Earnings Call Transcript - NWG Q4 2025

Operator, Operator

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

Paul Thwaite, CEO

Good morning, and thank you for joining us today. As usual, I'm here with Katie, who will take you through the full year performance. After that, I'll talk about our strategy and our new 2028 targets. But first, let me start with an overview of 2025, a year in which we delivered another strong performance and made good progress on each of our strategic priorities. Highlights of the year include a return to private ownership in May, opening a new chapter for the bank with a focus on driving growth. Continued organic growth, together with successful completion of the Sainsbury's Bank transaction, improving operational leverage with a reduction in our cost income ratio of 4.8 percentage points, together with strong capital generation, enabling total distributions to shareholders of GBP 4.1 billion. You will also be aware that we announced the acquisition of the financial planning and investment firm, Evelyn Partners earlier this week, which I'll talk about later. So let's turn to the headlines. We added 1 million new customers during 2025, and delivered broad-based growth across all three businesses. Lending grew 5.6% to GBP 393 billion, deposits were up 2.4% to GBP 442 billion, and assets under management and administration increased 20% to GBP 58.5 billion. This activity resulted in strong income growth of 12% to GBP 16.4 billion. Costs grew 2% to GBP 8 billion, resulting in positive jaws of 10%. The cost income ratio reduced to 48.6%. This led to operating profit of GBP 7.7 billion and attributable profit of GBP 5.5 billion. Earnings per share grew 27% to 68p, dividends per share increased 51% to 32.5p, and tangible net asset value per share was up 17% to 384p. Our CET1 ratio was 14% and return on tangible equity was 19.2%. As you can see here, these results are in line with or above our strengthened guidance. Our strong risk management is evidenced by a loan impairment rate of 16 basis points, and total distributions announced in 2025 of GBP 4.1 billion comprised buybacks of GBP 1.5 billion and dividends of GBP 2.6 billion, in line with our payout ratio of around 50%. This includes the buyback of GBP 750 million announced on Monday, along with our acquisition of Evelyn Partners. These results continue our track record of delivering value for shareholders. Over the past four years, earnings per share have more than doubled, growing at a rate of 26% a year, dividends per share have more than tripled, increasing at a rate of 33% a year and TNAV per share has grown 41% at a rate of 9% a year. At the same time, our share count has reduced from over 11 billion to just under 8 billion. Turning now to our three strategic priorities. I'll start with disciplined growth. We now serve over 20 million customers across our three businesses, and 2025 marks our seventh consecutive year of growing customer balances. In Retail Banking, our customer base increased by more than 5%, and customer assets and liabilities grew 4% to GBP 421 billion. This includes the addition of around 1 million new customer accounts from the Sainsbury's transaction, which contributed to our unsecured stock share growing from 6.4% to 7.2%, including an increase from 9.7% to 10.6% in credit cards. In Mortgages, we increased our flow share of first-time buyers from 10% to 12% and of the buy-to-let market from 3% to 6%. We are also extending our reach through NatWest Boxed, which provides embedded finance to companies such as The AA and Saga. In Private Banking and Wealth Management, over 50,000 customers invested with us for the first time in 2025. Net new flows to assets under management grew 41% and assets under management and administration increased 20% to GBP 58.5 billion. AUMA is now 49% of client assets and liabilities, up 4 percentage points on the prior year and customer assets and liabilities grew 10% to GBP 119 billion. In Commercial & Institutional, we extended our expertise in FX to a further 700 mid-market customers during the year, many of them via our online platform for FX, Agile Markets, where the number of users grew 13%. This contributed to FX revenue growth of around 20%. Lending balance growth was strong at 10% or GBP 14 billion. We lend GBP 4.6 billion to the U.K. social housing sector, where we reached our GBP 7.5 billion ambition ahead of schedule and have announced a new GBP 10 billion ambition to 2028. We are also the leading lender to U.K. infrastructure projects, and we delivered GBP 19 billion of climate and transition finance towards our 2030 target of GBP 200 billion, of which GBP 16 billion was in Commercial & Institutional. I'd like to turn now to our second strategic priority, bank-wide simplification. We continue to invest to improve customer experience and increase efficiency. During the year, we made gross cost savings of around GBP 600 million, which is over 7% of our 2024 cost base. And we created GBP 100 million of investment capacity in 2025 to reinvest and further accelerate our transformation. Taking a look at each business. In Retail Banking, our award-winning app has a Net Promoter Score of 51. And as we continue to invest to improve customer experience, we launched more than 100 new features during the year. We also launched generative AI enhancements in our digital assistant, Cora. As a result, the proportion of queries that can be resolved has increased by 20 percentage points. The cost/income ratio in Retail Banking decreased from 50% to 45%. In Private Banking and Wealth Management, we doubled the number of enhancements on the app, increasing our rating on the App Store to 4.4 and our Net Promoter Score to 54, up from 50 at our spotlight last June. In addition, we are leveraging group capabilities to simplify our operations. For example, we rehosted our core banking platform from Switzerland to the group data center in the U.K. and we are co-locating our people with other NatWest teams. So we are relocating our tech team from Switzerland to the U.K. and India. The cost income ratio in Private Banking and Wealth Management reduced 10 percentage points to 64%. In Commercial mid-market banking, we are investing in our digital platform, Bankline, to give customers a single point of access to a wide range of products. We have now integrated our asset finance, invoice finance, payments, commercial cards, FX and trade platforms within Bankline, and customers accessed products via Bankline around 300,000 times last year. We also took steps to reduce our legal entities and branches in Europe. The cost income ratio in Commercial & Institutional reduced from 52% to 49%. Turning now to our third strategic priority, managing capital and risk. We generated 252 basis points of capital during the year, supported by reducing RWAs by GBP 10.9 billion through capital management. This includes five significant risk transfers in Commercial & Institutional and a GBP 2 billion mortgage securitization in Retail Banking. We have a high-quality lending book in all three businesses with a low level of impairment at 16 basis points of loans. And all this enables us to recycle capital into areas where we have chosen to grow. The successful implementation of our strategy gives us the ability to invest in the business, support customer growth and deliver attractive returns to shareholders. As I mentioned earlier, we have announced total distributions of GBP 4.1 billion for 2025, representing 75% of attributable profit. With that, I'd like to hand over to Katie to take you through our financial performance.

