NatWest Group plc (NWG) Earnings Call Transcript & Summary

Welcome to the Commercial Banking and NatWest Markets Investors Spotlight. [Operator Instructions] I will now hand over to Paul Thwaite. Paul, over to you.

Thank you, Dave. Good afternoon, everyone, and thank you for joining today's Commercial Banking and NatWest Markets Investors Spotlight. My name is Paul Thwaite, I'm the CEO of the Commercial Bank. I know many of you will have joined Now Meet the ExCo introductory event in March. The session today will provide a deeper insight into how we are driving towards sustainable returns in both our Commercial Banking and NatWest Markets businesses. Later in the year, we'll be holding a similar event focused on our retail and private businesses. Today, in addition to myself and Robert, CEO of NatWest Markets; Simon McNamara, our CAO, will highlight some of the key technologies and innovation being provided to our franchises. And Jen Tippin, our Chief Transformation Officer, will give an overview of how the transformation program is helping us to deliver on our strategic priorities. As Dave mentioned, at the end of the presentation, there will be an opportunity for Q&A. And I'm pleased to say we'll be joined by our business CFOs, Peter Norton for Commercial Banking; and David King for NatWest Markets. First, and briefly, I'd like to recap on the 4 strategic priorities that Allison set out in February 2020 to drive sustainable returns. These very much underpin our purpose and our strategy, and we believe are critical to building trust and creating long-term value for all of our stakeholders. The 4 pillars of supporting customers, powering growth through innovation and partnerships, simplifying our business and sharpening our capital allocation. Over the last year and through the COVID-19 pandemic, we truly believe our purpose and our strategy has been tested and proven as we have pivoted the business to support individuals, families and businesses in many new ways, both at scale and at pace, whilst continuing the digital transformation of our business. Framing Commercial Banking and NatWest Markets, together, these businesses account for about 50% of NatWest Group income and costs and about 60% of risk-weighted assets, making the successful execution of our strategy a key element in the delivery of the group's 2023 targets. In the next 15 minutes or so, I'll take you through how we're delivering on our priorities within Commercial Banking by covering an overview of the business and the financial performance across the different customer segments, our customer-focused strategy, our ongoing collaboration with NatWest Markets and our expected financial outlook. So starting with an overview of the commercial banking. We're the largest supporter of U.K. businesses. We serve in excess of 1 million customers across the U.K. or put another way 1 in 4 of every business. We offer a comprehensive range of products and propositions across our 3 main customer segments, our business banking, SME and mid-corporates and large corporates and institutions. These customer statements are complemented by our specialized product business, including Lombard, our Asset Finance business, Invoice Finance and Mentor. Our broad regional and local RM presence, our comprehensive product range and deep sector expertise allows us to competitively meet a wide range of our customers' needs ensuring we keep paced with an ever-changing market landscape. We start from a position of our strength and leadership across our primary segments, both in terms of the market share and customer satisfaction. Whilst there are consistent themes and needs across our customer base, the returns dynamic varies across different segments, and external and internal drivers impact the profitability of the businesses in slightly different ways. It should be noted that 2020 returns were lower due to the suppressed fee income we saw during lockdown as well as the impact of procyclicality and the flat yield curve. We see upside from the reversal of these impacts, and in businesses where we hold significant operational deposits, we are highly levered to positive changes in the yield curve. Taking each of the segments in turn. Business Banking is focused on our smallest customers, and we support circa 20% of businesses of this size in the U.K. Our Net Promoter Score and CMA rankings in this segment continue to carry strong momentum, and our priority is to continue to automate and digitize our offering, supported by a direct relationship manager model with video banking capabilities for those key moments of truth. Traditionally, business banking has been a high-margin business with attractive returns and a source of high-quality deposits with a loan-to-deposit ratio of below 50%. During 2020, we saw some significant changes in the shape of this business as the loan book nearly doubled in size, primarily on the back of bounce back loans, and deposits increased by 25%. Whilst relatively simple, this business has the greatest scale to be digitized and its capital, liquidity and return dynamics are, in many respects, more akin to a retail portfolio. Our SME and corporate business is comprised of regionally and sectorally diverse customers with more complex needs and typically better credit ratings. These customers are served by our relationship managers, supplemented, as required, by specialist product teams and have -- increasingly have a growing demand for digital journeys and video banking. In the current interest rate environment, significant deposit inflows, combined with competitive asset pricing, has weighed on returns. We plan to increase profitability in this segment as we evolve the relationship model in an increasingly digital world and meet more of these customers' needs by transaction banking, our ventures and on NatWest Markets capabilities. We also include here our real estate business, which reflects where the majority of this book sits and aligns with how we manage the business on a day-to-day basis. Real estate remains important to us, as has been discussed at length historically and has been for a number of years on with a very cautious risk appetite. Our large corporate and institutions business has a leading market share and is focused on our largest multinational clients and our most complex and sponsor-owned businesses. We are primarily focused on customers with the U.K. Nexus, and over the years have developed strong leading positions in a key number of specialist areas, such as asset finance, infrastructure, project finance and renewables. To ensure we deliver all of the bank's capabilities to this customer set, we've implemented new ways of collaborating with NatWest Markets, an example of which is the alignment of our customer-facing teams in a one-relationship manager model which simplifies the way we serve our customers. Large corporate institutions is also a deposit-heavy business and returns have been impacted by the compression in the yield curve. Finally, we have our specialized product businesses online, invoice finance and Mentor, all of which individually have market-leading positions and are closely integrated with the 3 core customer businesses I've just talked through. Separately, we disclose Other, which accounts for about GBP 10 billion of risk-weighted assets, which includes GBP 4 billion of EU divestment, which will soon be reintegrated into the core business, given the upcoming conclusion of our state commitments, a legacy asset portfolio of around GBP 1 billion, and a centrally held treasury risk portfolio of GBP 5 billion. Moving from the segments to our strategy. Our strategic priorities for the business aligns to both value and market opportunity and a play across all of the business segments. Firstly, supporting our customers through the economic recovery, Brexit and the transition to a net 0 economy; secondly, driving quality income growth, which we're doing through lending and our partnership in NatWest Markets and through growing our fee income-based repayments and transaction banking; thirdly, driving efficiencies through digitization, simplification and automation,by transforming our