very deeply around the reward accounts that we have.

I mentioned our Black Reward account, which customers love once they know about it, but it's not easy to access. And so, you know, I think you should expect to hear more about us later. And we see it as good news that, you know, in the UK now you have people willing to pay for those subscription accounts. Fee income more broadly, we talked a lot -- about a lot of things today, so we couldn't cover everything, but for context, I'd take us back to, with all the regulatory changes we've had, which all of you are aware, and more recently consumer duty, we've had some fee income move into interest income, and we are very comfortable.

We have a very clean fee income line here, but we're absolutely focused. We've been working a lot as a team. We've had a lot of conversations about it. Subscription accounts I've covered. The other one is around investment, and I really do think on AGBR we have an opportunity. I've sat in and listened to many financial health checks, customer speaking to advisers, and there is clearly pent up demand from customers who need more help here. And we're seeing mostly from our face-to-face, so human interactions, a lot of very positive tractions on flows to both savings and AUM. So that is fee income.

Some of it you will see in Emma Crystal's business, in Private Banking & Wealth Management, but it shows the potential we have with our Retail customer base to meet more of their needs. And then the other one, and Barry and I talk about it every time we meet, is around home insurance and protection. Again, Barry talked a lot about it today. It's something that we offer today, but we haven't kind of focused on it as much, but we think that technology provides some really good opportunities to do it better and differently.

Yeah, I would agree with that. I think it's one of the areas where we have been helping customers, but we haven't woven it into the customer journeys in the way that you would make it a very natural thing for a customer to do. We'll make a first start on that in quarter one, where, for example, we'll have life insurance woven into our mortgage application journey, so it's a much more natural thing rather than having it side by side. And then we're working on other exciting opportunities in protection, which we'll talk to you more about in 2026.

We have very clear plans, but as Solange said, we're kind of limited how much we wanted to say today to the time available, so we'll come back on that.

Can I pick up the pricing point? So, ISA, I think, yeah, fixed ISA specifically is, I think, what you're referring to, because our cash -- variable cash ISA pricing is certainly less rich than that. Look, I guess when you look at the market dynamics this year, all of the flow, really, in the personal sector deposit market has been in ISA. It's been highly competitive, and look, we -- as Solange described, we're keen to offer our customers competitive rates.

As I've said before as well, I think you've probably heard me say the shape of our book is very weighted towards the second half of the year, so at that point in the year we also face high roll-offs of fixed rate ISA balances, and clearly we're very keen to defend those and we price accordingly relative to the competition in order to achieve that. What I would say around the pricing is it's not particularly meaningful in the context of our GBP 6 billion-plus net interest income stream in the business. And if I think about deposits overall, if I go from September last year to September this year, we're up GBP 4 billion, our NIBBs have stabilised at 33%, our current accounts are up about GBP 0.5 billion.

So actually the conditions have been fairly constructive. And as we described earlier, we are fortunate to be part of a broader group and we have been able to leverage the strong liquidity position, which overall has allowed us to be very flexible and thoughtful in our pricing decisions on the deposit book. So overall very comfortable with where we are.

And maybe the very last thing on deposits, just so it's again with Boxed. So, we announced earlier this year I think over the summer that we're going to do something with Saga that will be very focused on the deposit side, that will launch next year. So, again, I think -- I hope you've got the feeling from today that we're thinking customer segments and where we have strength and where we can grow, we're broadening what we're doing, but we're also very active in being in different channels and I think it really gives us a sense of what our customers are doing, we spend a lot of time analyzing customer data, we understand the flows, what's coming, what's going out, the seasonality, who it's going to, so we're very much on it and we feel very confident with some of the plans we've laid out there that we can continue to grow that part of the business.

Thank you. Perlie. And then we'll come to you, Alvaro.

It's Perlie Mong from Bank of America. So, tomorrow. So I suppose as a broader question is to your thinking about returns and growth. I mean, I think with you growing 5% loan CAGR in the last however many years, and as a group 4% in the last 7 years, every year, I think you're well within your rights to tell the Chancellor that you've done your part, but nevertheless we're in the political climate and if the FT articles were to be believed in the last few days, the government very much wants to see more growth and more lending in that and the message is, I mean, according to the article yesterday night, if not we'll tax you more, or rather -- I'm not sure, I'm phrasing it correctly, but that seemed to be a sentiment anyway, and with you in the retail business doing well over 20% returns, and now at the group level. I think consensus is 18.6% for 2027, how do you think about disciplined growth and especially in this political climate, is the first question.

And secondly, Cora and mortgages, I thought that was a fascinating demonstration of the journey and probably one of the most exciting use cases of AI in banking that I've seen so far. So how far much -- how far are we in that journey, so for a typical customer, how many people actually have that journey that we just saw in that video, and if that's the direction of travel we're going, potentially the cost implication will be enormous because you probably don't need very many mortgage advisers, probably don't need quite that many credit officers.

The sort of cost base will be completely different. And -- but also equally, the fact that mortgages are so painful is one of the reasons why a lot of tech providers are, well at least so far, haven't really got into this segment because it's so painful to deal with all the surveyors and conveyancing and all the rest of it, so if it's going to be that simple, how do you see the competitive dynamic going forward?

Brilliant, thank you Perlie. So maybe I'll -- because I've also got some from online as well, but the first one maybe returns and growth, maybe you can talk about how we balance that, Solange, and then I might come to you first, Scott, as someone also wants to talk about how we're developing and where we are on the agentic AI story, and then perhaps you can fill in, Barry, on Cora.

Thank you for recognizing our growth and track records there as well as our attractive returns. Look, I think we'll all be glad to hear what the budget says tomorrow. I read the same papers that you do, but I think we actually decided on the date for this before we knew what the Chancellor's budget date was, and our plan and the ambitions we've set out to do is what makes sense for us as a business.

Clearly, and you probably heard Paul will also say, successful economies need strong banks and vice versa, we are definitely aligned with the UK growing, and I think there are areas where hopefully we can definitely align. I think we'll continue, you know, we've had attractive returns over the cycle under different governments and different chancellors. What we focus on as a team is delivering what we set out today in the ambitions, providing great support and services and products and support to our customers, but also kind of generating the value through all of the levers that I've talked about today.

So we'll see what happens next. I think, hopefully the speculation ends after today, but we're comfortable what with we're doing and we don't see an issue with the kind of returns we're at and where we are getting the business to get to.

So first of all, thank you. We're also very excited about the opportunity with mortgages and with other products, but that's essentially a concept video and something we are working on, but there are 3 building blocks behind that video that are close. The first one is Cora more generally. So the ability to have full conversational chat with Cora across every journey. We have a number of journeys live already this year. We intend to finish that next year. So the intent is for all journeys across Cora to be fully essentially GenAI enabled for next year, which gives you a much richer experience for any kind of chat you want to have with the bank.

The second is the voice enablement. And you saw obviously in the video, you saw everything -- the whole communication channel was via voice. So a very, I would say, engaging experience. Our intent is to be live with the voice in the first half of next year. But I'll say one of the key things there is the experience has to be, like any AI project, you need to make sure the testing is really, really strong because the last thing we ever need is a very engaging experience, but with wrong information and wrong outcomes. So there's a lot of testing that needs to go into that, but the intent is to be ready with a voice Cora product in the first half of next year. And the third building block that you saw in that video was essentially the agenticization of a number of tasks.

And we are actively working on a number of those at the moment, and we're building out agents to do a whole series of things. And again, as we get into next year, we'll start to see more and more agents live. So it's all being actively developed at the moment. Different stages of evolution across those 3 primary building blocks. And obviously, to get to that full experience, those 3 concepts need to come together, and we need to then put them together into that single application, but...

And maybe I'll add a couple of bits to it? I mean, there's another important thing that has to happen, which is the industry has to come together to get property data in a shareable and interoperable fashion, and that includes working with people like Land Registry, et cetera, where you can actually get reliable automated valuations on property. So there's kind of elements that have to come together in order to make that really scalable across the market, but there are conversations underway through innovation forums to make that happen.

And then the other thing is to kind of pay attention to how customers behave around this. So what we've discovered is customers do a lot of research, and they feel really empowered right up to the point where they make a decision, and often at that point of decision, because it's such a big decision, they still want to have some sort of conversation at the end, and sometimes that's also the right thing. So at the end of that video, we purposely, as you may have seen, didn't encourage Cora to help the customer.

We encouraged Cora to connect to a colleague, and that's because that's a life event. So you think about what's happening is, yes, the potential for a bigger home, but also a life change that could mean an interruption to income, that could mean having to think more broadly about what the family needs. So it's important to see the blend of technology and human being delivered in the right moment, and using our intelligence to design that in is also quite important. Is that okay?

Thank you. We'll go to Alvaro for our last question.

Two kind of follow-ups, I think. One on fees. You mentioned the often-quoted stat of 90% of the adults don't have access to advice. What's the right number when you benchmark internationally or in that? And as we think about medium term, and hopefully we get a bit of a push tomorrow as well on more policies, what do you think -- how much of the opportunity is there to influence and change the P&L to make it more fee heavy? And I'm thinking Cora might play a role in that, if at all other banks are talking about artificial intelligence sort of taking our jobs.

And second, on the 15% ROE. As these 5-year mortgages roll over, presumably that can go down. But I don't know if 15% is the one you're happy with. Can it go down for a low-risk product, happy to go down if it's the right thing to do? Because I'm conscious that, yes, 70 basis points, slightly less than 70 basis points of pricing now, but it had went as low as 30 bps, I think, 2, 3 years ago. So, are you thinking differently about pricing? What's the sort of level of ROE that you feel comfortable with?

Great. Solange, do you want to take AGBR opportunity and investments and fee income more broadly? And Stuart, you can follow up maybe just a bit on the returns.

Absolutely. So, on AGBR, we have looked at other countries and more other countries which haven't gotten through the same historical reforms to have more of an advice culture. It's quite hard to accurately benchmark because the products are so dependent on the kind of taxation and pension system of each country and system they have. But what we definitely see is the demand. I mean, I've spent a lot of time at Emma Crystal in the Private Wealth Management business.

There is definitely, definitely a demand. For some customers, what the regulation change means is that we can provide more support which enables them to access products which are better for us. And clearly, there's also value for us when those things are like investments. And we definitely see, again, Junior ISA where you have grandparents, parents, godparents sometimes wanting to save for their children. That's the right product. And being able to broaden the support we give them will be very valuable.

For other areas, for Premier, where as we go even more affluent than that. We definitely see, as we have those specialist advisers, we see demand as people get more comfortable. And this year has been helpful in some ways in getting much more on people's mind the kind of savings and investments, willing to pay for more tailored advice and more bespoke solutions. We also work very closely, again, with Private Banking & Wealth Management because we have a very good offering through NatWest Invest, but we have capabilities in Coutts, which we haven't surfaced to our customers.

And so we're thinking very thoughtfully about whether any of those as we think more broadly about investment would be suitable for the right customers on our side. So, we definitely see opportunity. Regulation helps. Consumer behaviors are changing. And so, we'll know more about that. In terms of AI and fee income, so the way I think about it is I've obviously outlined some of the fee income we've thought about.