Katie Murray, CFO

Thank you, Paul. I'll start with our performance for the full year, where, as Paul said, we have either met or exceeded our third quarter guidance. Income, excluding all notable items, was up 12% at GBP 16.4 billion. Total income included GBP 241 million of notable items. Total operating expenses were 1.4% higher at GBP 8.3 billion and the impairment charge was GBP 671 million or 16 basis points of loans. Taken together, this delivered operating profit before tax of GBP 7.7 billion and profit attributable to ordinary shareholders of GBP 5.5 billion. Our return on tangible equity was 19.2%. Turning now to the fourth quarter compared with the third. Income, excluding all notable items, was up 2.5% at GBP 4.3 billion. Operating expenses were GBP 2.2 billion, including the annual bank levy. The impairment charge was GBP 136 million or 13 basis points of loans, bringing operating profit before tax to GBP 1.9 billion. Profit attributable to ordinary shareholders was GBP 1.4 billion. Our return on tangible equity was 18.3%. Turning now to income. Full year income, excluding notable items of GBP 16.4 billion exceeded our guidance of around GBP 16.3 billion. Across the three businesses, income grew by GBP 1.8 billion. This was largely driven by higher net interest income as balance sheet growth and the benefits of the structural hedge more than offset the impact of the Bank of England rate cuts. Net interest margin was up 21 basis points to 234 basis points, mainly due to deposit growth, coupled with margin expansion. Noninterest income grew 1.3%, reflecting solid customer activity as we supported their investment, FX and capital requirements. Turning to the fourth quarter. Income, excluding notable items, grew 2.5% to GBP 4.3 billion. Across our three businesses, income increased by 2.8% or GBP 116 million. Net interest income grew 4.5% or GBP 148 million, reflecting the trend over the year of volume growth alongside margin expansion. As a result, net interest margin was up 8 basis points to 245 basis points. Noninterest income across the three businesses was down 3.7%, mainly driven by Commercial & Institutional, reflecting typical seasonality after a strong third quarter. Turning to 2026 guidance, which excludes the impact of Evelyn Partners. We expect income, excluding notable items, to be within a range of GBP 17.2 billion to GBP 17.6 billion, and our current forecast is within this range. Turning to growth. As you heard from Paul, our three businesses have a strong track record of growth over the last seven years. We have grown customer lending at 4.5% a year. This includes broad-based organic growth as well as acquisitions, which support scale and underweight areas such as mortgages and unsecured lending. Customer deposits have grown 3.9% a year supported by a boost during COVID as well as new propositions and an improved digital offering. AUMAs have grown at 12% a year and have more than doubled since 2018. These three elements together make up customer assets and liabilities, or CAL, which has grown at 4.6% a year. We focus on this metric as it reflects the breadth of balance sheet solutions we offer to meet customer needs. This track record gives us confidence that we can continue to grow CAL in the future, and Paul will talk more about our 2028 target shortly. Let me take you through the last year for each of these elements in turn. We delivered another year of strong lending growth. Gross loans to customers across our three businesses increased 5.6% or GBP 20.9 billion to GBP 392.7 billion. There was broad-based growth across Mortgages as we increased our flow share of the first-time buyer and buy-to-let markets with strong retention as well as new business flows. Unsecured lending growth was supported by the addition of Sainsbury's Bank balances and the first full year of our personal loans offering for the whole of market. In Commercial & Institutional, we grew in all three businesses with lending up GBP 14 billion or 10% excluding the repayment of government loan schemes. This reflects our leading position as the U.K.'s biggest bank for business with growth across social housing, residential commercial real estate, infrastructure, project finance and fund lending. I'll now turn to deposits. Customer deposits across our three businesses increased 2.4% to GBP 442 billion with a stable mix throughout the year. Retail Banking deposits increased GBP 7.8 billion or 4%, reflecting growth in savings and current account balances, supported by balances acquired from Sainsbury's Bank. This includes growth in the fourth quarter of GBP 6.8 billion, reflecting strong growth in savings of GBP 6.4 billion, supported by our limited edition Saver and term products and growth in our current accounts of GBP 0.4 billion. Private Banking and Wealth Management increased by GBP 300 million in 2025, also reflecting growth in current accounts and saving balances with progress driven by both deeper engagement with our existing customers and new customer acquisition. And C&I deposits increased GBP 2.3 billion, reflecting growth within large corporates and business banking. Moving now to assets under management. We are pleased to see the plans we talked about at the June spotlight delivering for our customers and shareholders. AUMAs increased almost 20% this year to GBP 58.5 billion and net flows of GBP 4.6 billion were up 44%. Fee income from higher AUMAs grew 11% to GBP 300 million. Moving now to the continued tailwind from our structural hedge. As you will be aware, in addition to our product structural hedge, we also have a longer duration equity structural hedge. Together, they are GBP 198 billion in size, GBP 4 billion higher than last year, and are an important driver of income growth. In 2025, product hedge income was GBP 4.2 billion; this is GBP 1.2 billion higher than the previous year and GBP 3.2 billion higher than 2021. Our equity hedge income was almost GBP 500 million which is around GBP 50 million higher than the previous year and around 25% more than 2021. The yield on both hedges has increased significantly over the last few years as interest rates rose. This slide shows our expectation for future yield progression based on our current macroeconomic assumptions and hedge durations together with associated income growth. We expect yield to increase from 2.4% in 2025 to around 3.1% in 2026, with further increases thereafter. Our illustration here assumes steadily increasing average notional balances for both the product and equity hedges, driven by growth in CAL and higher levels of capital held to support that growth. This expectation of increasing yield and notional balances drives higher annual income through to 2030. We are sharing our expectations for this year and next as more of the near-term income growth is locked in. We expect 2026 total hedge income to be around GBP 1.5 billion higher than 2025 and for 2027 to be around GBP 1 billion higher than 2026, reaching total income of around GBP 7.2 billion. Exactly how this develops will be subject to the prevailing reinvestment rates each year as well as the composition of growth in CAL. Turning now to costs. Other operating expenses were GBP 8.1 billion, including one-time integration costs of GBP 96 million, in line with our guidance. We are pleased with our delivery of around GBP 600 million of gross cost savings, which has allowed us to invest in business growth and accelerate our simplification program. Costs grew 1.8% if you exclude one-time integration costs. Our cost income ratio reduced by 4.8 percentage points to 48.6%. In 2026, we expect other operating expenses to be around GBP 8.2 billion. Staff costs will be a key driver of overall cost growth. We also made significant investment in the business each year with a range of initiatives to drive operating leverage. We expect further supplier contract inflation and increased business transformation costs this year. Delivery of around GBP 8.2 billion in 2026 will be supported by another year of significant gross cost savings. Turning now to our updated macro assumptions. Our base case outlook for the macro environment in 2026 assumes moderate growth, slightly lower than our previous year. The unemployment rate increased slightly above our expectation for 2025 and we now expect this to peak in 2026 at levels we are comfortable with in terms of lending risk appetite. We also expect inflation to come down at a slightly faster pace given the most recent print. And we expect lower rates reaching a terminal bank rate of 3.25% by the end of 2026. Our balance sheet remains well provisioned with expected credit