NatWest Group plc (NWG) Earnings Call Transcript & Summary

Thank you, everyone, for joining this session. With NatWest, delighted to introduce the CEO, Alison Rose, to this fireside chat. As usual, we're going to open up with a polling question, and then I'll have a few questions with debate with Alison, and we'll open up to Q&A.

The question is, NatWest trades below 1x book value versus a 2023 medium-term RoTE target of 14% to 16%. What do you think is needed to close the valuation gap? Show resilient revenue as deposit betas growth? Resilient NIM? Second, continued cost growth in this inflationary sort of contained -- sorry, contain cost growth in this inflation environment. Number three, successfully close down the Irish operations. Number four, prioritize share buybacks within the shareholder remuneration. Number five, government reducing its stake significantly. Well, resilient revenues it is.

Okay. Good feedback.

Yes, we can definitely speak to that. Maybe I think we should probably start talking about the events over the weekend. Obviously, these things have changed, to some extent, the outlook, and the price action has been quite extreme. Maybe we can start with your thoughts on the implications for NatWest and for the U.K. system as a whole.

Yes. I mean it's been an interesting sort of week and weekend, and I'm sure busy weekend for everyone. Well, look, I think, first of all, we don't see any read across of SVB to us. One of the things that we've been very focused on at NatWest is building a very resilience, all weather-proof balance sheet, and that's both on the credit side, but also the liquidity and capital funding side. If you look at our position, our strong capital and liquidity position, it's very robust. Our businesses across retail and commercial are very well diversified. So it's not concentrated in any areas and that very disciplined risk management is a core part of our strategy. I think in our year-end results, I described it as we have a balance sheet that is resilient for the downside, but also well positioned for the upside. And I think that underlying strength is really clear. I mean thinking about the issues with SVB and the read across in terms of liquidity and capital positions, we have a very diversified funding profile of LDRs at 79%, our LCRs at 145%, that gives us GBP 52 billion of headroom, which we're comfortable with. 20% of our assets are in cash, which is around GBP 140 billion, and cash makes up 85% of our primary liquidity. If you look at our bond portfolio, which at the end of '22 was EUR 29.6 billion. That's less than 5% of our total balance sheet assets. And then we manage that, we hedge all our interest rate exposure on our bond portfolio and liquidation of our bonds in our liquidity portfolio if we had to do that, and I'll point you back to the cash liquidity. We've got that, we have 0 impact on our CET1. So I think -- sorry, just to lay that point, I think our strong capital and liquidity and the structuring, there's very little read across. Clearly, like everyone, we've looked at what's happened with SVB. We obviously know the company very well. We've also looked at potential contagion risk. But I think from a NatWest perspective, we're very comfortable.

Does it depend on how Silicon Valley Bank sort of situation translates into high deposit betas going forward? You and other banks have implemented new remuneration even -- and even new account offerings in the last few weeks. In light of the new situation, do you see any further upside risk to those remunerations? How do you think -- how do you see this translating into your own deposit balances and [ in ] guidance?

Well, look, I think on our deposits and I think one of the big unknowns is and -- is how customer behavior is evolving around deposits. I think from a strategic perspective, we obviously have high levels of deposits and excess liquidity. And so our strategy is very much around balancing our position appropriately between the value of those deposits, whether for liquidity or income, making sure we balance the overall -- all returns that we make and the decisions we make around that. I'm very comfortable we have the right products. And across our customer base, so -- and it is aligned with our strategy. So for the past 3 the 4 years in our strategy, we've been very focused around helping people build up the savings habits. That's a strategy we followed. So our digital regular saver offers a 6% interest rate for people saving up to GBP 5,000. 85% of our accounts have less than GBP 5,000. And then we've helped 1.7 million people save money. For the first time in the U.K. 1 and 4 people have less than GBP 100 in their accounts. So I think what we're very comfortable with is help our retail customers save, which is therefore the digital regular saver. We have some fixed term deposit accounts, which are very competitive. Broadly, we expect the sort of split between NIBBs and IBBs to stay stable, but we are seeing customers engage a little bit more with their financial wellbeing in accounts. And so a little bit more of a shift into term deposits. I think what we need to see is how that will evolve over the course of the year. I'm not expecting a significant change. Obviously, our assumptions and our strategy, we've given very clear disclosures based on 4% interest rates. Our deposit beta is running roughly around 40% at the moment. We've got some increases [ through ]. So we will be competitive, we will be dynamic and we'll continue to manage that as we go forward. And obviously, the things we're looking and watching closely are how customers are behaving around their deposits and how the competitive market is evolving, and we're very comfortable we're managing both.