I would also think about it that it's underpinned by a customer base we've grown. We've added 2.3 million customers. And what we've set out today is we definitely will continue to grow that. So that also helps grow the fee income line. And as we start to not only improve the customer experience, but as you've seen today and in the video, we transform it more, we will continue to experiment and understand whether there's other things we can therefore provide and help our customers, which might provide other pockets of fee income.

Perfect. Okay, and on the mortgage point, so 15% at this point in the cycle, which we are happy with. I think if you think about the journey that that's been on, if you go back to 2021, when interest rates were close to zero, the contribution to the overall return of the business was very low and the income and return was more weighted to the asset side. That has changed through the cycle and our overall returns in the third quarter were 26% and in the year to date, as you've seen today, 25%.

As the 5-year mortgages roll through, yes, you would expect that to come down a little bit. But as I've described earlier, importantly, I expect that to remain above our cost of equity, the group's cost of equity on the book as a whole. You mentioned sometimes writing as low as 30 basis points. What I would say about the mortgage market and our mortgage business is there are hundreds of price points and we're managing multiple variables against risk limits, against fee versus rate versus LTV versus risk profile of the customer, product type, channel, etc. It's very complex and it's high frequency.

At some points in time, we're repricing that portfolio twice a week. So, there are points in time when swaps move in a volatile way that we might see lower margins. But over time, we are writing the business above cost of equity and that's why we've been comfortable to grow at GBP 5 billion so far this year. I would just finish by linking it to the issue of balance sheet management and Sheel's question earlier. That is a good indication as to why we are focused on balance sheet management as asset returns are a bit more squeezed at this point in the cycle.

We see good opportunity to manage our capital but also our risk and return exposures through a focus on increased balance sheet management capability.

Brilliant. Thank you and thank you all for your questions. So we hope that's given you a good insight into the Retail Bank and as Paul said, we look forward to updating you again in February at the full year results. Please do join us now for a drink next door where you'll get to speak more and ask more questions of our panelists today and also meet more members of the executive team including Katie Murray, our CFO. So our team are at the back and happy to guide you up the stairs and over into the branch. So thank you very much.

Thank you. Thank you very much for your time, everyone. I'm joined here by Katie Murray, CFO of NatWest Group. A pleasure to have you here, Katie.

Lovely to be here. Thank you very much.

Now, the stock has done very well over the last few years relative to the U.K. market, relative to European banks as well, trading at 7.5x PE, 1.3x book for almost a 19% return on tangible equity on our numbers. So a very strong operating performance. Clearly, the fiscal backdrop adds an element of uncertainty there. But if we start there, the news flow around the budget has been volatile, to say the least. Can you give a sense of the economic environment that some of the corporates and individuals are faced with and your view on that?

Yes. No, absolutely. And it's one of those things. There's a lot of noise at the moment about the budget, and I'm sure all of us feel it's gone on for a long time as well. But there's also, I think, the reality of what we see on the ground. The way that we kind of look at economics kind of internally, I guess, our kind of in-house sort of commentary is one of sort of cautious optimism. When we look at kind of what's happening in the economics, base rates have behaved more or less as we expected them to. Unemployment has gone up a little bit. It's gone up to kind of 5%. But the reality is 5% versus 4.7%, 4.8%, it's not a particular movement. It's still at incredibly low kind of levels of activity.

We still see wage growth continue to be high. And what that kind of converts into for the -- certainly for the retail depositors that they've got high level of deposits, there's high kind of saving rates going on. We continue to see strong kind of activity in that sector. And I know we'll get into mortgages and things later, but that market has performed incredibly well this year. And so therefore, you can see this kind of a level of confidence in the consumer that sometimes is at odds with some of the narrative we read externally. And I spend a lot of time out with different corporate customers as well and see what's kind of happening in their business. And while they've worked really hard to do things like digest the NIC changes that were earlier in the year and the budget is definitely causing some what's kind of happening, I also see them growing and investing in their businesses. And that kind of bears out in some of our numbers that we've been posting as well.

And there's often a kind of worry of what's happening over here rather than what's happening in my business. And in my business, I can kind of see the path. So I guess when we look at all of the various indices, which are in reality all a bit more positive, the print this morning on inflation was a little bit higher than we were expecting, but still down from where it had been. I think our kind of view of sort of cautious optimism is the right balance to have. And we'll obviously continue to review our economics, particularly as we get into the year-end. But at this stage, we've actually seen great stability in them throughout the year, which I think has been really beneficial despite the huge amount of noise that's been going on kind of in the background as well.

And if we focus in on your business here, you've upgraded guidance several times this year, targets of greater than 18% RoTE. What has surprised most against your expectations? And as I look into my forecast into the outer years, I see a high teens RoTE as being a strong level, possibly 20% upwards. Is that level a sustainable level? What do you think the arguments that go against that?

Yes. So let me talk a little bit about this year, first of all, and then we can talk a little bit about the later years as well. So I guess as we kind of look at the performance, it really has been very strong. And it's been great to upgrade guidance but we don't generally like to do it every quarter, though I'm very conscious that we have. And that's really been a result of a number of different things.

The first one has actually importantly been the broad-based growth that we've seen across whether it's been our kind of the assets, the liabilities in terms of deposits and also the AUM that we've seen good growth in all of those areas across the year. We've also seen the structural hedge. It's been reinvested at a level. I think at the beginning of the year, we were talking about reinvesting rates of sort of 3.5% to 3.6%. And actually, we've been closer to 3.8%. So that's kind of been kind of quite positive. But also importantly, I think the customer activity, you've seen the strength of that coming through in terms of our noninterest income, really strong performance, particularly in places like FX, where we've been able to take real advantage of the volatility that's been in the market and really work with our customers and also on our capital markets piece as well as, of course, in noninterest income, you need to have that level of kind of customer activity, and it's been quite strong.

So all of those things together is kind of why we've upgraded up to around 16.3% for income for this year and a greater than 18% RoTE. If we look to next year, you know in February, I'm going to talk more about our 2026 and 2028 guidance, and we'll talk more about them then as well. But if I look at the kind of trends that we're seeing of that balance sheet growth coming through the strength of the structural hedge, the ongoing focus that we have on cost management. I think that's really -- it's really important. There are obviously some registered headwinds that we'll get into in terms of RWAs, I'm sure. But overall, that kind of gives us the confidence around our greater than 15%, which is our existing guidance, and we'll look at where we kind of land and where we guide you to when we get to February in terms of what those outer years might look like.

Great. And if we dig a little deeper then, if we start on NII, the strength that we've seen in NII across...

I'm still struggling to remove my [ necklace ], which is clearly causing problems. [indiscernible] no idea how to remove it. Give me a second, sorry. You can talk and I will open.

In terms of NII, the growth in NII has been particularly strong in the context of the European banks and the level we've seen there. The hedge is expected to be a tailwind across multiple years including next year being another GBP 1 billion or so greater of incremental NII from the hedge. What are some of the other moving parts we should be thinking about for that NII story as we look out?

The hedge has done exactly what we wanted it to do. And it's really important to remember that we have the strength of the hedge because of the strength of the deposit franchise that we operate, which we've seen kind of continue to grow, but with really good stability in terms of the mix of that. So -- and I think sometimes people talk about ex hedge and ex this, but it's there for a really good reason, and I'm delighted with how well it has performed and how well it's continuing to run.

So I think that's important, but it's not the most important aspect of the numbers. What I think is really important as we go through is actually the growth that we continue to see in the balance sheet. If you look at something like lending, we've had a greater than a 4% compound growth for the last 7 years that is a huge testament to our business that's just continuing to capture growth in an environment where actually growth is relatively low. So our ability to be out there and making sure that we're capturing that on both sides of the balance sheet is really important. And then coupling that with the AUM growth we kind of talked about, which has been sort of 15% this year. I mean, really kind of quite startling kind of numbers. So that's important.

The hedge will continue to deliver the value that we have. Noninterest income, we've talked a little bit about already, but the kind of the delivery on that is important. Rate cuts have been -- rates in general have obviously been a big feature of all of the banking results. We've got the rate cut coming through. We think that we've got 2 more to go in terms of so we get to kind of a terminal level of sort of 3.5%. I think sometimes in models, it's important to remember that the cuts that we've had and that takes about GBP 300 million of income off next year. So it's important not to forget that number as we all get excited about how it kind of going forward. But definitely, growth is the big feature along with the hedge and also that kind of that negative on the rate cut, and then they'll be supplemented by the noninterest income moving forward.

Yes. That's helpful. And if we double-click into the lending side of the balance sheet in terms of the growth that you've spoken about, 4% growth over the last few years, there's clearly been a strong level. If I look at the retail business, your market shares and deposits sit around 16%. On the asset side, mortgages, maybe unsecured credit, it's maybe undershooting that level. How are you thinking about growth in this market in terms of market share gains? What are your market share ambitions for these areas?

Yes. No, absolutely. And I think we've -- as I look at something like mortgages, we're 12.6% market share for the whole group. In the time that I've been CFO, I think that's kind of come up sort of 3-ish percentage points. And sometimes when you think of that number, you forget how huge the mortgage market is in the U.K. I think it's like GBP 1.2 trillion, so actually a percentage movement is an important kind of movement in terms of the number. But I think what's really excited me about our market proposition in terms of mortgages in this last sort of year to 18 months is actually to see it kind of growing, which is important, but actually widening which has been really important.

We talk a lot about the widening of the waterfront. So you've seen things like the family-backed mortgage come out this week. We launched another mortgage proposition around shared ownership coming out as well. We've also gone into a relationship with Landbay in terms of increasing our access to kind of private landlords, so increasing our kind of buy-to-let exposure there as well. And also, that's been combined with some regulatory changes, which have made mortgages a little bit more accessible for people. And when I look at that mortgage market this year, a year ago, we were talking about a mortgage market of, say, GBP 240 billion. This year, it's kind of GBP 285 billion. So again, it kind of goes back to that macro of actually that's a strong market, and it's strong because people are feeling that they are kind of comfortable to move. So that, I think, is important as we move.

So we do continue to see growth within there. And we're obviously always very mindful of the RoTE that we're earning. So you have I think sometimes in some quarters seen us kind of pull back. But overall, if I look on a multi-quarter basis, that will continue to grow. In the unsecured space, look, it's been an absolutely fantastic, I think, journey on unsecured. If I look over the last kind of 5 years. We kind of reentered the market just before COVID and then it all went in the wrong direction as everybody paid down. And actually, since then, it's been an absolute metronome of growth. And with the Sainsbury's acquisition kind of coming through and coming in and really kind of boosting that, I think we're at about 11% market share.

We do think there's still a bit more that we can grow there. So we've developed our proposition, done an important acquisition for us and also taken it to whole of markets while still making sure that we stay within that risk appetite framework. So I do think that you can expect to continue to see strong growth coming through on the retail side, on lending. And very comfortable with our deposit performance as well.

And on the mortgage side, the actions you've taken to maybe diversify the book looking at other sources of sort of mortgage flows, has that helped the margin? If I talk about the margin at the moment, it's sitting just below 70. During COVID time, that was maybe 200 plus. What do you think of the push and the pull on that margin number going forward?