loss of GBP 3.6 billion and ECL coverage of 83 basis points. We are comfortable with 1.1% of Stage 3 loans, which is down on the prior year, reflecting management actions in our personal portfolio, together with lower defaults in our nonpersonal portfolios. Our remaining post-model adjustments for economic uncertainty are GBP 246 million, broadly stable in the third quarter. We will continue to assess these provisions each quarter and release as appropriate. Our latest scenarios also show that even if we were to give 100% weight to our moderate downside scenario, this would increase Stage 1 and 2 ECL by GBP 54 million. I'd like to turn now to the impairment charge for the year. Our prime loan book is well diversified and continues to perform well. We're reporting a net impairment charge of GBP 671 million, equivalent to 16 basis points of loans. There were no significant signs of stress across our three businesses and impairment levels across our products have performed broadly in line with our expectations. In 2026, we expect our loan impairment rate to be below 25 basis points. This guidance is not dependent upon post-model adjustment releases or any material shift in risk appetite. It's simply a reflection of normalization in impairments and lower one-off releases as well as growth in the book and ongoing changes in the mix. Turning now to capital. We ended the year with a Common Equity Tier 1 ratio of 14%, up 40 basis points on last year. In 2025, very strong capital generation of 252 basis points took our CET1 ratio before distributions to 16.1%. Distributions accounted for 213 basis points of capital, including accruals for our ordinary dividend payout of around 50% and our buyback of GBP 750 million that we announced on Monday. Risk-weighted assets increased by GBP 10.1 billion to GBP 193.3 billion, within our guided range. GBP 3.8 billion of higher operational risk-weighted assets includes GBP 1.6 billion in the fourth quarter as we brought forward our annual operational risk recalculation from the first quarter in 2026. You should now expect us to include this in the fourth quarter each year. GBP 11.1 billion of business movements broadly reflects our lending growth across the year. This was largely offset by a GBP 10.9 billion reduction from RWA management, including GBP 5.7 billion in the fourth quarter. So in essence, our actions this year have funded the growth in our lending book. Other movements include GBP 7.3 billion from CRD IV model inflation, of which GBP 4.8 billion was in the fourth quarter. We think we are now largely done, so we await PRA approval of our models. There was also GBP 1.2 billion of other risks and FX movements. Going forward, we expect a further impact on RWAs with the implementation of Basel 3.1 in January 2027. Based on our latest recalibration of a higher balance sheet, we currently expect this to increase RWAs by around GBP 10 billion. The majority of the RWA uplift from Basel 3.1 is due to operational risk and the removal of the SME and infrastructure support factors. We do expect an offset in our Pillar 2 requirements at the same time for these elements, but the net result will still require us to hold a higher nominal amount of CET1 given the offsets are at a total capital level. We also expect future growth to consume more capital in the form of RWAs. Despite this, we are confident in our ability to continue generating strong capital from earnings and to manage risk-weighted assets, and we are guiding to capital generation of around 200 basis points before distributions in 2026. Turning now to our CET1 ratio. Our CET1 target of 13% to 14% has been in place since 2019. As you know, we've been actively looking at this over the last year or so. Today, our minimum CET1 requirement stands at 11.6%. And as you know, there are no changes to the capital requirements in the latest FTC review. So our supervisory minimum remains 11.6%. And we expect this to reduce further with the implementation of Basel 3.1 next year with a reduction in our Pillar 2 requirement, as I just mentioned. Today, we are holding considerably more capital despite derisking. The successful restructuring of the bank is evident from the consistent and material improvement in our Bank of England Stress Test results. The performance of the business has materially improved, and we have demonstrated a track record of strong earnings, high capital generation and returns. So as a result of all of these considerations and taking into account the views of stakeholders, including investors, rating agencies and regulators, we are reducing our CET1 target to around 13%. This represents a healthy buffer over our MDA and supervisory minimum requirements and also reflects the expected reduction in Pillar 2 requirements on the 1st of January 2027. Turning now to our acquisition of Evelyn Partners. As we outlined on Monday, we see a strong strategic rationale for this acquisition. It brings GBP 69 billion of AUMA scaling our Private Banking and Wealth Management to 20% of group CAL, a third growth engine for the group. It increases fee income by almost 20% on Day 1. And ultimately, it makes us a faster-growing, higher-returning bank with higher distribution capacity for shareholders. Operationally, it is deliverable; culturally, we are aligned and financially, it delivers for shareholders. So let me show you how we expect to deliver a return on invested capital above that generated by our share buyback by year three after completion. We provided you with Evelyn Partners' 2025 income, costs and earnings before interest, tax, depreciation and amortization, or EBITDA. Revenue synergies include bringing Evelyn Partners a broad range of financial planning and Wealth Management solutions to all our customers, enhancing our direct-to-consumer investment offering via BestInvest, leveraging Evelyn Partners' technology for portfolio management solutions and providing Evelyn Partners customers with our full range of banking solutions and combined wealth management offering. The business has grown AUMA at more than 7% a year for the last two years and bringing the combined capabilities to our customer base of more than 20 million is a significant opportunity to create value. The benefit of being part of NatWest Group should deliver income greater than GBP 700 million. We expect to realize around GBP 100 million of cost synergies by removing duplication in shared services and technology applications, where there is high alignment between our platforms as well as efficiencies of scale. The cost to achieve of approximately GBP 150 million will be phased over three years. This means we expect costs to fall in absolute terms to less than GBP 300 million by year three. Together, this drives EBITDA of around GBP 400 million. When assessing the transaction, we look at the returns accruing to capital. In other words, the return on invested capital. We do not include the amortization of purchased intangibles since amortization does not flow through to capital and does not impact our distribution capacity to shareholders. The cost of intangibles are taken in the day one impact of around 130 basis points on the CET1 ratio. Amortization is included in return on tangible equity. This is a capital-light business with very high returns on tangible equity, clearly accretive to the group in year one and beyond. Beyond year three, we see further improvement in returns, driven by compounding net new money growth, driving higher assets under management and ultimately, stronger income growth. Turning now to returns. This shows the drivers of return on tangible equity in 2026. The notable items in 2025 income and tax credits, which together account for around 1.3 percentage points of RoTE. Clearly, the year-on-year change in some P&L lines will impact RoTE more than others with income growth being the biggest driver. Naturally, the level of return will also be impacted by growth in the denominator average tangible equity. This will be driven by earnings, balance sheet growth and further unwind of the cash flow hedge reserve. Overall, in 2026, we expect to deliver a return on tangible equity of greater than 17%. So to summarize our guidance. Excluding the impact of Evelyn Partners acquisition in 2026, we expect income, excluding notable items, to be in the range of GBP 17.2 billion to GBP 17.6 billion, other operating expenses to be around GBP 8.2 billion, the loan impairment rate to be below 25 basis points, capital generation before distributions of around 200 basis points and a return on tangible equity greater than 17%. With that, I'll hand back to Paul. Thank you.