key processes and our key customer journeys; and finally, but not least, sharpening our capital allocation across the book. I'll now take each one and go into a little bit more detail on each. Starting with our first priority, the ongoing support we are providing to our customers. This remains at the highest importance. We are now shifting our focus from helping customers through the disruption caused by COVID-19 to supporting them in the recovery. Over the course of the pandemic, we delivered circa 20% of all government scheme lending, and earlier this year successfully launched the recovery loan scheme and pay as you grow, a fully digital end-to-end journey that supports customers with the repayment of their bounce back loans. In aligning it with our purpose, we continue to review barriers to enterprise on our recent work with the government on the SMB task force, including a commitment of GBP 6 billion in funding, demonstrating our focus on improving SMB productivity and championing the recovery in the U.K. At the same time, we recognize the important role we have to play in supporting the U.K. transition to net-zero. And whilst this applies across all segments, we see particular opportunity in the near term with our largest customers. An excellent example of this opportunity and how it plays to our strengths is the role we play in financing the Dogger Bank Wind Farm. Our project finance business, in partnership with NatWest Markets, collaborated to deliver a complex multiproduct financing solution to fund the world's biggest offshore wind farm, and we're going to talk more to these opportunities later. Our second priority is to deliver targeted growth. To achieve this, we will support and meet a kind of broadening range of our customers' needs, delivering growth both in lending but also in fee income. Net fee and commission income fell sharply last year as the U.K. went into lockdown, and ended the year around GBP 200 million lower than 2019. But as customer activity levels have started to return, we've already started to see some recovery in these lines. We expect the migration to digital and lower levels of cash usage to remain, and our strategy is supported by investments that have positioned us well not only to benefit from the recovery, but also in the structural shifts in payments. We expect to grow our fee and commission income in a number of ways. Firstly, by meeting more customer needs in working capital and trade finance; secondly, by continuing to invest in growth payments through our core products, and in ventures such as TIL, our reentry into the merchant acquiring market, and Payit, our open banking payment platform, both of which we are seeing significant volume growth and continued opportunity; and thirdly, by continuing to deepen relationships across our customer base by meeting more needs with NatWest Markets capabilities, increasing both share and penetration across key products, such as FX and rates. Our lending growth strategy will largely be driven by focusing on areas of strength with our mid and large clients. We'll do this by leveraging our strong track record with both existing and new clients, continuing to develop leading propositions in ESG and renewables, and strengthening the partnership with Markets and RBS International for complex and sophisticated financing and risk solutions. Our third priority is around being simple to deal with. We've made significant progress in reducing the commercial bank costs, in line with group targets, and we continue to simplify, digitize and automate the business on an end-to-end basis to improve both customer experience and engagement but also drive out inefficiencies. Simon and Jen will share a lot more detail here, so I'll just touch on a few examples and highlights. Customer relationship management software, which we've deployed to over 5,000 colleagues and towards middle and back office. This drives efficiencies, improves customer experience and create better revenue opportunities. Our digitization agenda continues to pace as we develop our range of digital-only products and services and offer our smaller business customers data-enabled personalized insights. And our ongoing efforts to automate key processes and improved journeys is evidenced by our launch of 17 new digital channel journeys during the course of this year. Our final priority is sharpening our capital allocation. We will continue to proactively manage the shape of our balance sheet, meeting the evolving needs of our customers, but also planning our part in achieving the group's GBP 20 billion target to sustainable funding and financing. Managing capital proactively and efficiently isn't new to the commercial bank. We have a track record of improving our RWA efficiency and recycling capital, but our approach continues to evolve, underpinned by better data, a broader range of tools and better use of expertise across the bank, as Jen will touch on later. Our plan is based on growing our lending balances at a greater rate than our risk-weighted assets, improving the efficiency of our capital. This will also enable us to partially offset the anticipated inflation from Basel III amendments, the quantum and timing of which remain in uncertainty. The delivery of the strategy in the capital space,is underpinned by a few key things. Firstly, active management, including close monitoring of counterparties and sectors mostly impacted by COVID-19 in the short and medium term; secondly, dynamic pricing models to reflect the economic outlook, risk price area and our climate and purpose agenda; and thirdly, a disciplined and measured approach to risk. Moving to our financial performance and outlook. As outlined before, we build a position of both strength and meaningful scale. Clearly, the 2020 results were materially impacted by COVID, where a number of the themes continuing into quarter 1 as the U.K. economy remained very much in lockdown. Some of these factors will continue to impact future business performance, most notably, government scheme lending and the growth in deposits. However, the underlying strength and resilience of the business has been highlighted in recent quarters as we have delivered strong operating profit and returns performance despite an extremely challenging external environment. As the impacts of COVID fall away through the normalization of our fee revenues, the unwind of procyclicality and the more favorable yield curve, we see material upside, even before the management's actions that are driven by the strategic plan. Over the medium term, commercial will play its part in contributing towards the group's ROE target of 9% to 10% by 2023. We will develop income by growing our lending book and by delivering material growth in noninterest income in excess of pre-COVID levels. We will continue to deliver cost efficiencies to contribute to the group's overall target of around 4% per year. We will deliver this through simplification, reengineering, digitization and automation, leveraging one bank technology and data capabilities. And we'll continue to proactively manage our risk and capital exposure, with terms performance forecast to be at or below the through-the-cycle average of 30 to 40 basis points in the near term. Before I pass to Robert, I want to touch briefly on the work we are doing to bring our Commercial Banking and NatWest Markets businesses closer together. Since February 2020 and the announcements we made then, we've seen a number of actions with the aim of driving progress and returns from our shared customer group. We've developed an aligned view of corporate and institutional customers supported by the new one relationship manager model. We've simplified the product set, for example, our single FX proposition, and we have established the corporate and Institutional Capital Center of Excellence, which targets the optimization of our capital resources. In culmination, we expect these actions to support an ongoing strong partnership between ourselves and Commercial Banking and NatWest Markets. I'll now hand over to Robert, who will talk to this in more detail and share the priorities of the Markets business.