Yes. No, look, there are -- there's definitely push and pulls. And as we talk about COVID, what's important to remember in kind of late 2020, early 2021, it was one of the kind of peak activity of people kind of doing lots of moving and selling and actually real kind of peak rates. You can see that they are now at the 5-year anniversary, so they'll be renewing their rates. And so therefore, from a margin perspective, we do see a bit of compression coming into the book on that as that kind of reprice is still comfortable with the around 70 basis points, but it is something that's a bit of compression. And definitely, the expansion of that product offering is twofold. One is about bringing more of the bank to our customers to make sure that we can really service all of their needs. But it is also, of course, about diversifying the margin that we're earning and it's helpful in that.

If I look at the kind of vanilla sort of mortgage product today, we're definitely writing below 70. And we've said that for the last number of quarters. And so that obviously brings a little bit of pressure in there. Comfortable about the returns, but it is important that we kind of supplement with what we're seeing in the broadening, but also importantly on retention. Retention is really important in terms of making sure that you take those mortgages and they stay with you for a number of years. So we work really hard to make it as effortless as possible in terms of the renewal of that mortgage piece, and we're happy with the kind of retention rates we've got in the kind of high 70%. And again, they are also helpful on margin. So it is a blend of making sure you're pulling all of the levers to make sure we're kind of staying at that around 70 basis points for the book.

Looking at the other side of the balance sheet, the liabilities and the deposits, it's clearly been a competitive market over the last few months. We had the ISA season volatility and pricing seems quite tight at the moment as well. What are your thoughts on deposit growth going forward and deposit pricing in terms of what you're seeing now and into the future?

Yes. So when we look at the deposit growth, we feel pretty confident on it. The retail consumer -- and I'll talk retail and then kind of commercial. The retail consumer has got a saving rate of about 10% plus, even so that got to about 12% earlier in the year. So we know that with wage growth and things that will naturally have a bit of a flow through. It has been a very competitive market. The ISA season was very competitive with some of the debates of what the budget may or may not do or the changes that might be coming through at that time.

There's obviously some of those debates again. And I'd say at the moment, when I look at competition, the real competition is in that kind of fixed term, whether it's fixed term ISA or just fixed term accounts. And actually, you see there that actually many of us are kind of pricing slightly below with a slight negative margin. I'm comfortable with that because I look at it in the whole kind of total of my funding stack, and it works very well. And the reason we do that is we know how valuable these deposits are. And what you don't want to be doing when you get to the terminal rate is then fighting for deposits at that stage because you'll pay a lot more to get them back than you will to retain them. So kind of very logical behavior within there. But overall, we do see it growing. We were pleased to see the growth in current accounts. And over time, while I don't expect it to be material, that is something, as you know, that can influence on the hedge. It's not something we're making a big noise about at this point, but that growth in the current account is important.

And then the retention again of your fixed term accounts is very important. And there, I think we do very well, retaining about 85% of our fixed term accounts. There's always an element of hot money that will move, but we're very happy with that kind of retention level that we see. It also shows that the retail consumer has got good spending power. So if they were to choose to start spending more, they can do that without impacting the kind of quality of the book. And actually what we would see being the kind of largest bank for U.K. business, you would see that those balances move from retail, you can see them then move into the commercial side.

Again, commercial, I think we do see growth coming through within there. It kind of -- it's not as easy to track [indiscernible]. So obviously corporates do lots of different things. But again, comfortable in terms of how that book is continuing to evolve as well. So we do feel comfortable that there will be continuing to be growth on the balance sheet and the kind of the 3.5% kind of terminal rate, that's obviously valuable growth for banks.

And as the largest corporate bank with 25% market share on deposits, almost 20% on lending, we've seen 6% growth in the lending book in the corporate side year-to-date, which considering the U.K. backdrop of being gloomy on the consumer side and on the business side is quite impressive. What's underpinning this level of growth?

We run a model that's very focused on the nations and regions of the country. So when I kind of travel around the country to work with -- to meet different customers and work with different kind of regions, that model and that depth that we have within local areas is just really, really important. And it's also something that's quite hard to replicate because it's often relationships have built up over 10, 15, 20 years with the bank when we've taken businesses on their own growth journey or we've taken them through transfer of businesses from kind of parent to child and things like that.

So I think the value of that model, so you have people who are really specialized in that area or we have sector specialists who can then kind of go across region is one that's really important. There is competition. We can see people look at our stats, 20% market share and above 25% in deposits. That's a very attractive area. So we do feel that competition and we observe it. And so it's important that we continue to evolve with those customers.

And I think one of the things you've also seen us doing, which has kind of helped drive things like noninterest income over this last year is making sure that we're bringing more of the bank to more of our customers. And so really increase that kind of FX penetration that we have or making sure we're meeting some of their capital needs as well. So I think that those sort of things have really helped. We're making big investments in some of the IT systems that those corporates reduce, and that means that you're very integrated into their businesses as well. And as that system continues to improve, what we can see, it helps not only the efficiency of the relationship managers, but also helps on the income line as they continue to do more business with us. So it's an area that we're naturally very proud of and one that we're very protective of. So making sure that we really continue to evolve and develop it with our customer base.

If I follow up on that, a lot of the U.K. banks are targeting this corporate space. We had Barclays on earlier talking about one of the areas that they may be undershooting, where they could grow is the corporate space. It's traditionally been deposit heavy as opposed to lending heavy for a lot of these banks. Are you seeing that come across into margins? How are you thinking about this competition?

Yes. So it's interesting on margins and those of you who are familiar with my NIM walk would know there's not a lot of noise on front book, back book margin in the corporate space. It's pretty kind of stable on the kind of lending side. We do observe the competition. We are kind of aware of it. And it's important that we don't minimize any of that, and we certainly don't. And so we kind of just keep kind of moving forward in that real kind of depth and deep experiences that we have with our customer base. But it is good to see the relative stability on that lending side on the margin piece.

Obviously, the deposit margin, it varies. It's a very -- the C&I business is very broad, so that those margins will also vary as well from when you're negotiating with the treasurer at one of the biggest banks to when you're a much more retail like kind of experience that when you're down at the kind of business banking kind of side of things, but also kind of really making sure that we get the right product in the hands of those customers to make sure that they are also able to manage their funding appropriately. So -- but we do see it as a real strength. It's something we are justifiably proud of, but we'll continue to defend.

If I look at the third of your key businesses, the private wealth -- private banking, wealth management business, the business has traditionally been a very strong private bank, maybe less so on the wealth management side, but AUM has been picking up.

15%, I'd give that good pickup, yes.

15% and GBP 56 billion AUM. So it's of a decent size now. Considering the market is quite fragmented, we've seen some of the FCA's proposals come through to try and narrow this advice gap or the gap we see in the U.K. wealth market. How do you think that fits into your strategy for this business?

Look, I mean the private banking, wealth management, I mean, you're absolutely right. It's something where we were, I think, traditionally see more as a private bank than as a wealth manager. We spent quite a lot of time talking to all of you about this business this year. And as we kind of -- as I kind of look at it, we've got targets out to 2027 of kind of a cost-income ratio that's in the kind of mid-60s and above 20% RoTE. So it's kind of -- it's smaller in the group in terms of the absolute size, but it's definitely very mighty in its performance.

And I guess what gives us confidence as to where we go from here? I think of it as 3 kind of things. There is around how do we penetrate our very strong customer base more. So they also see us as a wealth management. And look, in many of your houses, GBP 56 billion in terms of assets under management is a small number compared to what you manage, but actually, it is meaningful and it's growing because of the -- as we continue to improve that penetration into our customer segment. So that piece is important.

The other real benefit we have as well being the large corporate commercial bank that we are, we have access to people who should be Coutts customers, who are either having liquidity events within their own -- because they're selling their business or within their own kind of private environment. So actually, how well do we do the referrals from one of the bank to the other. And that's just a feeder line that we can continue to improve and one that I think if you look historically, it happened, but not the way that it should and that what Emma is doing is being really systematic to actually say, how do we make sure that we're talking to the right customer base. And that's a very rich vein to kind of for us to continue to look at.

And then on the other side, which is why this business is so lovely in the group, they're also the provider of the wealth management services into the retail bank. And that's where I think some of the real changes of wealth advice will come through. So we've got a good wealth management business. We've done -- we've got a product called RBS Invest, NatWest Invest, which has grown quietly and steadily in the background over the last number of years. But actually, with the advent of more advice coming through, then you can actually see how that will really continue to help develop the services that the Coutts business can provide to the rest of the group. So we are excited about that.

I know that all of the regulations are not quite where they need to be yet in terms of being published and out and making the availability of that advice easy to provide. But we are very pleased with the direction of travel and we do see it as something that's an opportunity for us as we continue to grow that business and kind of make sure that we are hitting that greater than 20% RoTE for that PB and WM segment.

And in line with this opportunity, do you think there is an inorganic strategy that maybe fits into the wealth business and your strategy there?

Yes. I mean inorganic is something we've obviously talked about -- we talk about a lot. And when we look into the wealth business, it's something that we've always said is a high bar. And the reason for that high bar is as much to do with actually, can you find a business that strategically makes sense with what we have in terms of this very strong private bank and the wealth business. Can we culturally integrate it as we bring it in? And then does it make real kind of differentiation for our customers. But really importantly, there's also a price kind of angle to it as well.

So given that there is a kind of pricing differential between these 2 businesses, there has to be something that you're very comfortable on integration ability and very comfortable on strategic sense. So we continue to look at things from time to time as they become available, and we will continue to do that. But I would say there is a high bar. What I would say in terms of the strategy we have around those 2027 targets and our kind of ongoing delivery, they're not dependent upon an acquisition for that business, but we do believe that there is good growth that we can continue to deliver.

And when we think of that business and the CAL, which is the kind of total customer assets and liabilities, we talk about assets under management being greater than 50% of that. We've made lovely progress in that space over the last couple of quarters, and we're sitting at kind of 49% at the moment, and we'd expect to see that continue to grow. So we will look at things, but it is a high bar. And strategically, we're really comfortable with our delivery if that was not to come through.

And still on the topic of inorganic growth, you've done several portfolio acquisitions in the past, whether it's Sainsbury's, whether it's Metro Bank portfolios as well. Is this an area that you'd be looking at as well to maybe beef up the asset side compared to the deposit market shares that you have?

Yes. We do definitely look at, and in retail, that's where we've been most active. If you look at the strength and depth of our commercial business, it's harder to see what we could take externally to bring in to kind of continue to grow that. We roll off cards, but we've obviously seen our activity more in the retail space. But the Sainsbury's acquisition was a fantastic acquisition for us. It really accelerated our unsecured business, also brought in some good level of deposits, and some nice kind of personal lending. We've done the integration of that business into our business. So everything has now been transferred. They're on our systems.

And actually, if you think it was a transaction that closed in May, the fact that we can say as a bank that actually they're now all in our systems and we're servicing those customers from our own systems and it's only November. I think that's a real -- it's a really, really strong point. So we're not sitting there for many years with multiple systems and customers kind of going through. And then also now the fact that they are our customers, that also gives you different and greater opportunity to continue to develop them. So I think it was a great transaction for us. It was a good transaction for our customers. But also it really showed our ability to leverage the systems that we have, that we could add something of that size on, add a couple of percent of market share on instantly overnight. And actually, there was no dip in the service quality. We didn't have to do things in our system. So really important in terms of the ability to continue to leverage what we've got.