Paul Thwaite, CEO

Thank you, Katie. So you've heard about our guidance for 2026. I'm now going to talk about our plans for the next three years and 2028 targets, which include the impact of the Evelyn Partners acquisition. You will be familiar with this slide, as you've heard about each one of our three businesses over the past year in our investor spotlights. We are building on strong foundations with a customer base of more than 20 million and leading positions in each of our businesses, all of which deliver attractive returns. Our Retail Bank has a track record of growing share profitably, with an opportunity to align areas such as mortgages, savings and unsecured lending more closely with our 16.5% share in current accounts. Private Banking and Wealth Management is a leading private bank with a strong brand and acts as a center for excellence within the group for investment products and solutions. With the acquisition of Evelyn Partners, a market-leading financial planning and investment management firm, we are creating the U.K.'s leading Private Bank and Wealth Manager. The combination increases assets under management and administration to GBP 127 billion and CAL to GBP 188 billion. It both transforms the scale of the business and the breadth of our financial planning and investment offering to meet more customers' needs across the group, further accelerating growth in assets under management. Commercial & Institutional is the U.K.'s biggest bank for business with a 25% share of deposits and 20% share of lending. We are a leading bank for start-ups in the U.K. with the largest presence in the mid-market sector where we see significant opportunity. The scale and strength of our customer franchise gives us a strong base to build on with plenty of capacity for further growth. We believe the macro economy in the U.K. provides a supportive environment, consumers in aggregate are managing well. You can see here that households are paying down debt and savings rates are high. Despite a challenging environment, particularly for sectors such as retail and hospitality, U.K. corporates are delevering and investment is steadily increasing. In addition, there are reasons to feel confident about the broader economy. In the housing market, interest rates are coming down, the government have set ambitious building targets and is committed to investing in social housing. There is a huge shift of generational wealth to younger generations underway. Whilst the FCA's advice and guidance boundary review opens up an opportunity for thousands of people who currently receive no financial advice. And the U.K. is home to high-growth sectors and businesses with an innovation sector that is growing faster than the U.K. economy. It's against this backdrop that we have been thinking about our strategy and 2028 targets. Our strong performance in recent years demonstrates that our strategy is working. However, we review it on an ongoing basis and have refined our three priorities as we raise our ambition for the bank and target a 2028 return on tangible equity greater than 18%. So let me talk about each priority in turn. We remain committed to pursuing disciplined growth with an emphasis on returns. First, by focusing on key customer segments; second, by making it easier for customers to engage with us; and third, by broadening our propositions to ensure we serve more customers' needs. Our second priority has evolved to become leveraging simplification, reflecting the advances and progress we have made. We will continue to invest, in particular, in AI to drive growth, improve productivity and enhance the customer experience. And we will continue to manage our balance sheet and risk well by redeploying capital to drive returns and by putting a greater emphasis on dynamic pricing as we increase our speed and agility with more advanced data and analytics. The purpose of these priorities is to deliver growth at attractive returns for shareholders. Our increased ambition on returns is underpinned by three new targets: growing customer assets and liabilities at an annual rate greater than 4% from 2025 to 2028, reducing our 2028 cost-income ratio to below 45% and generating more than 200 basis points of capital before distributions, whilst operating with a CET1 ratio of around 13%. These targets take into account the acquisition of Evelyn Partners. So let me talk more about how we aim to achieve this, starting with disciplined growth. In Retail Banking, our focus is on youth families and the affluent segment. In the youth market, we are building on the success of our RoosterMoney app, which has grown its customer base 15x to well over 0.5 million. We bank one in three families in the U.K. and want to build on connections within families and households through savings and mortgage relationships, for example. We also have a clear opportunity to grow in the affluent segments. We have around 1.2 million affluent customers in the Retail Bank, yet just 0.5 million use our premier proposition. So our aim is to grow our premier customer base to 1 million and increase the number of Retail customers who choose to invest with us. The Evelyn Partners acquisition will help accelerate the delivery of this ambition. It both enhances our direct-to-consumer investment platform with BestInvest and broadens our financial planning and investment offering. Private Banking and Wealth Management aims to increase the number of clients with more than GBP 3 million of assets and liabilities by more than 20%. This will be supported by trebling the number of referrals from Commercial & Institutional. In Commercial & Institutional we want to remain the leading bank for U.K. startups and for the commercial mid-market. We serve over one in four businesses in the mid-market segment, businesses that are growing at a higher rate than the U.K. economy. We have an unparalleled presence across the U.K., enabling us to build deep relationships based on strong local and sector knowledge and we are building on our position as a leading lender to U.K. infrastructure and U.K. social housing as well as our strength in trade and climate and transition finance. Our second lever to deliver growth is making it easier for our customers to engage with us by combining our best technology with the support of our people. In Retail, most customers bank digitally but we also have over 1,000 personal bankers and relationship managers with a 24-hour call service for premier customers. Private Banking and Wealth Management has 250 advisers and specialists in Coutts, together with an award-winning app supported by Coutts 24, which answers calls 24 hours a day. Evelyn Partners adds 270 financial planners, 325 specialist investment managers and its own direct-to-consumer investment platform, BestInvest. Again, it combines expert, personal service with digital excellence. Commercial & Institutional has a digital platform Bankline, an unparalleled network of around 1,000 relationship managers in commercial mid-market banking and a network of 12 accelerator hubs around the U.K. to help entrepreneurs grow and scale their businesses. We continue to invest in enhancing the digital experience for customers as technology advances and expectations evolve. For example, we are transforming our digital assistant, Cora, by deploying generative AI so that it can resolve more complex customer needs. We are moving our data onto a single platform to deliver more personalized propositions. And in Commercial & Institutional we are investing GBP 100 million over several years to transform Bankline into a state-of-the-art digital platform giving business customers a single point of access to many of our products and services. Ultimately, we want a joined-up experience, which adds value for the customer however they choose to engage with us. We also want to meet more customers' needs by broadening our offering. For Retail Banking, this includes areas like home buying with more support for first-time buyers with family-backed and shared ownership mortgages, offering more flexible savings accounts, developing tailored propositions for premier customers and entering point-of-sale lending. Private Banking and Wealth Management is primarily focused on investments. We are broadening our investment proposition to attract both high net worth clients and customers in the retail bank. We are preparing our response to the FCA's recommendation for targeted support following their advice and guidance boundary review and we are broadening our deposit offering. In Commercial & Institutional we see the U.K. innovation economy as a key opportunity. Last year, we created a dedicated venture banking team to support innovative venture-backed scale-ups and we opened new business accelerators last year with four leading universities, which act as incubators with a plan to expand this to ten over the next two years. By continuing to deliver disciplined growth, our aim is to grow customer assets and liabilities across our three businesses at a rate greater than 4% a year, equivalent to more than GBP 120 billion of balance sheet growth by 2028. This will be a mix of broad-based lending growth, higher customer deposits and strong growth in assets under management and administration. We have already demonstrated our track record of growth. Retail Banking makes up 44% of our customer assets and liabilities, where we have grown more than 5% a year over the past seven years. Private Banking and Wealth Management is currently 13% of CAL with a strong growth rate of 8.3%. This will grow to around 20% of CAL with the inclusion of Evelyn Partners and Commercial & Institutional represents 37% of CAL with a growth rate close to 3%. Moving on now to our second strategic priority, leveraging simplification where I'll start with architecture and data. We expect to drive a further GBP 100 million of investment capacity in 2026 by leveraging technology together with further streamlining our processes and governance. We have already made significant progress simplifying our systems and reducing duplication. For example, we decommissioned 200 business applications across the group last year, and we successfully migrated 1 million customers from Sainsbury's Bank covering multiple products. Last year, we announced the collaboration with Amazon Web Services to accelerate our data, analytics and AI capabilities. This collaboration will give us a single view of each customer's relationship with the bank as well as the tools to analyze data and enrich our customer understanding. Deployment of AI is not only helping us to automate routine work such as call summarization, it is also helping our coders to be more productive. Over 12,000 software engineers are now able to use AI assistance to generate code. This transformation has enabled us to improve the deployment frequency of updates across the group by more than four times since 2021 and more than trebled the new features on our commercial banking digital platform Bankline. This investment is also increasing our operational resilience. We have reduced the number of critical incidents from nine in 2021 to one last year. Our ambition is to become the leading bank delivering personalized customer propositions powered by the responsible deployment of agentic AI. So we are building out our capabilities across the bank. Last year, we set up an AI research office focused on improving customer experience and efficiency by accelerating the use of AI in fields such as multi-biometrics, audio-visual conversational AI using proprietary small language models and ensuring algorithmic fairness as well as data safety. This shift to agentic AI marks a transition from simple chatbots to autonomous systems that can execute complex banking workflows on behalf of our customers. By prioritizing these capabilities, we can move beyond basic automation towards a simpler, data-driven experience that meets rapidly evolving customer expectations. Many of the building blocks that will make this vision a reality will go live this year. This quarter, our customers will be able to ask questions about their recent spending in their own words on their app. And later this year, we will launch voice-to-voice conversations and more agentic fraud support. By delivering income growth ahead of cost growth, we expect to reduce our cost income ratio below 45% by 2028. Our track record of tight cost control gives us competitive advantage as it enables further growth. So our ambition is to strengthen our position as the most efficient large bank in the U.K. Turning now to our third strategic priority, active balance sheet and risk management. The strength of our capital funding and liquidity position provides significant opportunity to deliver continued balance sheet growth, together with attractive sustainable returns for shareholders, whilst operating with a CET1 ratio of around 13%. Our loan-to-deposit ratio of 88% demonstrates the strength of our three businesses and our capacity to deliver material lending growth to support our customers and the U.K. economy. We continue to recycle inefficient, lower-returning capital into attractive growth areas to drive higher returns, and we have been active in significant risk transfers and credit risk insurance to increase capital efficiency. You can also expect to see a greater emphasis on the use of advanced data analytics to drive faster pricing, credit and asset enablement decisions. In addition, data analytics will help us manage risk dynamically, whilst optimizing risk-adjusted returns. We will continue to deliver our through-the-cycle cost of risk of 20 to 30 basis points aligned with our risk appetite. And we also want to maintain our market-leading position in customer fraud prevention with multi-biometric authentication. Our aim in pursuing disciplined growth, leveraging simplification and managing capital and risk is to drive strong growth and returns for shareholders. Given our strong track record of delivery, we are raising our future ambitions. So let me sum up with our 2028 targets. We aim to grow customer assets and liabilities at a rate greater than 4% a year as we continue to drive disciplined growth. We are targeting a cost income ratio below 45% as we drive positive operating leverage and we aim to generate more than 200 basis points of capital before distributions, whilst operating with a CET1 ratio of around 13%. Strong capital generation gives us the ability to support customer growth, invest in the business and deliver attractive returns to shareholders. We are targeting a return on tangible equity greater than 18% in 2028, and we expect to maintain our dividend payout ratio of 50% with scope for surplus capital to be returned via buybacks. Thank you very much. We'll open it up now for questions.