As part of the aftermath, if I can call it, of the SVB situation, there's also a debate of what level of rates coming out of this. We're going to be left with -- you have a 14% to 16% RoTE target this year, and you see it as sustainable medium term. At what level of rates do you see yourself closer to the bottom end? You, of course, have tailwinds as you close Ireland. But when your NII has grown over 50% in the last 2 years, some of that has to come back, I guess, with rate cuts. So maybe you can talk about that.

Yes. So I mean the 14% to 16% return on tangible equity is a sustainable ROTE guidance that we're giving you, and there are upside and downside kind of risk scenarios that we've played in against those to get us comfortable with that range as a medium-term guidance. Our '23 guidance is very much -- we were expecting that more to be towards the top end, and we've been very clear. Hopefully, you've seen on the disclosures that underpin that from an economic scenario basis and a macro basis. We have assumed 4% interest rates for the rest of this year. I think -- and you can see the volatility in the market 2 or 3 weeks ago. The consensus were saying, rates are going to go up to 4.75%. I think they're now down at 3.99% by the end of this year. So our assumptions are based on a 4% interest rate for the rest of this year. So I think we're -- in our scenario, we're at the end of the big increase in rate rises from the Bank of England. And then we're assuming those rates will decline from Q1, Q2 next year down to sort of mid-3s by the end of next year. So that's one of our key assumptions. We obviously get a tailwind benefit coming in from our structural hedge, and as you know, we use our structural hedge in a very mechanical way. I think the other dynamics that we see underpinning that 14% to 16% is business confidence. We're not very -- we're not hugely dependent on volume growth across our business for this year on that 14% to 16%. And then obviously, this year, we have a 1.5% drag from Ulster in this year that will diminish next year. In terms of their market competitiveness on the asset and liability side of the balance sheet, obviously, on the asset side with mortgages, we're seeing rates come down, lower volumes this year. So very much retention and shape of our book is largely secured, predominantly fixed. We don't have a big SVR book that we need to defend. We're very much focused on supporting our customers as they roll off fixed. And then on the liability side, which I think is one of the uncertain elements of how customer behavior will evolve, both in terms of whether we see erosion of those cash balances on transaction accounts during this course of the year. If inflation sustains, whether the savings habits that we've been -- encourage and maintain or whether people move from term -- into term deposits. So those are the dynamics. So headwinds and tailwinds in those assumptions, I think, a clear sense of what underpins them, and we're pretty comfortable that our business is -- will continue to generate equity as we go as well. So that 14% to 16% guidance on the medium term, we remain comfortable with.

Maybe you could touch on mortgage demand. It's been a rocky ride the last 6, 9 months post mini-budget. Mortgage production in particular, among different products saw a big hit. How do you see the demand recover from here? Do you continue to expect to gain market share here? Can you take advantage of your lowered cost of funding to take that market share? How do you see things evolving?