Metro, again, we've done 2 transactions with them over the years. Again, very, very kind of good integration, good kind of customer outcomes as well. We'll continue to look at those kind of things. Other bits over time we've added in terms of capability. Rooster Money is probably one of our personal kind of favorites. We talk about it a lot, but it's been really important for us in terms of bringing that pocket money account. And I think one of the things that we didn't quite appreciate at the beginning is actually what it would also do for the connectivity you have with the parents of those children and that we can see if you're a Rooster Money account holder then actually you're far more engaged with us as a parent of those children, so actually they become more valuable customers as well. And that was the classic piece of what was actually a tiny acquisition in reality, but accelerated our build by 6 to 7 months and actually got a really good product that already had good awareness out to market. So we'll continue to look. But you're right, retail is somewhere we're probably more focused on.

And if I talk about capital now, which I think has been the key talking point for.

I talked about it quite a lot already this morning in the meeting.

Clearly, we have the Bank of England's capital review coming up. Expectations are building into this. Your capital ratio or should I say your capital target range at the moment is 13% to 14%. The gap to MDA is maybe one of the bigger gaps compared to the U.K. and other European banks as well. What are your expectations for this big sort of Bank of England FPC meeting? And therefore, where do you see your capital target going towards? Is it possible that we talk about a 12-point something capital ratio capital target for the group?

Yes. It's been -- the capital journey has been a really important one. We set our 13% to 14% target in 2019, so we're 6 years further on. In that time, we've completely reshaped NatWest markets. We've exited Ulster. We've also -- we're kind of coming to the end of our second very active kind of program of RWA management actions. And we've been very successful in the first couple of years of that, and it will continue to be something that goes along those. Sheel, I'm always quick to remind you, not necessarily the levels you get in the first couple of years as you go out.

So you can see that we've been really trying to manage our capital position a lot over the last number of years. We started to talk about whether we might look at capital a little bit in July, our Q2 results. And then also since then, they've announced this review that's been published in early December, which we're all awaiting to see what might come out. And we note the kind of comments that Sarah Breeden has been making and that gives us some kind of view of positivity of that. So we'll see what they say in December. But when we look at it, you're absolutely right. We've got a gap of about 140 basis points from our kind of statutory regulatory minimum requirement. up to the bottom end of that range. We know that, that reg. requirement is going to fall further when Basel 3.1 comes in. So in theory, that gap would continue to grow. And when we look at the additional RWAs that we'll bring through CRD IV and also through Basel 3.1, we will see that we're holding more nominal capital for a business that's actually not increasing in risk.

So it's something we're actively looking at. We'll talk in February around our 2026 and 2028 targets. And while I'm not committing to make a change, it's a conversation that we're doing. And it's a conversation we've had with many of you as our investors on both the debt and equity side, just to kind of take soundings as to what their kind of view is. So we look forward to December. We'll see what that comes through with. It's not going to make the decision any harder, but you know what might make it a little bit easier as well. So we'll wait to see how that comes through.

And I'll appreciate that we can wait until February for the update there. How would you think about capital distributions with a potential reduction of the capital target? You've just increased the dividend payout ratio to 50%. Is there any scope for that to change further? How are you thinking about distribution in its entirety?

So when we look at the capital, I think before we even get to distribution, it's almost a broader question of allocation. So where do we spend the significant capital that we do generate. I mean we've generated 202 basis points in the first 9 months of the year. That's a particularly good year, I think, but you have seen us kind of do kind of around that 200 kind of mark. So when you look at it, the first question that Paul and I ask ourselves is are we investing appropriately in the business? Because there is good growth. It's a growing business, but businesses grow because you continue to kind of invest in them and we're comfortable that we are, but that's our first allocation.

We then look at the businesses and those of you who are involved in business plans will know that this is a busy time to kind of -- so the businesses talk about this is where they can grow. This is what they believe they need an additional capital. And we try to make sure that we don't constrain that and just say, actually, where is it? Given the business we write is capital generative, we want to make sure we're doing that. So we do that next. We then, obviously, last year, we raised the payout ratio up to 50%, around 50% payout ratio. You could imagine that given we look on a 2- or 3-year outlook, whenever we're making any capital decisions, we probably had some views of capital at the time we did that. So I wouldn't anticipate that, that number would go up. And in fact, I think a 50% payout ratio is a really strong payout ratio, but also gives an organization flexibility to do the other things that the capital might want to, whether it's more investment, more organic growth or even inorganic activity.

Now I think we've demonstrated over the last number of years a really strong practice of returning excess capital back to shareholders. And that's obviously the next bit that you do. And I think that's something you wouldn't expect to see a difference in that. So this is obviously a point in time when we'll look to maybe change our capital ratios, and we'll deal with that as we go through. Being able to see the kind of the end of the increases coming through from the [ GFC ] again is very helpful. But I don't actually think it changes our distribution narrative or our allocation narrative fundamentally.

And part of the capital allocation has been towards investments. The cost base has been managed quite well through the recent years. How should we think about cost growth going forward? Where are the investments that the bank is making?

When we look at the cost growth, so this year, we'll be up about 2%. And we -- I'm really very, very focused on making sure that we give you a kind of annual target on costs. It's a number that we work really hard to hit more or less exactly in terms of that delivery. And that's really important, I think, internally, just to absolutely maintain that cost discipline that we have. And that cost discipline is something that's kind of very much part of the DNA of the organization and something we continue to kind of develop. And we'll talk more about numbers and targets in February. But you should assume that we wouldn't step away from that kind of cost type delivery as we move forward, really making sure that we're able to continue to drive the operating leverage of the business across all of our businesses.

And it's great when we do these spotlights, so you can hear and talk about their kind of developments as they go forward. If I think of where we are investing in this year, we'll invest around GBP 1.1 billion in addition to actually what we spend on a day-to-day kind of basis, which is obviously developing the business as well. Technology is always the main part and focus of that. You've seen us talk about some of the collaborations we've done on things like AI, some of the work we're doing in terms of our data piece, but it's just a continuing evolution to make sure that the customer experience is as strong as it is because we know that, that's how we manage costs, but it's also how we know how we manage our revenue line. So it will be continued investment along those veins, making sure that we are investing in the new as well as continuing to update some of the older parts of the system, which is why today we have a good sort of technology that's not looking for a big kind of single moment of truth that has to move from one to the other because it's been a constant, consistent investment that we've done over a number of years.

And the way you look at costs and the way your businesses, the divisions look at costs, do you think about costs on an absolute basis? Or would you have a preference towards cost to income because cost to income for the bank is a clear sign of that declining given the growth on the income side as well.

No, it's really important so -- and it's something we have talked a lot about internally. And jaws is somewhere. And if you look at our jaws for this year on the guidance we've given you, it's incredibly strong. It's kind of high single-digit kind of jaws [indiscernible] so you kind of go right. The leverage is working, the income is going, the costs are kind of being dealt with importantly. I really like an absolute number, particularly in the year because the cost-to-income ratio is one that particularly when you have good income and helpful notable things that come in, I'm very mindful of all of a sudden your cost-to-income ratio looks great, but actually your cost line hasn't changed. So -- but I do think it's something that you need to look at together actually because it does show you a trajectory.

I think in the year, you have to have an absolute number as well. And for me, we're very focused on a net number and kind of not interested in the gross takeout because generally, when you're talking about that, the net number is going up as well. So it's actually what is the absolute number that we're going to hit. I can hear the arguments on cost-to-income ratio and sort of maybe appreciate them more, but I'm always very mindful there's 2 lines in that piece of math, and I want to make sure they're both going in the right direction. So really very focused on both of them in balance.

That's clear. And if we take a step back, the U.K. market has seen a fair amount of consolidation. We've seen some of the challenger banks consolidate, including the building societies as well. How are you looking at the U.K. landscape? Where are the elements of competition coming from, whether it's the fintechs, the neos, the big tech, there are multiple avenues?

Even the U.S. banks as well. So I mean it's -- the U.K. is a very competitive market. The reason for that competition like anything is obviously, if you look at the returns that the banks to make in a kind of a steady-state environment, they are definitely there, and they've been very important, I think, particularly some of the neo banks and the fintechs, they've been very important for the incumbent banks and have actually caused all of us to really improve our customer service, improve our experience for customers. I think what it's also demonstrated over the last number of years that continue to grow and continue to make sure you've got the right customer offering, scale is also very important.

And so when you look at competition, actually looking at where those scale players are, what's kind of coming is something that we pay a lot of attention to. I think also you also see, particularly in places like deposits, we see a bit more of an emergence of some of the nontraditional players. It's been less about pure banks and more about some kind of money market kind of experiences as well. So I think we're mindful of what's happening within there and also mindful of your margin is something. So we do see competition as both a positive, but something we also have to be very mindful of to make sure that we're continuing to evolve, which is why that investment that we continue to do in our business is very important.

And on the regulatory side, I know we've spoken a lot around capital, we've seen some moving parts in terms of redress and conduct. Are there any other areas that you think that the U.K. from sort of the top down, from the political motive is helping the banking sector? Are we seeing that direction of travel heading upwards positively?

We, as you know, are big believers in strong regulation. We think that we are well regulated. We certainly have some views there are pockets that we'd like to be a bit less regulated. We've been quite public on some of those views. But overall, we think we have a strong regulator, and we think that, that's important. We've seen some of the real benefits of the changes that have been made in things like mortgage regulation recently that's part of the reason why the market is bigger. We benefited from that improvement in there, and I suspect that will continue to grow.

We've talked already about the advice changes that are coming. We view them as very positive as they go through. There's obviously continued work that is going on within the regulator world. We'll see more of that again in December. But we are comfortable and we feel the direction of travel, it feels good. We'd like to see a bit more, and we'll continue to see that as it kind of comes through.

And with the potential speculated bank tax that may come in next week, how does that balance against maybe the U.K.'s agenda taxing on one side versus maybe reform on the other?

Being someone who has to balance the budget as well every year, it's a difficult task. Mine is slightly less complicated, I suspect, than the chancellor's in terms of how we do that. We'll see what happens next week, and we'll comment on that as and when it happens. I think what's really important for me for the budget is actually that it delivers clarity not just to banks, but actually to the wider economy because we know that as they get that clarity, we are kind of cautiously optimistic, and we do believe there's good growth to continue to come and we will benefit from that. So we'll probably save any more deep conversations comments on the budget until then.

We are feeling quite positive around the capital regulation, which we've talked about already. And then I do think that there are areas that we are overregulated and we do carry more capital than we need to, which is why we've been talking about our own kind of capital numbers as well. And as they continue to develop, they will ultimately be good for the banking sector.

Got it. Thank you. I'll open up for any questions.