Thank you, Paul, and good afternoon, everyone. I'm Robert Begbie, Chief Executive of NatWest Markets, which is the financial markets engine of NatWest Group. Today, I'll provide you with an overview of NatWest Markets, the progress we've made on transformation, the capability we have in place to support our corporate and institutional customers and how this business works with commercial, our customers' priorities and how we are delivering through a one-bank approach, and a path towards sustainable returns and returning capital to the NatWest Group. So starting with NatWest Markets. NatWest Markets' purpose is to be the partner of choice to meet the financial market needs of the NatWest Group customers. The business is anchored in the U.K. with global reach for customers and is a highly integrated and connected part of the group. We have a presence in key financial centers that helps us to provide expertise and financial markets access for our customers and the wider bank, by supporting U.K. customers to access Europe post-Brexit and servicing our U.K. customers, by providing access to U.S. dollar capital markets through our U.S. broker-dealer, connecting customers in U.K. and Europe with invested capital in Asia, and providing round-the-clock risk management of FX and rates markets so our customers can hedge their risks. The presence and platform we have plays an important role for the real economy and services the needs of stakeholders across the bank. And this was particularly evident during the pandemic, with the role of risk management capital markets has contributed significantly in supporting the recovery of the real economy. So let's recap briefly on the transformation progress. We made significant progress over 2020 and executing against our strategy and put in place the foundations for a sustainable business. We reorganized the business around our new customer-led operating model, focused on capital markets, customer sales and trading; elevated customers to the heart of our decision-making; and established a capital management unit to oversee the RWA reduction plan and sharpened capital allocation. We simplified the product offering by exiting 11 products, made strong progress in reducing expenses as we reshaped the business by around GBP 140 million, down 12%, excluding strategic litigation and conduct costs. And most importantly, we outperformed the original 2020 RWA plan by GBP 5 billion, reducing RWAs to GBP 27 billion in 2020 and paying a GBP 500 million dividend to the NatWest Group earlier than planned. We executed on a One Bank operating model, transferring around 2,500 employees into an Atlas Holdings to centralize expertise and leverage shared services. And we significantly strengthened our balance sheet and reduced the risk profile, which was recognized by both Moody's and Fitch, who operate in both NatWest Markets plc and early credit ratings during 2020. Moving on to corporate and institutional customers. As Paul mentioned earlier, NatWest Markets plays an important role in delivering key risk management capital markets expertise to the group's corporate and institutional customers and forms an integral part of the overall proposition for the C&I customer base. A great example of how we deliver an integrated One Bank proposition is the support we provided to the Dogger Bank Wind Farm, which Paul referred to, where we provided insights and solutions to the customer on how to efficiently manage the project's FX and interest rate risks, executing FX hedges for a total volume of GBP 2.5 billion driving great outcomes for the customer of the bank. And we have increased our focus and discipline around our customers to ensure we are supporting those who play an important role in the real economy. And this was especially the case last year given the impact of the pandemic and the requirement for corporate, institutions, sovereigns and agencies to raise funding as part of the economic response to the pandemic. And we delivered a number of important transactions, including the U.K. debt management offices' 7 billion GILT issues. The teams across commercial and NatWest Markets are working hard hand-in-hand to deliver One Bank to customers, and we've taken key steps to solidify that proposition. We brought certain commerce teams together with Commercial to deliver a more integrated coverage model; created alignment on our growth priorities, which I'll talk about later; put in place clear capital allocation and decision-making objectives that drive bank-wide returns rather than individual franchise-level returns; and maintained focus on increasing connectivity on how we deliver One Bank to customers and a look opportunities across the bank. And all this is aimed to deliver sustainable returns for the NatWest Group, and Paul and I are committed to return -- to delivering an 8% return on equity over the medium term to the NatWest Group's corporate and institutional customers. Turning to the NatWest Markets proposition. The product platform we have in place is designed around our customers to provide them with capital markets and risk management expertise in areas that matter most of them and where we can add most value. We have a very strong currencies business. It's digitally led, customer-focused and increasingly connected across the NatWest Group. Around 80% of volumes in FX are now transacted through electronic channels. We execute between 30,000 to 40,000 transactions a day and up to 100,000 transactions during peak times. And we're able to generate pricing for customers within 3 microseconds of the market update. This is a very capital-efficient business and drive stable and consistent revenue streams. And we have deep relationships with our customers that span from U.K. SMEs all the way up to large corporate and institutions. We're consistently recognized as a Tier 1 player in the U.K., where we are the best FX bank for SMEs and FX service quality leader for U.K. corporates. And we continue to see significant opportunities to do more in the currencies business. We have a growing capital markets business that provides access to public and private markets, leveraging our market-leading structuring and risk-distribution capabilities and providing expertise and thought leadership in ESG. Our primary capital markets business supports financing and capital leasing for customers. This generates fee-based income and is seasonal throughout the year, consistent with activity levels in debt capital markets, for example, the underwriting of bonds for customers to raise debt financing and supporting customers to base finance through private placement markets or issuing hybrid capital instruments. Our private financing business provides structuring, distribution, on-balance sheet financing and risk management products for our corporate and institutional customers. This business generates mostly fee but also some interest income consistent with bank and booking activity. And for example, we support specialist lenders with warehouse and financing, primary securitization and hedging for asset portfolios, and we also support sponsors of funds with asset by lending and other bilateral financing. We plan to continue growing our capital markets business in areas of focus and specialism. And we have a focused fixed income offering that offers cash and derivative products and rates, supporting customers with risk management, execution and liquidity. We also provide credit trading across investment-grade and high yield as part of a highly integrated credit vertical, supporting and alongside our primary capital markets business. And our continued aim is to improve efficiency and capital effectiveness across our fixed income businesses. Turning to growth. We're very focused on driving growth with our corporate and institutional customers, and both will Paul and myself see great opportunities through One Bank collaboration. Capital markets and currencies are areas that are capital efficient and where we have the expertise to grow. We plan to continue growing our ESG market presence through product innovation and thought leadership to support customers in their transition to net-zero. Across the NatWest Group, we are a market leader in providing banking, financing, depository and risk management products to sponsors and funds. We plan to continue developing our sponsors and funds financing offering by investing in our coverage and origination capability. And both Paul and I see opportunities to do more in commercial banking in currencies through greater integration of FX inter-payment channels across the group to provide real-time rates and extending the payments currencies we offer, increasing collaboration and connectivity across our regional relationship managers and FX sales teams to increase referrals, and developing our strategic FX solutions capability to increase our penetration with corporates across FX derivatives. Moving on to ESG. ESG is a key priority for NatWest Markets and is closely aligned with the NatWest Group focus to support client change agenda. We've seen an explosion of issuance across green, social and sustainability bonds in the last 2 years, and we believe the pace of ESG integration will continue. Around 25% of our syndicate fees in Q1 2021 were from GSS-label transactions compared to around 3% in 2019 and 12% in 2020, which illustrates the significant momentum across our primary capital markets business. And we are well positioned and continue to develop our ESG offering through establishing a center of expertise to embed ESG into our customer and product offering, ramping up our presence in ESG across private financing, and leveraging our deep institutional investor relationships to support these ESG strategies. And we've made great progress already. We raised over GBP 10 billion in climate-related financing and funding in NatWest Markets, contributing over 50% towards the NatWest Group's GBP 20 billion target, allowing the bank to bring forward its target by a year. We've embedded sustainability targets into our currencies business. For example, executing ESG KPI-linked derivatives for Enel, Drax Power and The Renewables Infrastructure Group. And we continued growing our market share and ranking across GSS bond markets. We supported our own EUR 1 billion NatWest Group social bond, the first UK affordable housing bond by a U.K. bank. And we've done a number of great transactions for customers, including Republic of Italy's green bond, the largest-ever green bond by a sovereign; Mastercard's inaugural sustainability bond, which was our first GSS bookrunner mandate for U.S. corporate; and [ Whitbread's ] debut green bond and selling market, which marked their return to the selling market after that their debut. Turning now to simple to deal with. As part of the NatWest Markets' transformation, we are simplifying the business to deliver a sustainable markets platform for the group, and all this has been executed as part of the overall bank transformation that as been overseen by Jen Tippin, who you'll hear from shortly. This is a multiyear transformation characterized into 3 key themes. Business simplification, which is delivering key changes in transformation across the business and regions to deliver our target date operating model. A significant part of the simplification has been the front-office reshaping, which has driven the majority of the cost saves and the direct cost base. And we've made strong progress in this front already and be largely completed by the end of this year. Secondly, the one-bank model, which looks to drive the synergies from functionalization and bank-wide transformation initiatives, such as simplifying customer journeys and cost efficiencies by reusing capabilities across the bank. And thirdly, technology transformation, which, following the transfer of technology and operations into NatWest Holdings, the plans are to streamline and simplify our technology to deliver cost reduction. And Simon will talk more about this and the benefits of reusing common capabilities and technology across NatWest Markets. Turning to sharpening capital allocation. I mentioned our capital management unit earlier. The capital management unit has done a great job of overseeing and delivering the RWA reduction plan and embedding capital discipline at our product and customer level to ensure this is aligned to our strategy, the capital management unit transaction to sharpen capital allocation through implementing a new customer segmentation framework, the clear capital allocation of checks and onboarding customers not aligned with the new strategy. We've proven place tools from a granular assessment of capital allocation to customers to ensure it is aligned with our strategy, and embedded a pricing framework for new capital against the new business and transactions we originate. And as a result, we aim to deliver the majority of our remaining RWA reduction in 2021 against our medium-term target of GBP 20 billion. We plan to operate within a corridor of around GBP 20 billion once the RWA reduction is delivered. And as a result, we expect to pay further dividends to the NatWest Group in 2021 and over this line. In terms of outlook, we've been pretty clear on the targets we're aiming for and to create a sustainable markets business for the NatWest Group. We plan to improve profitability by reducing operating expenses while growing core income streams to circa GBP 800 million to GBP 1 billion over the medium term. And we are targeting below to mid-single-digit return on equity from NatWest Markets over the medium term and expect to return significant capital through distributions to the NatWest Group. So in summary, NatWest Markets is well connected in integrated markets business, providing capital markets and risk management expertise across the group, we're focused on our customers in areas where we can add the most value through One Bank collaboration, we're building expertise in ESG and product innovation to support customers and the NatWest Group's climate commitments, we're investing to deliver simpler and efficient markets platform to the NatWest Group, and we plan to return significant capital to the group and deliver sustainable and positive returns. I will now hand over to Simon McNamara, who will take you through technology and innovation.