Operator, Operator

We will now take questions. Our first question today comes from Sheel Shah from JPMorgan.

Sheel Shah, Analyst

I've got two, please. Firstly, on costs. The GBP 600 million of cost savings that you've seen in 2025, could you talk about where that's come from? And how we should think about the level of cost savings coming in 2026, particularly with regards to some of the technology developments that you've spoken about? And should we be thinking about a cost growth towards the out years of around sort of a 2% level going forward? And then secondly, in terms of the greater than 4% customer assets and liabilities target, I was wondering if you can disaggregate this across the divisions? And maybe more specifically, would you expect all of the business areas to be at this target level? And maybe sort of pointing up the corporate business here. Looking at that, it is slightly below target in recent years. So I'm just wondering whether you expect a pickup in this business.

Paul Thwaite, CEO

Thanks, Sheel. I appreciate it. Katie, I'll talk generally about cost — you may want to come in on the outer years for cost, and then I'll cover the CAL piece as well. Sheel, first of all, I'd say we're very pleased with the momentum in the cost line. We've achieved nearly a 5% reduction in the cost/income ratio this year, and more than 20% over the last four years. It feels like we've got a strong flywheel driving efficiencies and productivity, allowing us to reinvest some capacity while making the bank more productive and efficient going forward. As for the levers we're pulling, it's a broad range. A key part is the historic and current tech investment, which is driving much more digitization and automation. We continue to decommission a lot of applications and consolidate platforms, which is really helping. We've also become a lot more efficient in how we do change. As we highlighted in the presentation, there are GBP 100 million of benefits. In effect, we can do more change at lower cost, which is great for the customer and also great for the cost outlook. We're also continuing to simplify the business more generally — property consolidation, reducing legal entities, and so on. There is a whole range of levers, and that's why for 2028 we've said less than 45%, but we still see opportunity beyond that because we're very comfortable this flywheel is heading in the right direction. Katie?

Katie Murray, CFO

Sure. Thanks very much. So look, Sheel, as I look to it, obviously, operating costs GBP 8.2 billion for next year, it's very much as Paul says, it's the ongoing cost savings that we have, the higher investment spend on data and tech and the kind of higher business transformation and the benefits that we're seeing on that. We do expect to continue our really cost-tight management as we go out into 2028 and really ensure that we're getting the benefits of that investment spend and that they are realized. We do expect positive jaws in each year. We've brought in the cost/income ratio target of below 45% versus the very strong 48.6% we've already printed for 2025. That target does include the cost and, of course, income from Evelyn Partners, including our ongoing investment in that business. And I would say, if I had to look beyond 2028, I would expect to see further improvement in that ratio from here as well. So as ever, a very tight cost picture.

Paul Thwaite, CEO

Great. Thanks, Katie. And then, Sheel, on your second broader question around CAL or customer assets and liabilities. We're not going to give the exact split of growth, but what I'd encourage you to think about is we're very confident about growing across all aspects of CAL: lending, deposits, and assets under management. Given it's a three-year cycle, we're going to push hard to grow where the opportunities present themselves. Obviously, the environment will change, so different opportunities will be attractive at different times. I do think it's reasonable to expect that some areas will grow faster than others. If you look, as you alluded to, at our growth over the last couple of years, assets under management have typically grown at a higher CAGR, about 12% on average over the last seven years. Evelyn will obviously accelerate that given the compound growth in that business of 7%. On lending, I'd say more broadly, Sheel, I'm very confident we capture demand when it's there — historically, NatWest is a lending and credit franchise. So I'd expect lending growth across mortgages and retail unsecured, but also, as you can see, the growth in the Commercial & Institutional lending book in 2025 to GBP 14 billion, up 10%. We're not going to give you the breakdown, but I would plan across lending, deposits and AUMA, and we're very confident that it will be greater than the 4% each year target for 2028.

Operator, Operator

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

Benjamin Caven-Roberts, Analyst

So I just wanted to ask a first one on profitability and a second one on the hedge. So if we look at the 19% return on tangible in 2025, I know there were a few factors which helped that result, including very low impairments, strong markets results, higher average bank base rate than likely in future years and a slightly lower effective tax rate than is modeled by consensus for the medium term. But aside from those, what would you call out as factors that you might see as being less favorable year-on-year in 2026? All elements of conservatism that effectively contributes to the sequential decline in RoTE on the lower end of your 2026 guidance. Put differently, is it fair to think of underlying RoTE as continuing to go up from here? And then secondly, on the hedge tailwinds through to 2030, has anything changed in the structure, duration or notional assumptions of the hedge to facilitate that very strong uplift in '26 and '27 and then the continued uplift through to 2030?

Paul Thwaite, CEO

Thanks, Ben. Katie, do you want to take either order?

Katie Murray, CFO

Yes. No, absolutely. So I'll start off with RoTE. So obviously, looking to our RoTE guidance of greater than 17% in 2026, you can see that we've got a record of high teens percent returns in there. So I wouldn't get too focused on the underlying versus this and that kind of coming in. We're very confident on delivering on this guidance. We did have a little bit of a boost in the year, but things come in at different points. I think the important thing to remember is that we will continue to build capital both through this year as we get to the end of 2026 with Basel 3.1 coming in on January 1. That's the next GBP 10 billion of regulatory capital along there. And then alongside our P&L guidance, you should expect that average growth coming through on the tangible equity as well, which is what pulls your RoTE back a little bit. It's important not to forget that. We're obviously, also, guiding you on the strong capital generation that we can see coming through and there will be the movement during the year of 130 basis points as we have CET1 coming in. But overall, as I look at the number, there's not one thing I would say, look at that as a negative or a drag particularly, but I would encourage you to think of CAL growth and how it feeds through to TNAV growth. If I then take you on to the hedge in terms of where we are and then how it's structuring as we go forward from here. Look, when we look at the hedge, there's a number of different things that we bring into that. One of the debates we've been having is around the hedge duration and what we've been looking at. We are very stable at 2.8 years. It's important to reflect that, that reflects the product hedge at 2.5 years and the equity hedge at 5 years, which puts obviously 5 and 10 in kind of duration. We spend a lot of time looking at the behavioral life of different deposit types, different cohorts across the deposit franchise of our three businesses. We're very happy to see the deposit stability and the growth over this last year. We look obviously backwards, but we also look forward in terms of what we're expecting there. We give consideration of how things might evolve in the future as we go forward from here. So conversations, you'd expect us to be having around things like digital currencies, stablecoins, tokenized deposits as well, of course, the absolute competition that we see in this market. We continue to dynamically monitor that and assess that over time and how we reinvest the hedge at the different lifetimes. And I think the other thing that's important, that I'm not sure you all think about enough as well, is also the relative size of both of those hedges in terms of how they sit and what that then does to your averaging out of the age of the hedge. I'd say one thing in addition, we do review our hedging instruments as gilts have repriced, we have actively been reinvesting our maturing 10-year swaps into 10-year gilts, which provides a pickup in yield that increased about GBP 50 million additional income from the equity hedge in 2025. Very comfortable with the approach we have which is mechanistic and we talk about it a lot. It has a huge amount of thought that goes into the background to make sure we deliver the really quality returns that you see coming from this hedge year after year.