If the reinvestment yields on your structural hedge was to fall significantly below, I think your current assumption is 3.5%. Let's call it 3% or 2.5%. Do you think on the -- there would be an offsetting factor on mortgage spreads, which are still not that high by historical standards? So could it be -- would it significantly reduce visibility on the NII if such a scenario was to occur? Or would you expect an offsetting factor on the mortgage side?

Yes. I think it's a really important question. And if we look kind of historically, a few years ago when I'd be in your office talking about the hedge, they'd be falling all the way down to when we were -- if you look at our roll-off rate at the moment, it's 0 in terms of what's kind of coming off and what's giving and we kind of continue to go there. And we know -- I talked earlier about the kind of the 5-year mortgages that are rolling off just now, they're at much kind of higher rates. So you do kind of see this sort of like the DNA kind of helix. So as they kind of move, you do kind of see that happening.

I wouldn't be as brave as to say, yes, if we went to 2%, it would automatically offset completely in that kind of space. But we have traditionally over time seen that when the deposit margin is tighter, the asset margin is a bit broader. So I think you do see them in kind of working together in kind of tandem. But I think then that makes really important how well we manage the cost line, how well we take efficiency coming through from kind of new technology and AI and all of those things to make sure that if that income line is under challenge because of margins to make sure we're getting the right kind of growth, but we're managing it the whole way through the P&L. So we're ultimately continuing to deliver the right quality of sustainable RoTE that you'd expect us to be delivering.

Great. Any others? No. Otherwise, thank you.

Thank you very much. That's great. Thanks a lot.

Hopefully, we'll see you again next year.

Yes. We look forward to it. Thank you very much, indeed. Thanks for your time.

Good morning, and welcome to the NatWest Group Q3 Results 2025 Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite; and CFO, Katie Murray. After the presentation, we will take questions.

Good morning, and thanks for joining us today. I'll start with a short introduction before I hand over to Katie to take you through the numbers. We have delivered another strong quarter as we continue to execute on our priorities of disciplined growth, bank wide simplification, together with managing our balance sheet and risk well. Though inflation is above the Bank of England's 2% target, the economy is growing, unemployment is low, wage growth is above the rate of inflation and businesses and households have relatively high levels of savings and liquidity. This is reflected in the levels of customer activity we're seeing across the bank. So let me start with the headlines for the first 9 months.

Lending has grown 4.4% since the year-end to GBP 388 billion, in line with our annual growth rate of more than 4% over the past 6 years. Growth has been broad-based across our 3 businesses, and we attracted a further 70,000 new customers in the quarter. Mortgage lending was up by more than GBP 5 billion for the first 9 months as we broadened our customer proposition with new offers for first-time buyers and family-backed mortgages and issued mortgages to landlords in collaboration with buy-to-let specialists [Land] Bank.

Unsecured lending grew GBP 2.9 billion or 17.3%, and we made good progress integrating our recently acquired Sainsbury's customers. They are now able to view their credit card, link their Nectar card and view their Nectar points from credit card spending via the NatWest app. In Commercial & Institutional, we delivered lending growth of GBP 7.9 billion or 5.5% across both our large corporate and institutional and commercial mid-market businesses in areas such as infrastructure, social housing and sustainable finance. As the #1 lender to infrastructure, we are supporting many large-scale programs up and down the country. And we have delivered GBP 7.6 billion towards our 2030 group climate and transition finance target of GBP 200 billion announced in July.

Deposits grew 0.8% to GBP 435 billion as we balance volume with value in a competitive market and as customers manage their savings across cash deposits and investments. And as more customers across the bank chose to invest with us, assets under management and administration have grown 14.5% to GBP 56 billion. This has contributed to growth in noninterest income along with higher fees from payments, cards and good performance in our currencies and capital markets business. This customer activity has resulted in a strong financial performance.

Income grew to GBP 12.1 billion, 12.5% higher than the first 9 months last year. Costs were up 2.5% at GBP 5.9 billion, resulting in operating profit of GBP 5.8 billion and attributable profit of GBP 4.1 billion. Our return on tangible equity was 19.5%. Given the strength of our performance, we are revising our full year guidance for income to around GBP 16.3 billion and for returns to greater than 18%. We continue to make good progress on both simplification and capital management.

We have reduced the cost/income ratio by 5 percentage points to 47.8%, and we generated 202 basis points of capital for the 9 months and ended the third quarter with a CET1 ratio of 14.2%. This strong capital generation allows us not just to support customers, but to invest in the business and deliver attractive returns to shareholders. As you know, we announced a new share buyback of GBP 750 million at the half year, of which 50% has now been carried out, and we expect to complete the buyback by our full year results. Earnings per share have grown 32.4% year-on-year and TNAV per share is up 14.6% at 362p. So a strong performance for the first 9 months.

I'll hand over to Katie to take you through the numbers for the third quarter.

Thank you, Paul. I'll talk about the third quarter using the second quarter as a comparator. Income, excluding all notable items, was up 3.9% at GBP 4.2 billion. Total income was up 8.2%, including GBP 166 million of notable income items. Operating expenses were 2.1% lower at GBP 2 billion due to lower litigation and conduct charges. And the impairment charge was GBP 153 million or 15 basis points of loans. Taken together, this delivered operating profit before tax of GBP 2.2 billion for the quarter and profit attributable to ordinary shareholders of GBP 1.6 billion. Our return on tangible equity was 22.3%.

Turning now to income. Overall income, excluding notable items, grew 3.9% to GBP 4.2 billion. Across our 3 businesses, income increased by 2.5% or GBP 101 million. Net interest income grew 3% or GBP 94 million to GBP 3.3 billion. This was driven by further lending growth and margin expansion as tailwinds from the structural hedge and the benefit from the Sainsbury's portfolios for a full quarter more than offset the impact of the base rate cut in August. Net interest margin was up 9 basis points to 237 mainly due to deposit margin expansion and funding and other treasury activity. Noninterest income across the 3 businesses was up 0.8% compared with a strong second quarter. This was due to increased card fees in Retail Banking, higher investment management fees in Private Banking and Wealth Management and a good performance in currencies and capital markets with heightened volatility.

Given continued positive momentum and a clearer line of sight to the year-end, we have refined our income guidance and now expect full year total income, excluding notable items, to be around GBP 16.3 billion. We continue to assume one further base rate cut this year with rates reaching 3.75% by the year-end. This improved guidance alongside strong Q3 returns means we now expect return on tangible equity for the full year to be greater than 18%.

Moving now to lending, where we have delivered another strong quarter of growth. Gross loans to customers across our 3 businesses increased by GBP 4.4 billion to GBP 388.1 billion, with growth well balanced between personal and corporate customers. Across Retail Banking and Private Banking and Wealth Management, mortgage balances grew by GBP 1.7 billion, and our stock share remained stable at 12.6%. Unsecured balances increased by a further GBP 100 million, mainly in credit cards.

In Commercial & Institutional, gross customer loans, excluding government schemes, were up by GBP 3 billion. This includes GBP 1.6 billion across our commercial mid-market customers, in particular, in project finance, social housing and residential commercial real estate, as well as GBP 1.5 billion in corporate and institutions, mainly driven by infrastructure and funds lending.

I'll now turn to deposits. These were broadly stable across our 3 businesses at GBP 435 billion. Retail banking deposit balances were down GBP 0.8 billion with growth of GBP 0.6 billion in current accounts more than offset by lower fixed-term saving balances following large maturities. Private banking balances reduced by GBP 0.7 billion with flows into investments as customers diversify and manage their savings as well as tax payments made in July. We saw a small increase in Commercial & Institutional of GBP 0.4 billion with higher balances in both commercial, mid-market and business banking. Deposit mix across the 3 businesses were broadly stable.

Turning now to costs. We are pleased with our delivery of savings this year, which allows us to invest and accelerate our program of bank-wide simplification. Costs grew 1% to GBP 2 billion, including GBP 34 million of our guided onetime integration costs. This brings integration costs for the first 9 months to GBP 68 million. We remain on track for other operating expenses to be around GBP 8 billion for the full year, plus around GBP 100 million of onetime integration costs. This means you should expect expenses to be higher in the fourth quarter, driven by the annual bank levy and the timing of investment spend.

I'd like to turn now to impairments. Our prime loan book is well diversified and continues to perform well. We are reporting a net impairment charge of GBP 153 million for the third quarter, equivalent to 15 basis points of loans on an annualized basis. Our post-model adjustments for economic uncertainty of GBP 233 million are broadly unchanged. And following our usual review, our economic assumptions also remain unchanged. Overall, we are comfortable with our provisions and coverage, and we have no significant concerns about the credit portfolio at this time. Given the current performance of the book and the 17 basis points of impairments year-to-date, we continue to expect a loan impairment rate below 20 basis points for the full year.

Turning now to capital. We ended the third quarter with a common equity Tier 1 ratio of 14.2%, up 60 basis points on the second. We generated 101 basis points of capital before distributions, taking the 9-month total to 202 basis points. Strong third quarter earnings added 84 basis points and a reduction in risk-weighted assets contributed another 8 basis points. Risk-weighted assets decreased by GBP 1 billion to GBP 189.1 billion. GBP 0.9 billion of business movements, which broadly reflects our lending growth and GBP 0.3 billion from CRD IV model inflation were more than offset by a GBP 2.2 billion reduction as a result of RWA management. This brings our CET1 ratio before distributions to 14.6%.

We accrued 50% of attributable profits for the ordinary dividend as usual, equivalent to 42 basis points of capital. We continue to expect RWAs of GBP 190 billion to GBP 195 billion at the year-end, with a greater impact from CRD IV expected in the fourth quarter. Turning now to guidance for 2025. We now expect income, excluding notable items, to be around GBP 16.3 billion and return on tangible equity to be greater than 18%. Our cost, impairment and RWA guidance remains unchanged.

And with that, I'll hand back to Paul. Thank you.

Thank you, Katie. So to conclude, we're pleased to report another very strong quarter of income growth, profits, returns and capital generation. This has been driven by customer activity across all 3 of our businesses, leading to strong broad-based lending growth and robust fee income. Our continued focus on cost discipline has delivered meaningful operating leverage. And as we actively manage both our balance sheet and risk, the business remains well positioned to deliver strong shareholder returns. As you've heard, we have upgraded our full year income and returns guidance today. And we'll update you on our guidance for 2026 and share our new targets for 2028 at the full year in February. Many thanks. We'll now open it up for questions.

[Operator Instructions] Our first question comes from Benjamin Caven-Roberts of Goldman Sachs.

So 2 for me, please. First on deposits and second, on noninterest income. So on deposits, could you talk a bit about deposit momentum in the business? And in particular, you mentioned the retail fixed term outflows over the quarter. Could you talk a bit more about how much of that is reflecting conscious pricing decisions? And then looking ahead, the sort of trajectory for deposits going forward? And then on noninterest income, very strong even when adjusting out the notable items related to derivatives. Could you talk about momentum in that franchise and what business drivers you're particularly focused on looking ahead?

Thanks, Ben. Good to hear from you. So let's take them one by one. So on deposits, so big picture is up around GBP 3.5 billion, around 1% year-to-date. Different stories within the different businesses. The -- I guess, we talked at the half year around the kind of ISA season and some of the -- I guess, the confluence of debate around the future of ISAs and how that led and some of the movements in the swap curves on the back of tariffs and how that led to different pricing. That period is behind us. There's been more normalized pricing since the kind of April, May.