Thank you, Robert. It's nice to have another opportunity to talk to you. So I'm kind of keen to share with what services brings to our commercial and network market businesses. It's a story that's built on a foundation of safety, security and simplification. So having laid strong foundations, we have a safe platform and assets. We continue to invest on average GBP 100 million per annum, improving stability and resiliency of our technology estate. We took that year in, year out, so we have a very modern technology stack which is paying dividends and reliability of our services to customers. And most severe, critical one incidents in Commercial and NatWest Markets are in single figures, and through improved detection and management, cyber attacks are falling. We continue to simplify our estates. Applications have more than halved in the last 5 years. Our biggest technology stability has improved by 70% since 2019, something our institutional customers felt the benefit of. We reduced our supplies by 74% since 2014, and our property footprint is more than halved. And at the same time, the use of cloud is up by 40%. We have over 1,000 applications in the cloud today and taken together, our technology costs have come down by a quarter. Let me share some specific examples. We've been doing [indiscernible] work with Robert to restructure his business has seen our NatWest Markets technology team move to services. That has helped NatWest Markets reuse existing bank cases markets have and our colleagues have a new common platform experience with centralized support, which also remove duplication. So technology costs reduced as we run one set of capabilities rather than multiple. For example, 55 applications are due to be decommissioned in NatWest Markets this year, with commercial already using a couple more platforms. So our key focus areas with the shift in digital and the reuse of core digitization and automation and capabilities. I've got some really compelling examples. Firstly, on automation, we have had success with the combination of artificial intelligence and robotic process automation, known as bots. During the COVID pandemic, we deployed 114 bots to process over 300,000 bounce back loans and CBILS applications with a value of GBP 14 billion. At our peak, these volumes would have taken up to 1,000 people to process. We didn't need to recruit or spend [Audio Gap] Next up, Cora. Cora, our digital assistant was part of our retail business, and we're reusing it. Cora is supporting our business banking customers online. It had 0.5 million conversations in 2020, which is up from up 150% from 2019, 40% of which needed no human intervention. So it's lower cost to serve. And as you can see that our reuse of Cora's supporting our lending journey. As I've said in the past, we've found many opportunities to digitize, automate and reuse as our customers enjoy simpler digital journeys. We reuse shared capabilities and our cost base reduces, supporting around a 4% cost reduction per annum across the group to 2023. Now if our foundation is built on safety and simplification, our future is built on being modern and smarter. Let me put that into context. The business of banking is changing. Customer demands are changing. They're becoming more expectant, wanting services that are seamless, tailored and personal, asking for simple and smart banking, using channels of their choice when they choose. So we need to combine our estates and services with those of others, so we can do new things that are valued. It's well unlocked through APIs, where our approach to banking and our use of data has paid off. We made sure we built our APIs in an industrial manner. We have the highest-performing, most available and most in-demand APIs around, so we can reuse services and capabilities across our products, making it simpler and quicker to develop and deploy them to customers. We have over GBP 1 billion of payments that are processed using APIs. Around 230 third parties connect to us using open banking. That's 1.5 million customers. Our APIs are enabled across all our brands, and over 125 million API calls are processed each month. And we were the first U.K. bank to offer personalized loan quotes on social media. We also have a strong innovation track record and ecosystem. Our success comes from collaborating with great companies with lots of experience. A good example of this is Tyl. As Paul said, the merchant business is a priority area for commercial, with a view to growing fee-based income. Now we're supporting that through the integration of Tyl, with bank assets like Payit, FreeAgent and Mettle. Tyl working with Payit helps merchants take payments anytime, anywhere with next-day settlements are standard. Payit also reduces the cost of fraud, improves cash flow and reduces the business' data management burden. Integrating with FreeAgent gives accounting software to businesses, and working with Mettle, we can help with invoicing, tax and bookkeeping, helping customers become tax compliant and give the services they need to run their businesses. To tell customers get a one-bank SME and payments proposition, delivered through personalized, smart insights for businesses, helping them track sales, target customers and grow loyalty. We're using data to improve customer onboarding, helping minimize customer dropouts, and we share competitor insights, trends and forecasting so businesses can plan ahead. These unique insights generate customer appetite as a result of customer stickiness. Our strategy with Tyl also reduces costs at scale, bringing competitive advantage and increasing the speed of technical scalability. It brings new product development capabilities, so we get it cheaper and faster. We take a one-bank approach so we can unlock opportunities in all our franchises. I think the work we're doing in foreign exchange place is exciting. I -- we want to bring our markets FX capabilities to our commercial customers. So they benefit from exchange rate certainty, reduced fees, customizable pricing and better rates. We're integrating these capabilities into our payments and digital channels and into bank line this year, benefiting 100,000 commercial customers. And let me give you another example. Last year, our digital payments teams worked together to enhance our Banking as a Service offering. They developed a domestic payments API. At the same time, international finance institutions, such as [ Sea Ore ] and a number of others, who I can't name, unfortunately, who are working on the digital shift strategy to meet demand for real-time payments. By using our APIs, we help them meet the demand for 24/7 speedy, secure payment solution. They can take advantage of instantaneous payment capabilities and get a service at a fraction of the cost of developing their own and our relationship with deepens. My favorite example is the groundbreaking commercial agreement we've signed. I'm not naming names here. I need to maintain confidentiality, but we'll announce in the next quarter giving a glimpse of the future. It helps improve the onboarding process for customers that want to become merchants. Retail customers can share their authenticated contact data using an API, reducing the work and cost to become a merchant, and we get a fee every time the API is used. We're working to get similar onboard by bank agreements with others, so further opportunities for fee-based income growth. Data has clearly underpinned every example I've given you. As I said in the past, data and how we use it is a huge opportunity. The convergence of compute power with cloud, data and intelligence, whether artificial or human, coming together, the world of possibility opens up. We can deliver personalized insights based on customers' context, relationships and behavior, economic network dependencies and help with cash flow. We're identifying behavioral patterns, giving insights to commercial customers. And we're going further with these insights based on business interactions. We're supporting lending growth for our commercial businesses by leveraging customer insights with proof-of-concept data learning tools, combining debit card payments and account data, giving insight to commercial customers like local spending trends, helping them grow their business. Most competitors will find our model difficult to replicate because our privileged position across commercial and retail banking bases are simply best placed with the knowledge and the data that we have, helping us drive smarter outcomes for our customers and, of course, helping them to thrive. And for us, we have an analytics platform driving smarter decisions on our use of capital. With a single view of the customer, we're driving sharpened capital allocation and by using granular insights into the drivers of value and cost, we're generating new customer propositions. So that's services. And I can summarize before handing over to Jen. Our story is built on a foundation of safety and simplicity. Through continued focus on investment, we've turned a technology liability into an asset. We have real evidence that we're becoming modern and smarter. We're coming together as One Bank focused on reuse internally and collaboration externally, and it's all enabled by APIs giving our commercial network markets customers new unique capabilities and insights that they value and trust. And for us, that's really exciting. So now, I'll hand over to Jen. Over to you, Jen.