Yes. I mean, it's definitely been a sort of turbulent market for mortgages. The strategy that we have with our mortgage business, so predominantly fixed book. 93% of our book is fixed, 66% on 5-year. Predominantly, very low levels of interest only, so it's mainly capital. Average LTV, 53%. So we are a prime secured fixed mortgage book. I'm not having to defend or protect sort of SVR or sort of interest-only elements of our book. And we've carefully grown that mortgage book very well over the last 3 years, which was the strategy I set out. And I've always said, we will balance volume and value. So we're not going to chase volume at any cost either down the credit curve or down the price curve, but we expect to grow it and grow it well. And we have grown that market very well, 14% flow share at the end of last year, which has led our stock share to go up from 11.8% to 12.3% at the end of '22. So we still have capacity to grow, given our share of current accounts is around 16%. So we're growing that market in a very disciplined way in the mortgage market, and we also demonstrate that we can manage it very well through very turbulent markets. We were one of the only banks during that mini-budget period that stayed in the market. Everybody -- the majority of people pulled all their products. We honored our mortgage deals. We stayed in the market. We took on about 5x volume during that period at good returns. So we're very comfortable. Obviously, what we're expecting this year as the impact of interest rates and the different dynamics [ ease ], there was a bit of a pull forward of mortgage demand. So we expect the mortgage market to be lower this year. We've got very good visibility on our customers. We've invested significantly in our digital mortgage. So for our customers renewing their mortgage or rolling over. I was reliably informed by one of my colleagues that they managed to be mortgage in a matter of 90 seconds. I think the technical is maybe 7 minutes, but let's see. So we're targeting retention, average retention is around 75%. So we expect lower volume in the mortgage market this year from a demand perspective, but we've extended the period from which customers can roll off their fixed from 4 to 6 months. We know exactly what the profile is of our customers. We have a very competitive product. We'll manage the market sort of sensibly. We have very experienced bankers running our business who understand the dynamics. So a lower, more competitive, lower volume. Pricing has come down, the yield curve has come down, but we expect that lower application volume to affect the size of the market. But we're the third largest lender. We've got capacity to grow. We're disciplined in how we're doing it. It remains an attractive part of our business that then we'll -- we make returns across both sides of our balance sheet.

Maybe a question on asset quality. This is obviously a big debate post mini-budget as well as to how the sharp increase in interest rate was going to put households under a lot of stress. So far, I don't think we can tell -- it seems there's virtually no signs of deterioration. Where would you expect trouble to come first, if it does come? And obviously, government guaranteed loans, there's a different dynamic at play there, but is there anything we can learn from that sort of specific cohort when we think about the broader picture?

Yes. Look, I mean, I think the credit outlook, I mean -- what we've had is an incredibly sharp rise in inflation and a sharp rise in interest rates. And we always knew that coming off QE was going to be bumpy and adjusting for a lot of households and businesses. They haven't operated in a rising interest rates or a rising inflation environment, and so there is absolutely a disposable income sort of squeeze that has happened as a result of these dynamics. Plus, obviously, the impact of the war in Ukraine and the energy prices. So I think those dynamics have led to, what I would describe, high anxiety and people having to adjust their disposable income. It is not translating into distress or levels of arrears in our book as stress. And I think that distinction is really important. I think different books will be different. Different balance sheets will be different. So I'll talk to my balance sheet. Largely secured, predominantly fixed, average LTV on my mortgage book 53%, really good diversification across -- we're the largest business lender into SME and mid and corporate. Excess liquidity sitting across balance sheets. And to give you a sense of that, on SME we still see 25% of the bounce back loans that were drawn down by SME sitting in cash in their transaction accounts. So there is a good buffer still sitting there. What we're monitoring very closely, and we have a very sector-specific RM-led model, and obviously, monitor data and payment flows very carefully is very low levels of distress. So in mortgages, we are not seeing increase in arrears. So our mortgage arrears at 0.57% are well below pre-COVID levels. The level of calls going into what are our financial health and support teams are more about anxiety and help because people are worried about things rather than can I defer a payment, those issues. We have a relatively low unsecured book because it's a market we're going back into very carefully. So I'm not sitting on big credit card books. And behaviorally, what tends to happen in stress is people stop paying. They're unsecured and the last thing they stop paying is their mortgage, just behaviorally dynamic. So low levels of distress. We have been very proactive in outreach, 8 million at proactive outreaches to our customers. Financial health checks where we bring customers together to look at their whole balance sheet. We did 750,000 of them last year. Those generally help people save money and allow them to consolidate their position. On the business side, a good indication of the government-backed schemes, 85% of those are paying on or ahead of schedule. Our arrears levels are down at the 1.4% level. We're seeing businesses trading. Now what I would say, it's really -- if you're a business owner, it's really tough right now, and I spend a lot of time talking to businesses up and down the country. And regardless of size and sector, there's 3 things that they will say to me is, interest rates, energy costs, access to skills and labor. There are 3 things that are really causing them some challenges. But we're not seeing real distress. Obviously, in different pockets, in different sectors we're watching them very closely, but actual arrears levels or heightened monitoring levels, although there are signs of them, they're still below pre-COVID level. So we're watching the hard and soft indicators, very sector-led. Clearly, we're prepared for the worst. So if we look at our provisioning levels again, predominantly secured book, but our ECL is GBP 3.6 billion. We still got GBP 0.5 billion on our PMAs. We'll be very careful into how we want to monitor that and be very proactive on how we manage the risk.