If you look at our 3 businesses, I'd say slightly different trends. I'll finish with retail because there's more to unpack there. On the commercial side, deposits are up. Encouragingly, that's in kind of the business bank and commercial mid-market. So that's good. Private Bank, cash deposits are down, a combination of things. July we saw some tax payments. But also, we're seeing more funds shift from cash deposits into securities and investments, which is a net positive trend. In Retail, if you look at current account balances, they are up. So kind of operational balances, salary accounts, you can see that the numbers are up there. I think the details are in the disclosures.

Instant Access is flat. Where we've seen some reductions is in fixed term accounts. And that reflects a number of large maturities that we had during the quarter. We're pleased with our retention rates. They're running about 80%, 85%. But as you alluded to, given our LDR at 88%, LCR at 148%, we're finding the right balance between value and volume. So we've been pretty dynamic, and we're focusing on where we see funding and customer value. So that's unpacking the deposit story for you. So different stories in different businesses, relatively stable, given our overall funding profile, very focused on managing appropriately for value.

On the second question, which is non-NII, yes, as you alluded to, we're pleased with the quarter, and we're pleased with the year-to-date, good momentum in the areas that we've been focusing on. I mean it's quite broad-based actually when you unpack it, cards, payments, but obviously, good contribution within C&I from our markets business, driven by the strong FX franchise and by the capital markets business. So we've had a strong quarter 3 there, probably slightly stronger than we expected when we spoke to you at the half year. We feel as if our focus on those areas, whether it's the markets part of commercial institutional, whether it's our payments business. But also, as you can see in our Wealth business, the fees from assets under management are increasing as well. So it feels like we've got good progress and good momentum on fees, and it remains a strategic area of focus for us. Thanks, Ben.

Our next question comes from Sheel Shah of JPMorgan.

Great. Firstly, on the costs. You've reiterated your cost guidance for the year despite the strong third quarter performance. How should we think about cost growth going forward, given we have CPI going back towards 4%? You're clearly simplifying the bank internally. Do you think a 3% cost growth number is the right level for the bank? Or do you think that maybe understates your ability to manage the cost base?

And then secondly, on capital, could you give us a steer on the CRD impact that we expect for the fourth quarter? And maybe thinking about the fourth quarter capital level, how are you thinking about operating in that 13% to 14% range? Is there anything preventing you from moving down towards the 13%? Or are you managing maybe for M&A or anything else maybe in the horizon that you're thinking about? Because this is clearly the strongest capital print we've had for the last maybe 3, 4 years or maybe 2 to 3 years for the bank overall.

Thanks, Sheel. Katie, I'll take the cost and then turn it over to you on the capital piece if that's okay?

Yes.

Yes. On cost, Sheel, so as you say, it's a strong year-to-date picture if you look at year-on-year comparisons. And obviously, we have the one-off in terms of the integration costs as well of Sainsbury's. I am pleased with the momentum we're getting on the simplification agenda. I think that's -- you can see that starting to bear fruit. It's also -- I think most pleasingly, it's a bit of a flywheel because it creates investment capacity to drive further transformation in the business. And it's not only cost out, it's also improving customer experience and colleague experience as well.

So as you alluded to, we're holding with the current year guidance, GBP 8 billion plus the GBP 100 million of integration costs, but we are pleased with the momentum on the agenda -- on the simplification agenda. I'm not going to be drawn on kind of '26 costs or future costs. We'll talk to you in February around '26 guidance and new '28 targets. But what I would say thematically is we still have a very significant focus on cost management, and we're very high conviction on the simplification agenda. And to help put that in context a little bit for you, to deliver the cost print that we are doing this year, requires us to take more than 4% out of the -- kind of the underlying business so that we can support the investment, the inflation-related changes, be they wages or tech contracts.

So we've got good momentum in kind of taking that, driving that efficiency out, being able to invest, but also delivering good cost control. So that's the ethos going forward. And the levers that we're pulling, those levers can still be pulled moving forward, whether that's continued acceleration of our digitization, streamlining and modernizing the tech estate. Just by way of example, we decommissioned 24 platforms in Retail so far this year, which is great. You've seen we've done a lot of work simplifying our operating model, whether it's in our Wealth business, moving some of the support areas from Switzerland to the U.K. and India, rationalizing our European footprint, legal entity footprint and just some of the good organizational health measures.

So it feels as though that those levers that we've been pulling can continue to be pulled. And then obviously, you lay over that some of the productivity benefits we're seeing from AI and those activities around customer contact software engineering. So net-net, I'm not giving you a number for '26, but hopefully giving you a sense of how we're thinking about it and where the momentum is coming from and therefore, our confidence in maintaining a good healthy cost profile going forward. Katie?

Perfect. So Sheel, I'll just start off talking a little bit with CRD IV then drift into capital as well. So look, as you look at it, you're absolutely right in the quarter, limited CRD IV impact. We are expecting the majority of that in Q4 and a little bit of that may even bleed into 2026. So when you think of our kind of RWAs from here, it's very much about the loan growth, the management actions as well as that more material impact of CRD IV coming in, in the fourth quarter.

And then going forward, you're familiar with Basel 3.1 coming in 2026. That's always important to remember that comes with a bit of a Pillar 2 reduction as well when it comes through in terms of capital. But when I think of kind of the RWAs, it is to kind of think of the absolute growth that we're talking about in the book, importantly, the mix of that growth, but also the kind of risk density that you see once we're past the CRD IV and the Basel 3.1. And of course, obviously, the continuing strength of our management action program that we have.

And then if you turn to kind of capital, clearly, a really strong print today. I'm very, very pleased with the 101 basis points we did in the third quarter, 202 bps for the first 9 months. I mean, a great result by any measure. We've always said that we're happy to operate down to that 13%. We do think about capital generation when we think of it in terms of dividends and where we're going to land and things like that, we do debate the sort of next sort of 6, 12 months as well because you've got to think about we really try to manage a consistent program of capital return back to the market. But also we're mindful of that RWA generation that's coming, whether it be from regulatory change or the growth within the book. And so as you kind of consider where we might land and what we might think about is think on those various points. Thanks very much, Sheel.

Thanks Sheel.

Our next question comes from Aman Rakkar of Barclays.

I had 2 questions, please. I guess we're all probably singularly focused on 2026 at this stage. So particularly on income, I'd love to kind of get your take on how we should think about the various drivers from here across I guess, margin developments. Clearly, loan growth continues to surprise positively, but any color you can provide on kind of the drivers of fee income from here would be really helpful.

And I guess the second question was around your longer-term targets that hopefully you're going to present to the market in the new year. And to me, it looks like there is the underpinning of pretty decent operating leverage for a number of years here, not least because of the structural tailwind to '28 that you guys flagged.

So I guess one for Paul really in terms of your view on structural operating leverage in your business on a multiyear view from here, how confident you are in that in terms of some of the levers you might want to pull? And I guess, I'm ultimately interested in the RoTE output. For me, you're doing 18% this year, and there's no reason to think in my mind why you don't accrete quite nicely over above that level as you realize that operating leverage. So any kind of color you can give on that basis would be really helpful.

Katie, do you want to take '26 and I'll talk about...

Perfect. That's great. Thanks, Aman. It was good to hear your voice. Look, we do continue to expect the income growth that we've seen throughout our guidance period, and we do remain confident in that growth trajectory beyond 2025. So as I look at 2026, there's probably a few things I would kind of guide you to. One, growth. I mean, we've talked about this a lot, but we've got a strong multiyear track record of growth across all 3 of our businesses. We outpaced the wider sector on that.

If we look at the breadth of our business, we know that we're well placed to capture demand as it comes through, and we'll continue to deploy capital throughout 2026, and we do expect that growth to continue. Obviously, there's a mix of growth across both sides of the balance sheet, and that's very much a function of customer and competitor behavior. The hedge, I think you're all very familiar with the hedge these days. We've talked about it such a lot over this last year, but certainly, strong growth into 2026, over GBP 1 billion higher in asset terms in 2025. I think that's well understood by all of you.

Rate cuts, we do expect one further rate cut in Q1 after our plans still have a rate cut in November. So we get to a kind of terminal rate of 3.5%. And then you'll see the kind of averaging impact of the rates we've had this year coming through into 2026. Paul has already spoken on noninterest income and our confidence in that business, very much the strength of the kind of customer franchise, always dependent on customer volatility and -- sorry, customer activity and volatility, but it served us very well this year. But if I think of all of those trends together, Aman, they will continue beyond next year as well, obviously, with the exception of rate cuts as we believe we'll get to that terminal rate in 2026. But I'd agree with you, we feel quite well placed at the moment. Paul?

Thanks, Katie, and thanks, Aman. And yes, we've announced today that we'll share targets for '28 in February. So we've been very explicit on that. So we look forward to that session. But as you say, it's obvious we've got good momentum in the business, and that's predicated on strong operating leverage. If you look at today's numbers, we've got a 5% cost/income ratio improvement, and we've guided to over 9% jaws for the year. So a very strong proof point of the operating leverage that we've got in the current business model and business mix, which we have talked about previously.

But as I said, I'm just very pleased that it's bearing fruit as both the income growth and the simplification agenda comes through. As I said to Sheel's question, we are high conviction on the simplification agenda. The levers we are pulling are working, and we can see a path to continue to pull those levers, which should further support the operating leverage to link it to Katie's answer as we see the top line growth through the different aspects.

It's our seventh year of growth above 4% on the lending side. So that gives us confidence there that we've got customer businesses that will capture demand and have grown above market growth levels over a multiyear track record. So that's what's going to inform our thinking as we go through. But the underlying thesis here is very tight management of costs that creates capacity to invest, growing the customer franchises, strong jaws, generates a lot of capital, over 100 basis points in the quarter, over 200 for the year. And that gives us confidence about the outlook. So hopefully, that gives you a sense how we're thinking about it. Obviously, we'll talk specific numbers in February. Thanks, Aman.

Our next question comes from Alvaro Serrano from Morgan Stanley.

Hopefully, you can hear me okay. I guess the 2 bit follow-ups, but I'm interested. NatWest Markets continues to do very well and hold up very well. And I know there's a history there, and I suspect part of the cautious guidance has been on the limited visibility of the nature -- because of the nature of the business. But given it continues to perform pretty steadily, consensus has it down the contribution in 2026, and there's not a lot of growth medium term in noninterest income. Given the performance the last few years, can you sort of share your reflections on that business? How much is being cyclical versus what you changed in the business? And is that right to assume a normalization down medium term and next year in particular?

And second, around loan growth, it continues to do very well. In Corporate, I'm thinking now it was lumpy to start with in Corporate & Institutional, but it does look like it's much more spread out in mid-market now. Again, as we think about the next few quarters, how do you see that momentum? Should we think that this level of growth is sustainable?

Thanks, Alvaro. Katie, do you want to take the C&I kind of markets products question, and I'll take the wider lending.