Thank you, Simon, and good afternoon, everybody. My name is Jen Tippin, and I joined the bank 9 months ago as the Chief Transformation Officer. I joined from Lloyds Banking Group, where as a member of their Group Executive Committee, co-designed their first strategic plan and led on cost management. And I'm really excited to be part of this NatWest team. So our strategic priorities are anchored in an ambitious multiyear One Bank transformation program, and having heard from my colleagues, you'll know that we were focused on working together to unleash the potential that exists in our group. Now the aim of this program is to enhance our franchise businesses and to drive incremental value beyond what each franchise can deliver alone through working as One Bank. Given the scale of this transformation, we've deliberately taken a different approach that I'd just like to bring to light briefly. So we've built and mobilized a dedicated transformation office to drive our overall program and approach to cost efficiency, investment, customer journeys and champion the reuse of capabilities. The Chief Operating Officers of the franchise and functions are a core part of the transformation team, and they have a dual reporting line both into their business area and into me, which ensures that they're connected into our program and that we manage dependencies effectively. And together, we've built a One Bank delivery road map with a critical focus on outcomes rather than milestones. We've built a multiyear approach to cost efficiency and our investment with the suite of objectives and key results and quarterly investment reviews, providing greater rigor and transparency to our performance. In terms of cost management, and you'll hear more from me on this later, we're taking an approach of focusing on front-to-back reengineering of our costs, including customer journeys, directly enabling the franchises to deliver both an improved customer experience and greater cost efficiency. As you know, we're delivering and investing GBP 3 billion over the next 3 years, focused on our key strategic priorities of growth, simplification and capital, all powered by innovation and partnerships, as you've heard from Simon. Key investments for commercial and NatWest Markets include over GBP 60 million in transaction banking and around the same amount in delivering the single online channel and log-in for our commercial customers, and of course, as you've heard from Robert, our investment in NatWest Market strategic transformation. Now a critical aspect of our transformation program is the mobilization of 7 work streams that run end-to-end across the bank. And you can see them listed here: customer life cycle; digitization and distribution; customer journeys and One Bank capabilities; organization, skills and culture; tech and data; partnerships and ventures; and portfolio discipline. And the core purpose of these work streams are to enhance group returns through leveraging capability across the bank. Now today, we're going to focus on those work streams most relevant to commercial and NatWest Markets, being customer journeys on One Bank capabilities and portfolio discipline. And what I'd like to do is bring these to life during the next few slides and include some proof points on how these work streams are working. So first of all, on customer journeys. Transforming customer journeys end-to-end through greater automation will have a significant impact on our sustainable multiyear cost reduction, where, as you know, we're targeting gross savings from customer journeys of around GBP 300 million, but it will also deliver a step change in our customers' experience. A good example of this is our work in Business Banking. The Business Banking transformation program allows us to improve our coverage model, providing a new direct relationship model for 16,000 to more of our customers, enabling us to focus our relationship managers' time on delivering enhanced service to our customers with more complex needs or growth potential, whilst offering true multichannel customer experience and choice to our customers but at lower cost. Our business spiking NPS has already started to see signs of improvement using this model, rising from minus 5 to minus 1, and importantly, we are improving in all SME customer segments, performing strongest in segments where we provide a relationship model service. Part of the program is to provide more customers with not only the relationship model experience through direct channels but also more digital self-service options that should help improve customer engagement and satisfaction in a low, cost-effective way. Automation of our key service journeys will underpin our transformation. It will also improve call times and improve our ability to get it right first time. By the end of the year, the majority of staff across commercial banking will be on a single customer relationship platform. Through using Microsoft Dynamics 365, we can better support the use of capabilities such as video banking and access to customer information, reducing the need for our colleagues to toggle between platforms and spend time managing customer records, allowing our frontline teams to spend more time serving more of our customers in real time. This whole program has already delivered a number of outcomes ahead of schedule, and these initiatives, coupled with the digitization of 17 key service journeys to promote self service will help generate annualized cost benefits of around GBP 19 million. Let me give you 2 more examples of how we're working across the bank to deliver value. By way of reminder, you've already heard from Robert about the significant progress he and his team have made in reducing RWAs in NatWest Markets over the last 2 years, with more progress to come this year. The work in NatWest Markets has enabled us to refine our capital management capabilities, and we are now seeking to actively reuse these and enhance our capital allocation through establishing a new capital management unit that can optimize pricing and build consistency approach as One Bank, increase capital velocity through the investments we're making in tech and data, improve our RWA accuracy and modeling and, of course, enhance our performance management. And in addition, as you've heard from Simon, we're also leveraging foreign exchange capabilities in NatWest Markets across the bank, and in particular, in commercial, which will help drive revenue growth. It is through this approach to reuse that helps Commercial to leverage a proposition without having to do it from scratch saving time, effort and cost. Turning to cost. Underpinning the delivery of our cost target is the mobilization of a new approach to cost efficiency, with a dedicated cost management team looking across the group and covering all costs and resources. Our cost management strategy is multiyear and is executed as One Bank across all of our franchises and functions. Transparency over our performance has increased. We have now developed and implemented a real-time process with ownership of initiatives and benefits tracking. Progress on these initiatives, which run into the hundreds, are reported fortnightly and discussed with the Chief Executive, the CFO and our executive management team. A good example of this is the work we've been doing in NatWest Markets. We decided to realign our support functions across Networks Holding and NatWest Markets, which began in 2020. As a result of this activity, as you've heard from Robert, we saw over 2,500 people transferred an associated cost reduction from this of GBP 30 million per annum for the NatWest Group. As an example in finance, we realigned common processes and activities transferring nearly 500 FTE back into Network Holdings, and this alignment was completed for all of our support functions. This example shows that rather than having each part of the business having stand-alone functional teams, we can integrate them, improving the operating model and process resulting in a continued high level of support back to the franchise at a significantly lower cost. This approach is expected to play an important role over the next few years to help the bank deliver its 4% cost target. So to conclude, Our strategic priorities are embedded in a multiyear One Bank transformation program. That plan is now underway and has a number of comprehensive of work streams. Paul has shared the continued drive to build a simpler, safer and more efficient commercial bank with foundations for long-term sustainable performance and ROE by focusing in areas of expertise to support our growth opportunities, improve capital efficiency and deliver joint propositions with online franchises, deepening our relationship with customers while improving capital allocation and working towards a combined ROE of 8% for our corporate and institutional customers. Robert has demonstrated a well-connected Markets business, providing capital markets and risk management expertise across the NatWest Group through focusing on customers in areas where we can add the most value through One Bank collaboration, continuing to build our expertise in ESG and investing to deliver a simpler and efficient markets platform, returning capital to the group and delivering sustainable returns. And Simon has shown our services is working across all franchises to provide continued operational resilience, reuse established capabilities to support cost reduction, digitize and improve the customer experience and work with FinTechs and BigTech to innovate and identify the opportunities for the future to grow our businesses. This is One Bank approach to transformation is critical to unlock the incremental potential of the NatWest Group above all our franchises can deliver alone. Our focus remains on driving improved shareholder returns by growing income, reducing costs and maximizing capital efficiency with a target of delivering a return on tangible equity of between 9% to 10% by 2023. I'll now hand back to Paul to facilitate our Q&A. Thank you.