Operator, Operator

Our next question comes from Robert Noble of Deutsche Bank.

Robert Noble, Analyst

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

Paul Thwaite, CEO

Thanks, Rob. So Evelyn, AI and Wealth and then more broadly on AI impact on banking. To the first question, as you'd expect, Rob, we monitor a number of participants and actually have done for a number of years. As you alluded to, there's private entities, there's listed entities, there's different business models. In terms of Evelyn, we absolutely thought it was the right fit for NatWest, very strategic acquisition, creating in one fell swoop the number one combined private bank and wealth manager in the U.K. It transforms our wealth business, increases the scale of two times from an assets under management perspective. And most importantly, or as importantly, brings key capabilities that will complement our proposition: a direct-to-consumer platform, BestInvest, the largest employed financial adviser network in the U.K. and a broad suite of investment products and propositions. So it was the combination of the scale, Rob, but also the capabilities that it brings. And it positions us, I think, excellently, for what is obviously going to be a growth area over both the short, medium and long term. We know that customer demand is increasing around financial planning, financial advice. As you see intergenerational wealth transfer that's only going to increase. I think it's an area that's going to be amplified by tech and AI, and I'll come back to that because I think it's going to make advice more accessible and more affordable. And it's obvious we have regular and helpful regulatory tailwinds as well, whether that's the FCA's advice, guidance and boundary review, whether it's the targeted support developments, which will drive advice to more people that start in April. So for us, it felt like the right partner, the right capabilities, creating a really substantial private bank and wealth management to complement the number one business bank we have. In terms of the broader picture on AI and Wealth Management, that's been on our minds for some time. I actually think the winners in the Wealth space in respect of AI will be those who have scale and have data. When you think about 20 million customers that NatWest has, that's orders of magnitude larger than many participants. So the ability to use that scale and data, I think AI is a big accelerant and opportunity. Secondly, what all the customer research and customer insight tells us, both independent and our own, is that the winning combination is going to be a combination of AI-driven digital wealth advice, but also expertise through humans and people for those big financial decisions, the complex aspects of financial planning. So to me, you bring both together, you see AI really helping us get closer to our existing customers in the wealth space, which is great, but also access new customers at relatively low marginal cost. But then combined from a hybrid perspective with excellent advisers for the more complex financial needs. So that's how we think about it. So we have, net-net, we think AI will be an accelerant and a winner and will be a winner in terms of our wealth aspirations. And we think the customer need is really this hybrid need. And then more generally on AI, I mean, it's already affecting the sector. We've embraced it. That's from a colleague perspective and a customer perspective. I think it's going to change how customers engage with us or how they find us and discover us. I think what it plays to is, again, my point around scale. I think the winners here will be those who've got significant sized customer bases, 20 million for us, a long-standing relationship data. So you can bring products, propositions whether directly to your own channels or through other channels. I think that is going to be successful. And we're very thoughtful about that in terms of how we're building our capabilities. I hope that gives you a big picture on all those topics. Thanks, Rob.

Operator, Operator

Our next question comes from Amit Goel of Mediobanca.

Amit Goel, Analyst

So the first question is just on the broader capital generation targets. So one is more—well, part of it is just a clarification. When we talk about the circa 200 basis points for 2026, I guess does that exclude the Basel 3.1 effect, which comes 1st of January 2027, or is that in there? And more broadly, just looking at the 2028 capital generation target, greater than 200 basis points, just curious, it seems to be on the low side, especially if I think about the kind of RoTE target, greater than 18%. So just if you can talk to your ability to meet or beat or how you reconcile to? And then just the second question, just a shorter follow-up. But when we talk about the circa 13% CET1 target going forward, is that a level where you'd be happy to operate one quarter or another quarter with a 12% kind of handle starting point? Or is it basically you'll look to be at 13% plus throughout your operating period on a quarterly basis?

Paul Thwaite, CEO

Thanks, Amit. So let me knock two of them off pretty quickly. So on the capital generation, yes, it excludes the 1st January 2027 increases from Basel 3.1. So hopefully, that gives you the clarity there. We've also said that we believe that will be around circa GBP 10 billion. On the CET1 around 13%, obviously, we've been thinking about that for a couple of years. It's around 13%. So the way I would think about it is it's not a hard floor. So that's the way to think about it. And then on the broader question of '28 and capital generation. A couple of things. One is, it's important to remember it's on a growing balance sheet, so it includes the growth that we've talked about. So please bear that in mind. And I guess just a bit of context. Obviously, you can see 19% RoTE this year. You can see the capital generation at above 250 basis points. That's our third year of greater than 17% RoTE. It's on a balance sheet that continues to grow to the compound rate, and you need to bear that in mind when you think about capital generation going forward. And that obviously flows through to EPS, DPS and higher TNAV per share. So that's how I would think about that. And as ever, we're very clear. Our target is you can see how we position our targets. The intention for '28 is to be greater than 200 basis points.

Operator, Operator

Our next question comes from Christopher Cant of Autonomous.

Christopher Cant, Analyst

If I could ask one on RWAs, please. So really pleasing to hear the detail around how you're expecting to grow. I think that's an important part of the story. But obviously, you're now talking about this CAL concept for growth, which makes it quite hard for us to think about the capital intensity of growth. Obviously, capital intensity of AUMA or deposits within that number quite different to lending growth given us this new guide on the Basel 4 RWA impact, which I think is probably a bit above where consensus was. So if I could just invite you to comment on the consensus RWA expectations. I think we're at GBP 223 billion in 2028. That would be appreciated just so we can sort of understand how you're thinking about the RWA piece of the puzzle? And then on rates assumptions, please. Your base rate assumption is 3.25% flat, fair enough as a planning assumption. Could I just understand what reinvestment rates you're assuming on the hedge within those gross income increments you've given us, given the flat base rate assumption, I assume you're assuming a fairly lift swaps curve or a reasonably low reinvestment rate?

Paul Thwaite, CEO

Very clear, Chris. Thanks, Katie.

Katie Murray, CFO

Sure. Thanks very much. So if I deal first of all, your RWA outlook kind of point. I guess, as we look ahead, 2026 has obviously been underpinned by the disciplined balance sheet growth that we've got, the increasing regulatory clarity as well as further active management, but the primary driver will be the lending growth. One of the slides we have included in the appendix pack is on risk density to show you that the risk density of lending is stable. However, the volume will increase. So therefore, your volume of RWAs will follow through in that. And so you need to bear that in mind as you go through. There could still be a couple of small additional impacts from CRD IV in 2026, we think that's largely done. But obviously, our models are in that final stage with the PRA and there can be a little bit of movement as you get them finalized. I would also expect to see some further RWA management. I would say we've had a really stellar year this year on RWA management, so I wouldn't necessarily put that number into your model at quite that high level, but it's something you will continue to see as we move forward from here. And then if I go to the hedge in terms of that reinvestment yield that we see, look, as you know, we talk a lot about the tailwind that's coming through on the hedge. And if I look at our current economic assumptions, there's in the five-year average of reinvestment rates, 3.5% in terms of the product hedge and the 10-year gilt reinvestment rate of 4.5% over the next five years. So we do expect that hedge to deliver on an annual year-on-year tailwind into 2030. The second thing you need to think about as well is not just those rates, but also the size of the hedge. We are assuming an increasing notional balance coming through. So we're GBP 190 billion in 2025. We expect that to grow to GBP 200 billion in 2026. And then I expect it to grow steadily as we move forward to 2030, supported by that CAL growth. Obviously, some of that will be going into the hedge-eligible deposits and others will be into the increasing size of the equity hedge. Chris, if you were starting with me to probably say, those rates feel a little bit low. If I were to mark them today, they'd be a little bit higher, that's a fair statement, and I kind of accept that. However, sitting where we are today, I'm comfortable with the rates for our base assumption. We'll see that as it comes through. But overall, we are really confident of this tailwind that we see coming through on the hedge in the next couple of years, but also all the way out to 2030. Thanks very much, Chris.