Yes. No, absolutely. So I mean, Alvaro, it's interesting, obviously, you've been with us for some time, and you've been on that journey in terms of NatWest Markets. And I think the real strategic important thing that kind of has happened really from the beginning of last year is actually the merging of C&I into that kind of Commercial & Institutional business so that you have one team really delivering strategically for their customers. And we've really seen the benefit of that coming through.

We've had very robust noninterest income. There's been higher fee income coming through in payments and the strong performance in C&I is an important part of that. And it's really around the strategy that we've got of bringing more of the bank to more of our customers. And a result of that, we see -- we saw the strong demand for FX management and then really strong risk management as well against the backdrop of the volatile markets that was there. So really making sure that we were in place for our customers when they needed us in terms of the general kind of market activity.

So I would say, it is very much the outcome of that strategy of bringing that NatWest activity into the C&I franchise, making sure that we're there to deliver and meet the kind of customer activity as we go forward. And we would expect that to kind of continue from here. Volatility is a big part, of course. It's hard to call where that will land. Customer activity is critical, but we kind of -- we really do see that as a really strong basis going forward. I'd just remind you as I often do on these calls, is when you're looking at noninterest income, it's always good to look at the 3 businesses.

You do get a little bit of noise in the center as you move forward from here that will reduce a little bit as we go forward. But overall income outlook kind of, I think we're very pleased with it, and that's what's enabled us to upgrade our guidance for this year. And you've heard me talk around the confidence we have as we go into 2026 as well. Thanks, Alvaro. Paul?

Thanks, Katie. And Alvaro, I sense your question on lending was specifically around the Commercial & Institutional business. But just -- I think it's worth framing our, I guess, our lending growth and our lending opportunity more broadly before that. I'd say, we've got a decent multiyear track record now of growing the 3 businesses. That's 7 years at above 4%. This year, it's currently running up GBP 16 billion. It's up 4.4%. So it's quite broad-based growth. If you drop down into the commercial franchise, it's a good spot. The quarter 3 prints and the growth of around GBP 3 billion is split between, I guess, the large corporates and the mid-market.

It's pleasing to see the momentum in the commercial mid-market. You'll have heard me say before, I do think that's kind of a helpful proxy on the kind of wider U.K. environment. When you look at where the growth is coming from in the mid-market, you can see it in social housing, you can see it in certain parts of real estate, you can see it in parts of infrastructure. So again, it's quite broad-based. So lending as a total quantum, yes, strong, but the constituent businesses it's coming from is encouraging as well.

Infrastructure is a big part of that. And what I'd say is I feel as if our Commercial business is very well positioned to some of those bigger structural trends that we're seeing, whether it is infrastructure, whether it's project finance, whether it's sort of the social housing agenda. So the kind of combination of the structural trends and the policy trends support those areas we are -- we have deep specialisms in and have had for quite a few years. So yes, encouraging, as you say.

Our next question comes from Chris Cant of Autonomous.

Can you hear me?

Yes, we can.

Okay. It's still got a little mute icon on the screen, so I was a bit concerned.

Now you're crystal clear.

Just on loan growth, Paul, I mean, I think it's been an area where if I look at consensus, consensus has got 3% or less loan growth in over the next couple of years. It's been something that as a management team, you've typically been reluctant to sort of give an expectation on beyond saying you have a track record of growing quicker than the market. But as you think out to the next planning period, how are you thinking about that in absolute terms?

I presume you have a view on how much growth you think the market is likely to see and you want to exceed that. But should we be thinking about 4% as a sort of reasonable expectation or in excess of 4% is a reasonable expectation, assuming no kind of macro volatility or blow up. And then on the returns target, please. So again, it's an area where you're a little bit different from your domestic peers. The last 2 return targets you've given, I guess, have been a little bit more of a through-the-cycle expectation where you would expect to hit them sort of regardless of what was happening to rates and the macro environment.

Now that things have settled down from a, I guess, customer behavioral perspective, in particular, on the deposit front, are you going to be giving us a different flavor of return expectation when you're looking out to 2028? So will you be guiding on where you think the business will be in '28 with your base case assumption rather than sort of a floor underpinning across a broader range of potentially more downside scenarios around customer behavior and macro activity and so on?

Great. Okay. Thank you, Chris. So I'll take the second one quickly first. Obviously, we'll see you in February and talk about it. And obviously, some of the topics you alluded to are what we're thinking about as we go into February and we share '28 numbers. But obviously, we will lay out what assumptions we've made around those targets at that time. But it's a very active debate as you rightly allude to. On the lending side, I think you characterized the position very well and very consistent with how we see it. We're very confident in the track record that we've had.

Our ability to grow above market has been proven year-on-year. It does vary by business and market conditions as told -- as well. But that's what gives us confidence in terms of the outlook for the lending position. I'm not going to declare new targets or new deltas relative to market growth on the call. I think I've given quite enough color about, I guess, our historic track record and how we're thinking about the business going forward to hopefully give you a sense of confidence and optimism we have around the lending profile. Thanks, Chris.

Our next question comes from Jonathan Pierce of Jefferies.

I've got 2 questions. One is on the equity Tier 1 target moving forward. Is that something you'll potentially give us a bit more of an update on in February? Or are we going to have to wait until the back end of the year once Basel 3.1 is pretty much nailed down. I ask, of course, because the MDA is 11.6%. I guess it drops 30 bps, something like that on Basel 3.1. And it feels like the scope to probably operate towards the lower end of your current range rather than the middle or the upper end of it.

The second question is a bit more detailed, I'm afraid, around deferred tax assets. In the 9 months to date, the DTA deduction from capital has fallen by GBP 250 million, and it was GBP 100 million in the last quarter alone. So it's not an insignificant amount of capital build that's now coming from that DTA. So I just wondered if we should expect that sort of run rate to continue until the stock has run out a few years forward. I guess we should because RBS plc is now generating good profit and so on and so forth. And sorry, just a supplementary on that. The last 3 years, you bought back around GBP 300 million a year of unrecognized DTA back onto the balance sheet. Are we going to see the same again in the fourth quarter of this year, Katie?

Okay. Thanks, Jonathan. So Katie, why don't you lead out on the CET1? And then we'll get to some of the detail.

No, that's all right. It's one of my preferred specialist subjects, so I'll make you wait for the answers on that one just for a little bit longer. But on CET1 there's a lot of things going on at the moment, Jonathan, with CET1, as you're very much aware. Obviously, the Bank of England is looking at their review of capital requirements. So we're looking forward to the FEC's update on that assessment. It's due to come out on December 2. And so we'll see what comes through with that.

Our approach on capital has always been to review it as part of our annual ICAP process and the risk appetite review that we do as well as working with the PRA on their kind of annual stress test. And you're familiar with the numbers. We can see that our capital position has really improved over the last couple of years as we've derisked the business. We've also added a significant amount of capital into the business as a result of the RWA inflation that we've had.

I think importantly, as part of the SREP process that we had this year that just came out in Q3, our Pillar 2A there was reduced to -- by 17 basis points which took our statutory minimum requirement to 11.6%. I do expect that number to reduce further once Basel 3.1 is implemented on the 1st of January 2027. We've got pretty good line of sight in that. So therefore, when you look at it, you can see that we've got strong buffers relative to that lower bound of 13% of our current targets. I'm not committing today as to the date or what we might do on any change of our 13% to 14% target, but we are actively thinking about the appropriate capital targets and capital buffers that we have required for our business on a more medium to longer term.

If you go to the deferred tax aspect of it, I think there's a couple of things to remember within -- the treatment within capital is slightly different than the treatment within accounting. So you sort of -- you can see changes coming through at different times as differences of recognition versus utilization of those assets. But we have just over GBP 800 million of DTA assets remaining. We have written back about GBP 1.2 billion since 2023. So we don't have a significant amount more to recognize.

Interestingly, with deferred tax assets, you've got to really look at where they're sitting in terms of the legal entity structure as well and what's kind of -- and the ability to use them is very much structured by that legal entity structure. We do think, however, that our utilization in Q4 would be around in line with Q3. And then for 2026 onwards, we do expect a slightly lower utilization, probably around GBP 100 million to GBP 150 million per year. So continued support to capital generation, but at a slightly different level just given that we've used a lot of the losses up there or given where other historic losses are sitting and your ability to kind of access them. And Jonathan, [indiscernible] have a longer chance on DTA offline as well with you if that's something that would be helpful.

Our next question comes from Guy Stebbings of BNP Paribas Exane.

So just around NII and the NIM bridge in Q3, and then I had one very short supplementary. So the hedge build was, I think, broadly as expected. The better performance in terms of the NIM bridge, I think, came from funding and other and then to a lesser extent, the asset margins, which were up fractionally. So firstly, on the funding and other, I think that includes some hedge accounting and reallocations between NII and OI. So perhaps you could just clarify exactly what's going on there? And to be clear, if it's correct to think that we should expect any sort of sequential benefits from there, but nor it reverses, that's the right way to think about it?

And then on the asset margins, do you think we should expect to see further growth there? Or is that really just a function of Sainsbury's coming in fully and then perhaps need to be mindful of some minor mortgage spread churn as we look forward? And then just a very quick point of clarification. On RWAs, I recognize the guidance hasn't changed. You flagged the business growth and CRD IV model changes. But just interested if we're coming into Q4 in a slightly better position than you originally thought and whether that means we might be more towards the lower end of that range for the full year guide?

Thanks. Katie, over to you.

Yes. Perfect, lovely. Thanks very much. So first of all, yes, funding and other, up 3 basis points, 2 bps related to treasury, and that's not going to repeat. This bucket is always interesting in the walk. It's a number of different moving parts within it. And really, it's kind of the reflection of the management of a GBP 700 billion balance sheet that we need to consider kind of in any given quarter. So you do get the odd basis point that comes out. But this quarter, we did implement a hedge accounting solution for some of the FX swap activity that we've talked about over the last number of quarters. It's a one-off 2 bp benefit in NIM. We don't expect it to repeat nor do we expect it to reverse.

But going forward, you should see less volatility in the NIM from that activity quarter-on-quarter, which will be a lower drag to net NII, a lower benefit to noninterest income. But really importantly, the same economic benefit overall as we go through. If I look at the asset margin, up 1 basis point, it's a very kind of small movement. And you're absolutely right, Guy, is benefiting from a whole quarter of Sainsbury's. I'm not expecting particular expansion in that line. It's very much dependent in one quarter on the mix and what you might see kind of happening within there at any time.

If I spend a little moment on the kind of mortgage margins that we have within there, you're absolutely right. If you think of where our mortgage margins are versus the NIM overall, that's clearly something that you do see as a bit of a negative. We've always talked that the book is around 70 basis points. We do see at the moment that we're writing a little below that, and that's very much a symptom of the really intense competition that we're seeing on mortgages.

So again, that will be a feature of the NIM as we go through from here. The market does move around in terms of where that is. But certainly, at the moment, there's a little bit of pressure within that space. In terms of RWAs, I would really think of that really as timing as much as anything else. I wouldn't say it's going to be particularly having an impact. In the next quarter, I have talked about more material CRD IV impacts coming through. There'll be a little bit of loan growth, of course. We've obviously continued to work on our risk management -- sorry, our RWA management program as well. But I wouldn't look at that and go actually that's going to pull them down. It really is just timing. Thanks, Guy. Hopefully, that answered it all.