Maybe one last question before I open up to the audience from my side is on distributions. The current environment is very good for capital generation. Earnings are margin driven with low RWA growth. You're close to the 14% CET1. You said you would be at by the end of 2022. How should we think about the distribution mix going forward? Will you continue to make additional distributions on a half yearly basis? How are you thinking generally more strategic as well?

Yes. So I mean I think our view on our CET1 ratios we've been very clear, 13% to 14%, close to our 14% at the end of the year. I've been very clear. Our preference is to return capital to shareholders. The position we now have with our businesses, as I said, a really resilient balance sheet, really robust, well positioned for downside. Businesses and franchises that have very strong positions are now capital generative and excess capital [ we made it ] to distribute. We're investing significantly in the business, GBP 3.5 billion over the next 3 years, and we have capital we can distribute. We have -- I have a number of tools in my armory, and I think I've demonstrated I can use and have used all of them. We distributed EUR 5.1 billion last year to shareholders, which hopefully was seen as a positive in terms of how we did that, and we used various different tools from buybacks to specials as well as our ordinary dividends where we have a 40% payout ratio. We have permission, we announced our GBP 800 million buyback. We have permission for the directed buyback, if the government choose to use that route when the window opens in March; specials, different ways of distributing. So I'm very comfortable, we'll continue to review that actively. And it remains a core part of what we have, which is strong capital distribution, preference to pay shareholders, continuing to invest for resilience and growth and well positioned and well managed from a risk perspective. And when I look at my team, I have very experienced bankers who've been through economic cycles running my businesses. So they work very closely together to make sure we're accessing the growth capacity we have across our business, which is good, both in retail, wealth, where we've had very strong performance and also commercial and institutional, which is performing well.

Okay. With this, there are more questions, but I think it's a good time to open it up for any questions from the audience. Who wants to ask the first question? Over there, please. I can only see a hand.

A couple of questions. One is on SVB. I'm just wondering whether you actually had a look at the book because we heard [ Nor Quintock ] earlier, and he said, their balance sheet -- our balance sheet and their distribution was a win-win. I could easily put in that question as well to your balance sheet. So question mark, when you looked at it? And if yes, why walk away from it? And maybe a second one, I'll ask after you sort of answer that one.

Okay. I was poised to write down all the questions, it felt like an IR meeting again. Look, SVB, we know very well. But from a NatWest perspective, we have 16% market share of start-ups, which we've grown very significantly. The largest free accelerator across the U.K. with 14 free accelerators and a leading position in SME and high-growth companies. So for us, I think it's good we got to a sale process for SVB. I think that was a good resolution planning in terms of the market. But for us, with 16% market share, that book was predominantly lending to LPs. I have a really good funds business. I'm very comfortable that it wasn't going to be just additive to me. I have better uses of my capital, but I'm delighted that HSBC bought it.

And your second question?

Yes. And the second one is, obviously, if I'm thinking about -- you're coning on [ third ]. So Charlie [ Nin ] talked about a GBP 7 billion pension deficit reducing to [ GBP 2 billion ] and improves its capital generation. I'm assuming what are those metrics for NatWest? And whether -- and going forward, you do have ability to generate more capital as the pension deficit comes off?

So our pension -- and we can share it with you, there's no deficit. So we've been very diligent in making sure -- and our trustees have done a great job and -- but we've been very clear that our pension is in good shape, and there's no deficit.

Next question over here, please.

Post SVB, how does the environment here in the U.K. change for bank like NatWest? Or does it change at all?

Well, look, I think any -- obviously, for all of us, any instability in the financial markets globally is never a good thing. But from a NatWest -- but I think it's very, very different from a NatWest perspective. Well diversified balance sheet, good credit risk, strong capital and liquidity. Obviously, I mentioned our LDR and LCR sort of metrics and also how our bond portfolio is structured and the excess liquidity. So I think we're in a very good position. I think for any clients, we're a nice safe haven if they want to come here, but I don't think it has a knock-on effect. I think it didn't present financial instability to the U.K. financial sector. I think the Bank of England was very clear in how it managed it. We have very good resolution regimes, our consumer deposits are well protected. And for NatWest as a bank, a fortress balance sheet is a positive thing, positioned for downside risks and unexpected, well positioned for growth which is always my approach in terms of driving long-term value.