Thank you, Jen. Yes, we'll move straight to the Q&A. I'll try to coordinate things virtually, direct questions to the best home. A quick -- a reminder also we've got Peter Norton and David King joining us for the Q&A. [Operator Instructions] So Dave, if we can move to you and introduce the first question, that would be great. Thank you.

[Operator Instructions] Our first question comes from Alvaro Serrano from Morgan Stanley.

A couple of questions from me, please. In terms of the lending environment you expect going forward, obviously, there was a substantial amount of front-loading of that demand last year with the different guarantee programs and record issuance in the market. I realize you've pointed out that you expect to grow RWAs, but if we think about growth in lending, presumably there might be some procyclicality there. Do you think it will be a while before you can grow lending, you focus on targeted growth. So I wonder just the general environment on actual lending. And second question is also on revenues on noninterest income. Do you want to return to pre-COVID levels. Realize 2018 was significantly better than '19, so in '19, the reference. And related to that, is there any color you can give us about the actual COVID impact maybe on fees and that recovery in the noninterest income? Is it -- do you expect there's a quick recovery as the economy opens up? Or is there more an element of rolling out products so we should expect it to take a while?

Thanks, Al. I'll take both of those. On the lending front, you're right, obviously, '20, we saw -- 2020, we saw significant growth earlier in the year was driven by drawdown of revolving credit facilities and then later in the year, I guess in quarter one, when it was primarily driven in the commercial bank by the lending schemes. Lending in quarter 1 was relatively muted. We're coming to the end of, obviously, the government schemes, we're still in the third lockdown. When I think about the growth in the Commercial Bank going forward, I think about in terms of the mid-market and the large corporate market. I think a lot of demand has been brought forward at the smaller end, but as the economy recovers, I see opportunities to grow commercial banking lending book in some of the areas I mentioned. Actually, project finance, infrastructure, renewables, which are all areas, I think, that correlate well with its public policy. And the support that is there for those areas as the U.K. looks to build back better. Sort of the course of the plan, obviously, we're talking through '23, that's where I see the opportunities for growing the lending book. So flip on to the noninterest income question, yes. So the 2020 number dropped in the region of GBP 200 million. You will see either from the year-end results or in the slide in the presentation. And that was primarily from a combination of a number of fees, payment fees credit card fees, that was heavily correlated to underlying economic activity. So we expect that to recover as economic activity recovers. In terms of a couple of data points, which I think was the final part of your question. We've seen encouraging recovery around commercial car debit transactions. Likewise, very quick growth post the April 12 reopening in commercial cards but also in our merchant acquiring business as well to which to us compares the thesis on third revenue lines and will recover as the economic picture recovers, which gives us confidence, the NII over the course of the plan.

Our next raise hand that comes from Rohith Chandra-Rajan from Bank of America.

I've got two as well, please. Just actually following up on the noninterest income theme and the aim to grow that within the commercial bank above pre-COVID levels. Is it right to sort of think that payments would be the primary driver of that outperformance? So you get the uplift in recovery -- the uplift in activity that you just talked about, but then also an expansion of the payments business, in particular. And I guess that's obviously an area that a number of banks target. So what really is the competitive advantage there? Is it being the U.K.'s biggest business bank or to what extent is it the proposition that you have or obviously, a combination of those 2. And then the second area was One Bank collaboration, has been a sort of a running theme through the presentation. It's also something that has been mentioned in the past. So I'm just curious to really understand what's really different about it this time to the degree that it's a combined customer relationship management, combined capital management and capital allocation, and sort of de-duplication. So those are the 2 areas, please.