Operator, Operator

Our next question comes from James Invine of Rothschild & Co Redburn.

James Frederick Invine, Analyst

I've got a couple, please. The first is on the guidance. I mean, if we—sorry, the revenue guidance that is. So if we start with your GBP 16.4 billion revenue that you printed for last year, you guided to the hedge being an extra GBP 1.5 billion, so we're up to GBP 17.9 billion. There's decent balance sheet growth. So I was just wondering what are the headwinds you've got factored into the 2026 revenue growth, please? And then the second one is just on costs. So Paul, I think on one of your slides, you talked about doubling the number of coders to 12,000, but also the AI is now writing about one third of their code. So from here, what are you expecting for where that number of coders needs to go? I can see reasons for why it might go up a lot, but also why it might come down a lot. So I'm just wondering what your view is, please?

Katie Murray, CFO

Yes, sure, let me kick off. Thanks, James. So as we look at that guidance, GBP 17.2 billion to GBP 17.6 billion, we're very confident on it. We will deliver in that range. And if you look at it, what we will be delivering is 5% to 7% top line growth. So very good. Let me help you a little bit with your math. And there's a couple of things in there. First of all, and the most important thing in reality is customer activity. And where we land in that range is going to be very dependent upon that activity. But we have a strong multiyear track record of growth. You can see the growth that we're talking about this morning, what we've delivered in 2025, we would expect that to continue as we move into 2026. So, obviously, the mix will ultimately contribute into the income contribution. You're aware, we may talk about it more this morning as well, a little bit of pressure that there is on mortgage margins at the moment. We talked about that in Q3. And there's also some continuing competitive pricing going on in the savings products. The second bit is on rates. Two rate cuts are actually penciled in my forecast in April and October. So Q2 and Q4 as they come through. So they will have a little bit of an impact. However, I think you've also got to remember that we're not at the start of the rate cutting journey. We're quite some way through it. So if you think of our sensitivity, we give you year one, we give a year two and year three. The way I think about that number, it's a negative GBP 500 million against that positive of the hedge coming through because you've just got the cumulative effect of those rate cuts coming through. So I would bring that in. And the third thing I would think about—you heard me talk already about the RWA management action. They do come at a cost. And as I look into 2026 numbers, I would say the cost of the RWA actions that we've done would be an extra GBP 100 million as well. So I would take that off. And that will get you very nicely into the range that we're talking about of GBP 17.2 billion to GBP 17.6 billion and we're very confident that we're going to be able to deliver that. So thanks, James. Hopefully that helps. Paul, I hand back to you.

Paul Thwaite, CEO

Thanks, Katie. Shifting gear to quite a different topic. Engineering and productivity of software engineering is something we spend a lot of time on as a management team. It's definitely a topic du jour. And it's pretty obvious the AI developments have been transformational for us. All our engineering and coding teams have got access to AI tools. As you alluded to, we have around 12,000 engineers and that's been increasing over a number of years. But now we're at a situation where circa 35% of the code is written by AI. So I think over time, there will be choices around how you use that capacity. I think it's still an evolving picture. We've got a couple of quite exciting pilots running in two of our businesses in our international business and also in our financial crime area, where we're doing fully agentic press-play software, and that's actually delivering 10x productivity gains. So that's where you've got agentic workflows, autonomous agents, their planning, building code, testing code, but obviously then overseen in a responsible way by humans. So this space is, I think, evolving quickly. And I think it's inevitable there'll be a change both in the profile of engineers in terms of the activities that they do. And then I think there'll be some choices about how you capture that productivity benefit—to go faster, deliver more products and services to your clients and enhance the customer proposition. Or also to capture opportunities for productivity and efficiency. And I think all of the things being equal, that's a reasonable expectation over the short to medium term, that there'll be some productivity and efficiency opportunities moving forward. Hopefully, that gives you a flavor for it. But we are very mindful that we're a regulated industry, and we're doing it in a very responsible and thoughtful way. Thanks, James.

Operator, Operator

Our next question comes from Aman Rakkar of Barclays.

Aman Rakkar, Analyst

I had a question actually back on Evelyn. So, I guess the market reaction to Evelyn has been what it is and coming in the backdrop of broader cross currents. But the feedback I've been getting is around potential execution risk around the deal. So I was kind of interested in your take around your comfortability, your confidence in your ability to kind of integrate this business and also extract value from it. If you could bring a bit more to life around perhaps the revenue synergy that the degree of confidence that you have that in two years' time will give me looking back and think there's a good deal. And the kind of related question is a repeat of a question from earlier this week. But could you—can you help us with your assumptions around attrition? I think that is essentially a key unknown variable here. How are you thinking about attrition risk in the investment practitioners? And what kind of strategic actions are you going to have to take to ensure that your staff, but also your customers don't leave. If you could help us with that, I think it would really help.

Paul Thwaite, CEO

Great. Thank you, Aman. So let's start with integration. And then I'll come on to revenue synergies, and then we'll talk a little bit around the value creation and ensuring we retain both critical people, but also customers. On integration, very high confidence, Aman. We've known the business and tracked the business for a number of years. We know people in the business. So we know Evelyn very well. We've undertaken quite extensive due diligence around it, whether that's the tech platforms, whether that's the cultural alignment. There's been a lot of investment since the original combination of the business in 2020 into the tech capabilities. We've seen that, to all intents and purposes, the tech end of integration is complete. The benefits of those investments are now coming through for Evelyn. There's a lot of congruence and alignment between the underlying platforms that our group business uses and Evelyn uses, that gives us confidence about we know the platforms, we know the systems. We have experts on both sides of the transaction who know those platforms and systems. So we feel very confident about that. And what we also have on both sides of this transaction, we have experienced people who have done M&A transactions and integrations. We've got our very recent experience and the team still on the park around the Sainsbury's acquisition. We've complemented that over the course of the last 12 months with individuals who've been involved in some really significant financial services M&A activity over the course of the last 12 months. Given Evelyn's history, they've built experience there as well, having to integrate different businesses. So we feel pretty confident around that alignment around integration and the ability net-net to create a lot of value out of that. So that's integration, high conviction, high confidence. On revenue synergies, I guess we could talk a long time about that. Big picture, though, I think the really critical thing to remember here is there's a really big opportunity in helping a lot more people to save and invest for the future. We've got these regulatory tailwinds, which you know about the financial advice gap. And we also know that in the wealth industry, despite the historic cautious investment culture, we've seen mid- to high single-digit growth in AUM. If you look at our own business, we've seen 12% compound growth in assets under management. If you look at our 2025 performance, 20% growth in AUMA, net new money of 8.4%. So that's the big picture that gives us a sense of confidence. If you look at the drivers of income growth, you look at Evelyn's track record, over 7% since 2023 in terms of AUMA growth. And then on top of that, we've got the revenue synergies. So where do they come from? Three big opportunities: BestInvest, it's a significant upgrade to our NatWest Invest digital platform. We have the opportunity to bring that to life for our 1.2 million premier customers and our 19 to 20 million customers in Retail. The breadth of the BestInvest offering versus our current offering is incomparable. At the moment, NatWest Invest has limited funds; BestInvest has a much broader product set, access to equities, ETFs, investment trusts plus we have a relationship with those 20 million customers and the ability to surface these opportunities through the app. So that's the first big opportunity. Then you look at the excellence that Evelyn has in terms and the scale it has in terms of financial planning and the biggest employed adviser network in the country. Again, we can bring that to our 1.2 million premier customers. We can bring that to our high net worth customers in Coutts. Again, the breadth of the proposition really adds to the wealth footprint that we have in our Coutts business, and two times in terms of our Premier business. And then the third synergy is, if you look at what Coutts size, you look at what NatWest has, we have a range of banking products, lending and banking that we can bring and support Evelyn clients with. So you don't have to make very big assumptions to see where the opportunities are, both in the underlying growth rate of the business but also in the revenue synergies and opportunities that there are, and that's why we're very high conviction on this from a strategic perspective and very high conviction that the value creation in both the short term and long term will be significant. Thanks, Aman.