Our next question comes from Robert Noble at Deutsche Bank.

I wanted to ask one on liquidity, please. So there's been a continued rotation in your liquidity from cash into government bonds that seems to pick up, right? So what's the spread pickup you're getting off that? And hypothetically, could you move all cash into gilts? Or what's the regulatory restriction that caps you out from doing that? And then just on the term deposit outflows in the quarter, should we expect the same next quarter given that 1 year and 2 year ago, rates looked equally as high. Is there a similar maturity issue in Q4?

Thanks, Rob. So I take the deposit one quickly and then you can take the liquidity piece. On deposits, Rob, we did have some particularly large maturities in the third quarter. And you're right, if you think back 2 years ago when we had kind of the backup in rates, they related to that. So it's not that we don't have maturities in quarter 4, but they're not of the same size or price or margin price points as what we had in quarter 3. And as I said, our retention rates are actually quite good. We're just being very dynamic in where we see value and retention and where we don't. So that's how to think about that. Katie?

Yes, sure. On liquidity, we -- there's a couple of things going on in that liquidity ratio. One, we've recognized the TFSME repayment that we're about to do given the way that that's moved through. So don't kind of forget that piece. That will be happening in the next kind of few weeks. But you're absolutely right. If I look at the swap we've made into gilt, it really was a question to get some of that pickup. It's about 50 basis points in the 5- to 7-year kind of level. So very pleased to have done that.

We wouldn't move the entire piece of our liquidity portfolio into gilts. That would be not quite putting all your money on black. But it's -- we do kind of obviously have some restrictions around where we have to hold and the restriction is really a function of that leverage ratio as well to make sure that, that's the right balance. I would say at the moment, the portfolio is split around 50-50. So there's plenty of opportunity to do a little bit more of maneuvering into gilts if we think that that's attractive as well. But certainly, just as you would expect us to being quite dynamic in the management of that portfolio. Thanks very much, Rob.

Our next question comes from Benjamin Toms of RBC.

First one is just to help my structural hedge model, if that's all right. Your guidance this year for structural hedge is GBP 35 billion. Should we be making the same assumption for next year? I'm just conscious that you added to the hedge in '21 and 2022. So I'm not sure whether that should mean there's a pickup in maturities or whether you're just feathering at the front end, which means maturities should be pretty consistent as we go through the years. And then secondly, on other income, where you purchased Cushon in 2023 to provide workplace pension solutions. Can you just give us your latest strategic thoughts on that part of the business, what you think you do well and what you think you lack?

Yes, perfect. So in terms of the maturity, I mean, Ben, the way that we look at the GBP 172 billion at the moment, it's obviously a function of current account and NIBBs growth. We're pleased to see the growth in that. You'll recall that we do a kind of look back of 12 months as we work out how much we're going to reinvest. We also do some work during the year on the behavioral life in terms of what's happening with our actual current account holders and things like that. But actually, what I would guide you to at the moment is think of it really as GBP 35 billion a year. If we see particularly strong growth on those current accounts, it might change in the future years. But for your model, I would stick to the GBP 35 billion number. It's very even because we've been so mechanistic. So I wouldn't kind of deviate from there. Paul, do you want to...

Yes, I'll take workplace pensions. So Ben, Cushon is a good business. It's got strong proposition, very strong technology, and it's proven attractive to our kind of commercial mid-market customers. Obviously, there's kind of legal and kind of market dynamics that make it important for a lot of those clients to be able to offer workplace pensions to their employees and colleagues. And it's proven very attractive. And it's -- going forward, I think it's an important part of the proposition that we can provide or facilitate that service.

There has also been a series of reg changes in the last couple of years around Master Trust, which certainly lend themselves to Master Trust having significant scale. So net-net, it's a good business. It's an important proposition to be able to offer to our commercial clients, but there have been some regulatory changes as well. So that's how we're thinking about, I guess, that workplace pensions area. Thanks Ben.

Our next question is from Ed Firth of KBW.

I guess I had 2 related questions. I mean, the first one is, if I look at your returns in Q3, they're now even if you take out the one-off, over 20%. And if I -- if you normalize and we can normalize the hedge and capital is quite strong. So you're usually getting into the mid-20s or high 20s. And so I'm just trying to think how do you think about that in terms of what is an appropriate level of return? Because we can talk about the operating leverage and lower capital requirements going forward, et cetera, which would push that up even more.

And I'm thinking of that, I guess, in the context of a bank tax potentially in November because it feels like it will be quite a tough discussion between you and the government about levels of return and appropriate levels of return. So I guess that would be my first question. At what level do you think we make enough now and actually we should be focusing on growing from here and fixing the returns? I guess that's the first question.

Then the second one is sort of related to that. We're all sort of thinking now about -- I know it's sort of 2 years away, but what happens when the hedge runs out? And if you are at sort of peak returns, what do you do next, I guess, is the question? Because there was various discussions earlier in the year about potentially you buying things, but you obviously stepped away from that. I'm just thinking, is that what we should think about going forward? Because relative to your own returns, I think it's going to be tough to find anything that makes an equivalent level if that's okay. So it's rather rounding 2 questions, but I think quite key.

Yes. Thanks, Ed. Good to hear from you. I guess there's a number of those points intersect with each other. First thing I'd say is, as you well know, it's taken a long time for a number of banks to return their cost of capital. So in some ways, it's healthy that we're having that discussion. If you look at it through another lens, notwithstanding that, U.K. banks are still valued very differently to many other parts of the world for what could arguably be said to be similar business models and mixes and in certain extent, very similar regulatory regimes.

I'm going to slightly disappoint you and give you a kind of a politician's answer about what's the right levels of returns. I think the key thing -- the keyway we think about it is from a management team perspective and a Board perspective is we need to get the balance right between supporting customers and deploying our capital to do that and helping them grow and hopefully helping the U.K. between investing in the business. It's a very competitive sector, not just the large incumbents, but there's a very broad range of competitors. It's crucial that we invest in the business. And primarily, that relates to technology and people.

And we need to make the right returns and present what hopefully everybody believes is an attractive investment case. So the debate we have is about the balance between those 3 items. It's a spot RoTE for the quarter. As you say, it has some one-offs in, but yes, fair challenge, year-to-date, it's 19.5%. If you take off the one-offs, it's high 18%. We're working very hard on all the lines, not just the structural hedge. We're trying to grow lending growth. We're driving costs out of the business. We're working the balance sheet an awful lot harder. So we think those returns are kind of the fruits of our activity.

And I think as a Board, you just have to -- we just have to debate, let's get the balance right between making sure we've got a really attractive and sustainable business in the long term, and we're investing in it. We're doing what we need to do in terms of supporting customers and delivering returns. So that's how we think about it. I know I haven't shared a number there because I don't think that's the appropriate way to do it. On M&A or kind of where does that lead, which is a very connected question, the strategy is working. I laid it out 2 years ago. The organic plan is obviously proving successful. We're growing all 3 of our businesses. We're driving a lot of simplification. I think we've got a good runway to go.

We've managed to do that without changing our kind of risk profile. That hasn't been a constraint on our growth. We've continued to grow. So that's great. So organic plan looks good. If opportunities come to accelerate that plan, then we'll look at them. You'll have heard probably 5 times my quote about the financial high bar, but that remains true. It has to be -- we're going to deploy capital on something that we think can accelerate the plan, it has to be compelling from a shareholder perspective. And that's how we look at things. It has to -- otherwise, I think it's a hard case for me to make to investors.

So we will look, but we'll be cold-eyed and the counterfactual, as you say, when the organic plan is performing so well, the counterfactual can be arguably more challenging. But I think I have a responsibility to do that in terms of the alternative uses of the capital. So I've expanded a little bit there. Hopefully, that's given you a sense of just how as management, we think about those topics.

We are now approaching 10 a.m. So we'll take our last question from Andrew Coombs from Citi.

I guess one -- I've got 2 follow-ups really. Just firstly on that point about capital return versus inorganic versus organic loan growth. I mean, you yourself have said there's a very high bar for inorganic given the returns you're already producing. And obviously, now you're trading well above tangible book. The buybacks are also slightly less accretive than they would have once been.

So when you're thinking about the dividend payout, the 50% policy, any reason why that couldn't be higher going forward? What are the pros and cons of shifting that dividend payout ratio? And then second question, just on the structural hedge. You're still at 2.5-year average duration. Your peers are all now at 3.5 partly due to what they see to be the behavioral life of the deposit base. I'm sure partly due to technical reasons as well. But perhaps you could elaborate on the maturity profile of the hedge and why you don't see the need to increase it here?

Great. Thanks, Andrew. I'll take the first. You take the second, Katie?

Yes, absolutely.

Okay. So Andy, obviously, we've increased the ordinary dividend from 40% to 50%. We're in the first year of that. In parallel, we also said we'll look at surplus capital at the half year and the full year, as you would expect us to with the Board. We're very keen to have a consistent approach to surplus capital distribution. So we're not actively reviewing the ordinary at the moment. But over time, obviously, it's a responsible thing for the Board to do. Katie, on the average life of the hedge?

Yes, absolutely. So it's interesting and as we look at the hedge, it's important to remember the hedge has got 2 portions within it. There's the equity hedge and also the product hedge. So you're absolutely right. The product hedge is 2.5. The total hedge is closer to 3. I think it's important as you look at the assumptions on this is the mechanistic model that we've had has played out very well for us. I mean, for me, I think you'd only increase your duration if you felt the duration of your eligible deposits had increased based on behavioral assumptions.

I think given what we are seeing in terms of movement that we have and not just on the current accounts, that wouldn't actually necessarily be something I would say that we've seen in our books. I'm not doing that. And I think it's also really important. We've always been very clear to move with the hedge. It isn't there for us to express a view on where rates are sitting. Others sometimes have taken different views on that, and you need to talk to them on that.

But that's -- for me, if you were to try to extend at this point, the absolute pickup you'd be getting wouldn't be logical for the difference you would be making in it. And we don't necessarily see that actually within our underlying numbers that we're seeing those changes in behavioral life, it would also support that duration and extension of that. But overall, product hedge 2.5 years, total hedge about closer to 3, very comfortable with the performance. Obviously, it served us well for many, many years. And as we look at that increase in income this next year into 2026, greater than GBP 1 billion and continuing to grow as we go out to 2028 as well. So very happy with how it's performing. Thanks very much.

Thank you for all your questions today. I will now pass back to Paul to close.

Thanks, Oliver. And thank you, everybody, for your questions. We appreciate both your time and the insightful questions on the call. So to wrap things up, we're very pleased with the performance in quarter 3 and the continuing momentum we've got in our 3 businesses. We've upgraded our income and returns guidance, and we continue to see opportunities, as I think we've conveyed today to continue to take market share and grow those businesses. We look forward to catching up with you on a couple of things. We've got the retail banking spotlight on November 25. And also, as I said earlier, we'll update you on our guidance for 2026 and share our new targets for 2028 at the full year in February. So wish you all a good weekend. Thank you.

Thanks very much.

That concludes today's presentation. Thank you for your participation. You may now disconnect.