Thank you, Rohith. I'll see the first one and then maybe ask Jen to comment a little bit about bank collaboration. So in terms of the recovery in the NII income line, payments will certainly be one component of that. I would roll it out that I think generally, we see opportunity in payments, but also more broadly in transaction banking. So across the whole transaction banking products suite. So trade finance, payments, the cash and check management, so that's how I would answer that in terms of the sources of growth. In terms of the competitive situation, it's obviously is for a number of banks. I think the advantage and opportunity we have is the scale and depth of our relationships we have in the region of between 20% and 29% market shares in all our customer segments. So we have to have a strong customer mix. In many respects, it's white space for us. Obviously, our heritage at hope of owning world team as we haven't -- we -- in fact, we had a referral agreements. We've now launched our own solution. So we have declined these. We are very competitive acquiring products, both on service, on price, on a brand-new textile. So rather than being condensed in many respects with a challenger. So that's where I see our competitive advantage in the merchant acquiring space. Jen, maybe I pass to you to talk a little bit around how One Bank collaboration works.

Yes. Thank you, Paul, and thanks for the question, Rohit. Look, I mean, I think you're right to have picked up the theme around One Bank collaboration. We see that as really very important. And I would say that the time is absolutely for us to be doing this now. We've made obviously some important strategic decisions about NatWest markets, about our position in Ulster, for example. We see the opportunity, as I was describing in the presentation, to enhance the returns of our franchise businesses through leveraging those capabilities across the bank. And I would say the main difference is -- versus what you might have seen previously, and I tried to explain this a little bit at the beginning is, we have built a dedicated transformation office to ever see this. We've actively built the use of One Bank and reuse of capabilities into those work streams that I was describing in the beginning and the benefits of those are built into our budget and into our plan. And it's the delivery of the franchise plans plus the One Bank transformation program that really leads to our confidence in delivering the 9% to 10% rating returns that we've guided you to by 2023. So hopefully, that helps just bring it to life for you. And I think some of the examples that we've shown you today are really good proof points of it working in action.

Our next raised hand, that comes from Omar Keenan.

I have 2 questions, please. So firstly, were your comments on the significant rate sensitivity in the business. I was wondering if you could help us think about what the interest fixation periods look like particularly on the commercial lending book? What the repricing might look like if there was a Bank of England rate hike? Just trying to understand really how much of the group rate sensitivity you think sits in the commercial bank. Related to that, how do you think preparing for the transition of LIBOR has affected any of that? And then just lastly, another question on Tyl. What is the current penetration rate of Tyl into the customer base relative to what Worldpay's penetration was or the customer base?

Okay. Thank you, Omar. I will come to beat around the structural hedge and the rate sensitivity, but just to quickly cover the Tyl question. We don't disclose product sales numbers, Omar. What I would say is that we launched the proposition at the tail end of 2019, so it's now been live for almost 18 months. We're very pleased with the growth so far. We're very pleased with the customer reception. And we think it will make a material difference to our performance on noninterest income in the medium term. So that's the view on tail. Peter, your turn to cover the rate sensitivity structural hedge question.

Perfect. Thanks, Paul. Omar, I'm not going to give you sort of NIM guidance for commercial or rate sensitivity for commercial use, but I'll point you to, I guess, the guidance that Katie gave at Q1 around the structural hedge and the headwind of this for the group. And maybe just to help you on that, I'd point you to Page 30 of our ARA where we give some of that structural hedge breakdown of the income in commercial. And you can see the significance of the structural hedge contribution to be commercial. And I think the final thing I'd say is, Katie, obviously, also guided to kind of some of that headwind reducing from Q2 is the expectation.

Your next question comes from Ed Firth.

I just had 2 questions. One was sort of detail and one was a bit broader. I guess the broad question is, you talk a lot in your presentation about digitization and the use of technology. And I guess when we've seen that across any number of markets in the last 10 years, the net effect of that has generally been pretty major impact in terms of revenue margins. And I'm thinking particularly in places like foreign exchange, where has been put on market, et cetera. So what are you thinking in terms of the net impact of this in terms of the revenue line? Because -- I mean, I guess most of it's going to be a market-wide transformation you're not going to be unique in terms of moving a lot of this into the digital world. So that would be my first question. And then my second question was, I don't know if this is unfair or too much detail. But if I look at your NatWest Markets accounts, you run rate with a core Tier 1 of over 20%. And I'm just wondering what's driving that? And at what point can you actually release some of that capital? Or are there other constraints that we're not aware of in terms of leverage or something else? So I apologize if that's too detailed. By all means, you can pass that off if there's too much detail.

Thanks, Ed. So I think I'll pass to Robert on both, actually. Robert?

Yes. So I'll take the second one first and [indiscernible]. The simple answer is we are in the midst of a transformation program. So part of the way we viewed it, especially last year, given some of the uncertainties -- market uncertainties and economic uncertainties was to run a very strong balance sheet. You've seen that at the group level in terms of the group's capital and liquidity and funding, and you'll see some in that test market. So we paid the GBP 500 million dividend at year-end, which was ahead of time scales. There is nothing to stop us taking that down further. We are going through this year. We'll continue to talk Katie and Alison and we'll dividend up at the appropriate time. But over the medium term, you should expect us to dividend down to closer to a bit risk appetite is. So no reason for the capital not to fall back to group. It's just the timing of it will be agreed as part of -- working through the transformation and so on. Just on -- sorry.

So in terms of sort of looking out at the medium term, somewhere around 13%, 14% is a sort of reasonable assessment?

Yes. I mean I think, look, the risk appetite currently for NatWest Markets is higher than that. I think one of the things we will look at as we complete the transformation is just the way we're reshaping the business. We will end up with a less volatile business, and therefore, you expect over time that that's to be reflected in things like stress test results and, therefore, what your risk appetite is. But again, that's work in progress, and whilst in the midst of the transformation is something we will look at as we go through things. I mean just the first question, I think the -- I think 2 things. One, I think the numbers I quoted you only demonstrate that we've done a lot of digitalization of the FX business over the past years, and certainly, according to some of the some of the U.K. positioning. But we have got, we think, a very good FX technology platform that some large customers use as part of their ecosystem in terms of their payment journeys for customers. I think the interesting part to that is, though, that we probably haven't been as good as connecting it up internally. Part of that was because of ring-fencing and really having the NatWest Markets technology stack segregating and, therefore, you couldn't have that dependency on the NatWest Markets technology into NatWest Holdings because of ring-fencing. Moving that technology now takes that barrier, and therefore, not only the Paul's business, we're looking to quite soon connect into some of the online platforms for its customers. But we're also talking to David in retail, to Peter well about how we bring that FX technology and capability to the rest of the bank. So we actually think this is about bringing back business or making sure that there's no customer of NatWest Group that they need to exchange one currency for another, should be going in anywhere else than using our technology and our platforms.