Next question, please. I've got one on cost that I wanted to ask you. If not -- can I ask you on cost then? It's been difficult to forecast, obviously, with inflation at levels that nobody would have thought possible, at least in developed markets. You've given a guidance, which implies 4% growth in 2023. Do you feel your business -- do you feel in your business, the work is now sort of over? And do you have more visibility on that cost outlook than you've had, obviously, in the last 12, 18 months?

Yes. I mean, clearly, it's been challenging for any business in terms of costs with the high inflationary environment, but we think we have very good visibility in cost. Obviously, I committed last year to [ take ] around 3% of net cost out of the business, which we did and we delivered on. Coming into this into this year, we've been dealing with inflation. I gave sort of very clear guidance, and hopefully, visibility on the makeup and structure of our cost base, that GBP 7.6 billion of costs, of which now as we're coming to the end of the Ulster restructuring and we're in execution, I was able to bring that all together. So GBP 7.6 billion of cost base, that includes around GBP 300 million of stranded for Ulster. We were very keen to make sure we paid our staff fairly and appropriately to deal with inflation. So that was built into our numbers, and I would say, as a team, we have an incredibly good track record in managing our costs at sort of 18% point improvement in our cost to income ratio over the last few years. So I think as we go forward, what we've guided you to is a 52% cost/income ratio for this year and then in the medium term, 50%. We will continue to drive operational leverage out of our business. The investment that we're making in digital and data set and technology, which has been part of our GBP 3 billion investment program will continue. We're going to invest GBP 3.5 billion over the next 3 years. You've seen the continuing transformation of our business. Now almost 64% of our retail bank is entirely digital. It is a digital bank. Our straight through processing rates have gone -- as an example, on account opening from [ 14%, 16% to just under 80% ]. That operating leverage will continue. That data and digital transformation will continue. That drives both operational leverage and organic growth, which we have capacity to grow. So I think what you've got is full transparency and visibility of our cost base. We're very comfortable. We have visibility and transparency of our cost base, and we'll keep that cost discipline as we go forward as we continue to transform the business.

And at group level, of course, you're closing -- most of the Ireland operations will close down this year, right?

Yes. I mean, I think we're very pleased with the progress we've made on Ulster in that -- going back to that 14% to 16% sort of RoTE guidance we've given you, there's a 1.5% drag from Ulster this year that will largely disappear next year as we conclude the execution of that transaction.

I've got a more -- a couple of follow-ups, but yes, I want to leave the audience to ask the questions, yes. Can we go there in the middle, yes?

One more again. Both SVB, clearly, there are others in the challenger banking space, which potentially don't have the same balance sheet and asset mix and the fortress balance sheet that you referred to. So I wonder whether you feel there's going to be more M&A and more strategic M&A opportunity coming up in the fintech land, challenger bank land? And if that does happen -- I know you've been very strategic and prescriptive in the bolt-ons, but would you be a bit more ambitious with that fortress bank sheet?

So with M&A, I've been very clear. We're in a really good position where we have excess capital. So after we commit to our investment of GBP 3.5 billion, our distribution, which is very clear. I have excess capital and our business is generating capital. My preference is to drive the best value for shareholders, and therefore, any acquisition that we would make has to meet a high bar as in it is going to add value to shareholders. It aligns with our strategic growth ambitions, and it's not going to disrupt from our transformation. So you can see from our transformation, we're building a much more data-led, digital-led strategy. I talked at our full year results around the fact that we are continuing to see that change in customer behavior more to online platforms, into ecosystems. And so that strength of our digital bank becomes really important. Where we have made acquisitions, they're in areas where we think there's growth or capability. So going to use, we've grown our market share very significantly. Rooster allowed us to acquired 90,000 customers and filler capability. Our partnership with Vodeno takes us into Banking as a Service across a broader European ecosystem where we see higher growth opportunities. We recently announced an acquisition of Cushion, which is workplace pensions. All of that leads us into more distribution, broader distribution, more fee-based income, more growth potential. If opportunities come up that we think will add strategic value, then we will make those decisions at the time. So we don't rule anything out, but we will be a future-focused business model rather than a backward-focused business model.