Great. I mean, I spent -- I was thinking not just in that risk markets, but I guess more broadly -- I mean, I was staggered by that slide you showed that I think you said you'd do 300,000 loans without human intervention. And I'm just thinking if that becomes increasingly a sort of standard practice in the corporate sector, what are you thinking in terms of how that's going to be transferred in terms of pricing as we go forward?

I'll comment on that. The 300,000 loans is bounce-back loans, so very much at the SME end of the commercial bank. What I would say is that not actually dissimilar to FX, a large amount of lending in that SMB market is already digitized and has been for a number of years in the wide market. So I think in effect. It's one that the market has been living with over the course of the last, I'd say, 5 to 6 years, large-scale banks and also FinTechs that are digital lending solutions. So it's not new news. It's been there for 4 or 5 years. That's the way I think about that. I think lending at the upper end is a much more complex proposition involving structuring and advisory and doesn't lend itself to digitization. So that's probably the way I'd encourage you -- or help you in thinking about the differences between a much smaller end of the client base and the more sophisticated institutional end. Thanks for your questions.

Our next question comes from Amandeep Rakkar from Barclays.

Yes, just 2 questions then. So one was around the margin outlook longer term in commercial. I guess it's in relation to the structural growth that you're flagging, the opportunities in project finance, infrastructure and renewables. I mean how do margins compare in those businesses versus what you've currently gotten your mix? Should we be thinking about that as margin accretive, 5 years down the line or margin dilutive within the commercial banking business? And then secondly, just around costs. So I note the comment around supporting the group cost reduction target across commercial and NatWest, but presumably, they've got quite divergent cost trajectories. I guess, could I ask each of Paul and Robert about their kind of expectations for the absolute cost base in their division? Should we be thinking about something flat in commercial and the kind of balance being made up in NatWest Markets?

Thanks, Aman. We'll take them -- maybe turn to Peter on some of the risk return dynamics on PF, and then on the cost piece, we don't disclose a specific cost target for commercial. But hopefully, you got the sense in the presentation the IC opportunity, we continue to take cost out of the commercial business. I think as we -- as you heard from the examples from Jen, there are still significant opportunities around automation, simplification and digitization through both the SME business, our specialized product businesses, and on this business. So when I think about the opportunities for improving returns, very much the cost as one of the levers that can help that in commercial. So that's the perspective of commercial. Robert, on...

Yes. No. Just on the NatWest Markets costs. And I mean if you look back to last year, we took a significant amount of cost out -- net cost from NatWest Markets GBP 140 million or 12%. Clearly, we have the benefit of that run rate into 2021. The way I think about cost going forward is that we will largely complete the business redesign this year, so the cost takeout -- we will have further cost takeout this year, let's call it, from a business perspective in that with markets. In the years then going out from there, it's really my colleague, Simon McNamara, because Simon's managing to take transformation for NatWest Markets. And there, given the strategic investment over the next 2, 3 years, we would expect to see a simplified technology platform and, therefore, costs come out as a result of that. And then Jen through the bank-wide transformation, and we benefit from some of the work on things like customer journeys as well that takeout, that end-to-end cost on some of the common processes and activities across the group. So this year is around completing that direct cost reduction, plus what Simon and Jen is doing in their world. Post that, you should expect to really see the costs at a more indirect level.

And I think, Aman, just to add to what Robert and Paul have said, I think it's trajectory that gave us the confidence and believe to commit to a 4% net cost reduction over the course of the next couple of years to 2023. So we delivered 4% last year, as you know. We started the year we delivered 4.5% in the first quarter of this year. So it's -- as you've heard from Paul and Robert, this is very important. We see it as an important lever and some of the key themes that we talked about today, both in terms of rearchitecting and reusing, some of the key themes that we will continue to take forward across the whole group.

Peter, if you just want to cover the margin question.

Yes. Thanks, Paul. Aman, I guess I'd point you really to looking at it more from a returns perspective than from a margin perspective. I think the dynamics within the commercial business, given the very significant government loan schemes, how they were priced to get the existence of the guarantees, et cetera, all makes the picture from a NIM perspective quite complex. I think you right to point out in terms of kind of where our growth is targeted is at the upper end, as Paul said, of the customer base. That does from a sort of capital intensity and risk perspective tend to be higher quality, and in the case of inferences, quite often secured. So you would expect kind of commensurately sort of lower margins. But from a returns perspective, still very attractive. So there's both the growth dynamic and the government scheme dynamic that needs to play in. And I think kind of clearly, government scheme and customer behavior and duration of that book, et cetera, and how it will impact our margins, it's still very early to say. We've only just seen the schemes -- skipping to close. We're only just now with that sort of process of contacting customers, and it will be a picture that will evolve. But it will -- I think as we called out, it will have an impact, particularly on the margins of the commercial business for some time, most likely. But from a returns perspective, I'd get you to focus on that rather than margins per se.

[Operator Instructions] And yes, our next question comes from Jonathan Pierce from Numis.

Just looking at Slide 7, and it's a question back on rate sensitivity. Can you give us a bit of help as to how much of the GBP 170 billion of deposits within the commercial bank pay rates that are genuinely manageable as opposed to being directly linked to LIBOR on our some other short rate. I'm guessing most of the GBP 33 billion of business banking deposits, you can manage the rates on same with the SME stuff, maybe not the large corporates and institutions. So it would be helpful to get a flavor as to the manageability of interest rates across those different deposit pools. And then maybe I can ask a second question on same sort of topic. How much of this deposit pool across the commercial bank is captured within the product hedge structural hedge at the group level?

Thanks, Jen. Peter, following on the theme is at the hedge.

Yes. Jonathan, so I think in terms of your hypothesis around the different customer segments and the sort of the managed rate book, I think that's broadly correct. I'm not going to kind of go into disclosing kind of detail of that, but I think kind of confirm your sort of hypothesis around that. I think in terms of the -- ready point you back to the kind of the group disclosure. We haven't really got specific kind of commercial disclosure. I'm not going to give it now, but I would point you back to the kind of group -- the broader group disclosure around sensitivity where you can see the contribution to commercial income from the structural hedge.

Okay. Can I have a quick follow-up on the managed margin aspect? Because again, we get the managed margin number at the group level. How much of that is coming from an assumption of managing the margins on this business banking and deposit book? Are you able to give us that?

Jon, I'm afraid I can't.

That's all the raise hands we have. I'll now hand back to you to close. Thank you.

Okay. Thank you, Dave. So thank you, everybody, for taking the time to join us. We have found it insightful and useful. We will be running a similar event to our retail business and private business on the 29th of June. So we hope you get the opportunity to join that. Thanks again for your time. I hope you'll have a good afternoon. Thank you.