There's a question there.

Alison, you talked about residential. Do you have any views on commercial real estate and challenges there?

Yes. I mean commercial real estate, that's part of our book that we've reshaped quite significantly. So it's less than 4% of our sort of balance sheet lending. Average loan to value is 47%, and we run it as a sector. So we have subsector limits in each area. I think in our annual reporting accounts, you can see some of the detail of that broken down. So that's the space that we manage very carefully. If you look in our extreme downside scenario, which is -- which we shared with you to give you a sense of resilience, I think we've stress test that book to around -- over a 20% drop in commercial real estate prices, and we're very comfortable with that. So it's a sector we keep a close eye on. It's a small part of a diversified balance sheet now. I mean just to give you a sense, not to scare you, but pre-global financial crisis, commercial real estate was north of 20% of our book, an average LTV of 164%. So it's a very different shape to our book, very deliberately now. But it's one thing we'll keep a very close eye.

Next question. Maybe I can ask kind of a follow-up to some of the questions around SVB and the polling question we had at the beginning of the day, what are the repercussions around deposit remuneration. And I realize that you don't have a crystal ball, but maybe help us think through it. Do you think this is about higher deposit beta for everyone because corporates might go to the market? Do you think it's more about deposit beta differentiation to the point we made earlier, some of the sort of new entrants, smaller scale? Is it more about differentiating of deposit beta? Is it -- was the beta high for everyone? How do you...

So I think there are a couple of dynamics, and so I think across a few things. So the value of the liquidity and the deposits, I mean there is excess liquidity still sitting on balance sheets, both consumer and business across the market. Obviously, sort of now we've moved into what I would say, a more normalized environment with interest rates, rising interest rates that you can make returns across both sides of the balance sheet. Deposits have value for us as a bank, both from a liquidity value perspective and an income value perspective. Different institutions will have different challenges. So we have, as you can see, a very prudent and very strong liquidity and capital position, and we have market-leading positions in our business, commercial as well as our retail side. So I think on one aspect, you will see different organizations thinking about deposits in a different way. For some, they will need to raise deposits for funding reasons. And in particular, if you think about some of the challenger banks or some of the other banks building up funding because there's a big TFSME refinancing coming up that they will need to deal with. So that may drive their behavior. Obviously, it represents income. So that's one aspect as well. And then from a consumer and business behavior perspective, you have different dynamics, which you're only just starting to see the start of right now. So one of the things which is -- where I don't have a crystal ball, which is, as we move through this year, if inflation stays heightened -- all signs are it's coming down. It's likely you'll see more rundown in cash and transaction accounts as people have to spend more of that money to absorb inflationary costs if they stay elevated. If inflation comes down and business confidence comes back, you might see more of those cash deposits being spent on investment. I don't know yet, and I couldn't tell you whether the behavioral nudges that we've been giving customers to help them save more, which has really dictated our strategy on consumer deposits is going to sustain. I hope it does because I think it builds financial resilience. And therefore, I think what happens in this space is, you're going to be competing on a number of different fronts. So therefore, from my perspective, I have to look at the value of deposits of which problem am I trying to solve. Am I solving a liquidity challenge or an income challenge and what behavior do I want to retain within the business? I'm very comfortable. I have both the products to compete. I have the customer positions to manage it and also to manage it through both volume and value lens. So -- and don't forget, there is seasonality as well that will flow through in deposits. So what you would expect across the market is in Q1 deposits to go down because on the consumer side -- because post Christmas, people pay bills and tax gets paid in January. And we know from the Bank of England data, there was a bigger tax take. However, I also know that the deposit outflows I saw at the end of last year in my commercial and institutional business had very limited liquidity value and a large part were seasonal and currency moves and overall relationships we were competitive. So I think that is -- I'm not helping you with, I don't have the crystal ball, but I think you will see different dynamics driving different behavior. What we see from our customers is they like the whole balance sheet. It's broader than just the relationship. We generally see stability across noninterest-bearing and interest-bearing. If I look at my retail side of the business, I've got competitive products. It's broadly stable. 85% of my accounts have less than GBP 5,000 in them. Our digital regular saver is focused on the strategy of building resilience. So let's see how that unfolds. I think we will continue to be nimble and competitive, but compete on which challenge we're trying to solve. So that will be how we'll do it.

And maybe another follow-up to the question that was asked around distribution. There's no pension fund deficit to fill, but when we think about your capital distribution, CET1 sort of targets 13% to 14%. When can we expect -- and that was to be at the midpoint? And also, given your risk profile has proven under stress and we've seen in stress tests, et cetera, and you've got a lower Pillar 2A than peers. Could you operate at the lower end of that range? Does that give room to more distribution?

We can -- I'm not going to sort of say when the midpoint is, it depends. You can see there are different timings. So we've obviously got permission for the buyback. The directed buyback, if it happened, that window opens end of March. It will depend. So we still think that's a good value use of our capital, but it depends on when that happens. So you can see where it goes. Our business is generating capital. Don't forget, it's capital generative. For the risk diversification of our business, we're very comfortable at 13% to 14%. It has been shaped for that risk distribution, predominantly secured prime book, well diversified. We're very comfortable operating at the lower end of that range, and we'll manage the timing of those depending on distributions and our preference is to distribute capital to shareholders.

Okay. Any last questions?

I have 2 questions. First, on deposit cost. On the potential political pressure on improving the remuneration of deposits. And my second question is on mortgage margin and where do you see margin lending impact?

Okay. So look, on deposits, there is -- we have -- and NatWest, I launched it in 2019, early 2020. We have a purpose-led strategy, which is around driving long-term sustainable value for all of our stakeholders. In terms of the strategy around our customers is helping them save and helping them build financial resilience. So our digital regular saver is offering 6% interest rate to encourage people to say, you can save as little as GBP 1, up to GBP 5,000. 85% of our accounts, less than GBP 5,000. We have fixed term deposit rates, which are competitive and every single one of our customer has benefited from the rise in interest rates. So we're very comfortable that our purpose strategy is the right strategy. It's not -- and it is a strategy, it's not a tagline. It's backed by substantive action. And you can see, for example, in our customer satisfaction scores, they are constantly improving, and we are a net acquirer of customers. We acquired customers, and we are growing our business. Our NPS in our retail business has gone from 4 when I took over to 22. So we're working very closely with our customers. 750,000 financial health checks, 9 times out of 10, we will save people money. And what we've done is, we've been really targeted around where help is most needed. So in the cost of living squeeze that is happening, it is the low-income households who are really struggling. They tend to not have deposits and not have credit. They're living hand to mouth. That's where we've worked in partnership with -- and put GBP 10 million into our partners like Citizens Advice, like Trussell Trust, proactive support to help those most in need and then practical and fair support of transference of interest rates to encourage our customers and allow it to be competitive. And we're not seeing lots of customers, and we're not seeing anything that we're concerned about in terms of what's going on. So when I think about the political pressure, I'm very comfortable that we are providing a very purpose-led, fair and balanced approach and the right support targeted for those in need. On the business side, we are the leading business and commercial bank in the U.K. We're the biggest lender to renewables. We have the highest growth in start-up companies with 16% market share, and we have a sector-led approach where we're putting targeted support in place. So we put in GBP 1.25 billion support for agriculture last year because we know they were really struggling. So I think on the political pressure, we're very comfortable that we are doing the right things, but also commercially doing the right things as well. On mortgage margins. What we are seeing in the dynamic in the mortgage market is, we're very comfortable we are able to compete and manage effectively in turbulent markets as we demonstrated during the mini-budget. We have been growing our market share responsibly and well. We're not chasing volume, but we're also protecting value. We've said broadly, you would expect the mortgage market to price around -- for us around the 85 basis points. 80 to 85 basis points, we think that's reasonable. Bear in mind, our book is prime secured. We're not having to protect an SVR, but it is in good shape. 66% fixed rate, 75% retention. We've invested in digital mortgages. And we put in place, and we have very clear visibility of how that book rolls off. So we'll expect that market to continue to be competitive, and we'll manage volume and value appropriately in what we think is still a very good asset class for us with capacity to grow. So that's the other thing. We're not maxed out on growth.

Great. Judging by the noise of the audience typing away, it's clearly been a very insightful session. So thanks very much, Alison. Thank you.

Thank you very much.