Operator, Operator

Our next question comes from Jonathan Pierce of Jefferies.

Jonathan Richard Pierce, Analyst

Two questions, please. Apologies if I missed an answer on this already. I had a few issues this morning. The first is on tangible equity. Really looking at consensus out to 2028. There's lots of moving parts here versus what consensus might have been thinking before. So Evelyn side, lack of buybacks, push it back up, you're now talking about a bit more growth than people had in. The GBP 33.4 billion of average tangible equity consensus has in '28. How are you thinking about that? Is that an appropriate number to be applying the greater than 18% to? Or could that be a bit higher than that? That's the first question. The second question is on the hedge. Can I just confirm and I heard correctly on the equity hedge that you're now showing the income from the equity hedge as though it was invested in 10-year gilts rather than 10-year swaps? Is that obviously going to give you a better yield and a better tailwind than if it was swaps. And you've obviously dropped the disclosure on the maturity yield on the product hedge. Just want to get a sense as to what that is in 2028, please, because obviously, the notional is growing, that all else equal the hedge income is going to grow, but I'm not sure that is a sort of underlying feature. What's the maturity yields, please, on the product hedge in 2028?

Katie Murray, CFO

Sure. Thanks very much, Jonathan. So as we look, first of all, at the TNAV question, I think it's important to look at Evelyn versus share buyback and the capital allocation conversation as far as we're talking about in terms of TNAV. So it actually has no impact on your 2028 TNAV. By that, I mean, if we hadn't done Evelyn, we distributed the capital because our belief is to access your capital to you. So it was already out of that TNAV calculation. When you think of the TNAV, it's really CAL you've got to think about and within there, specifically loan growth. There's a little bit of unwind of the cash flow hedge. But if you think of our loan growth that we've done over the last number of years, we've been consistently above 4% within there. I would use that as a good proxy for TNAV if I were you. So therefore, I would say as I look at my number versus your number, try not to compare yourself to consensus; I would probably guide you to that 4% a little bit and lift up a little bit as you go through. On the hedge, over the last period as part of our management of the hedge to see where our opportunities are, we have moved some of our equity hedge into gilts because we felt we were getting a better return there and we can absolutely see that return coming through in terms of the extra GBP 50 million that we report within there. The equity hedge is GBP 25 billion in size. It's not by any means all in gilt; something we've just started to do relatively recently. We expect to continue that move as we see the gilt return being a bit better than the swap return. We're not particularly constrained on the size of that. I would discourage you from saying we would start to do that on the product hedge; it's a very different beast. But if I look at the 2028 redemption yield for the structural hedge, it is slightly below 4%. Currently, we do see 2028 as a peak. I would say the difference between the redemption yield and our reinvestment yield is probably 30 to 40 basis points in that year. However, it's more than offset by the compounding benefit of the hedge reinvestment over 2026 and 2027 and of course, the expected increase in our hedge nominal over the period, in line with our CAL guidance. And that's why we are comfortable about this annual income tailwind that we see through to 2030. I hope that helps you without giving the exact numbers you might be searching for.

Operator, Operator

Our next question comes from Guy Stebbings from BNP Paribas.

Guy Stebbings, Analyst

The first one was going back to the income guide for 2026, but refocusing on net interest income. I mean, I appreciate you don't split out the guidance as such. But if we think about noninterest income perhaps broadly similar to 2025, maybe a bit of growth as per consensus sort of ballpark 3% to 4%, then it looks like you're thinking about an NII around GBP 13.6 billion to GBP 13.9 billion. Q4, you're already sort of annualizing within that range. So I just want to check, is that the right way to think about it, and you're not really anticipating a lot of NII growth versus the Q4 annualized run rate and the rate cuts, I guess, lost NII from SRTs or mortgage return could almost be offset the hedge and volume growth, still a touch conservative. I just want to check my thinking there. And then on rate sensitivity. You're now talking to an increase to GBP 157 million on the managed margin sensitivity. I think that's 30% to 60% deposit pass-through. I appreciate the capacity reasons, you're not going to say exactly what you're assuming in the future, but maybe you can talk about how that's trended in particular in terms of the December rate cut. And I'm not sure, Katie, you mentioned something about a buildup of rate sensitivity as time progresses. I wasn't sure if that was sort of related to this point or something else. So perhaps you could elaborate.

Katie Murray, CFO

If I miss any of them, Guy, do come back and forgive me. So I guess, as we look at the income guide, my first guidance would be, and you've heard me say before, try to look at the three businesses. You remember that in the center, we've had a lot of movement between noninterest income and NII. And that can confuse the view a little bit. We talked a little bit about Q3 that we put in some hedge accounting to help resolve that. What you will see as we go through the next few quarters is you won't see those big flips going from NII to non-NII which is why I would say, really look at the three businesses. We are confident on the momentum that we see in underlying customer activity. We would expect to see noninterest income across the three businesses growing into 2026 from here as well. If I look then to the rate sensitivity, we've issued new ones today. The change in the amount is very much reflective of the size of the balance sheet as well. We work on a 60% pass-through. I would say broadly, when you look across a number of rate cuts, we're definitely in that sort of space as we come through from there. That's not particularly changed. And then when I look at 2026 income, we've got the impact of the rate cuts that we had in 2025, you'll now have a full annual impact of those. And then we've penciled in two rate cuts in 2026, April and October. When I do my math on those, I see them as a drag of GBP 500 million against the positive of the hedge coming through. So that's the net effect you should be thinking about, and that is reflected in the guidance.

Paul Thwaite, CEO

Hopefully we captured everything there, Guy.

Operator, Operator

Our last question today comes from Ed Firth from KBW.

Edward Hugo Firth, Analyst

I had two questions. One was on detail. You mentioned that one of the reasons for the reasonably cautious income expectations for 2026 was the cost of capital actions. I'm just wondering if you could give us roughly some idea of what quantum you're assuming for that, because obviously that was a big driver of RWAs in 2025 and would be helpful. And then I guess the second question was, you're interacting with a lot of banks, when we look at your AI slides and the tech slides there's a lot to talk about, 10x productivity and massive production of that. Yet, when I look at the cost expectations for the sector as a whole, the actual efficiency improvements in terms of cost to loans, cost of risk weight now barely moved in the last four or five years. And expectations are to be barely moving going forward as well, a few basis points here and there. So are we going to get a quantum shift in the cost of delivering banking that we're talking about? And not just replacing cheap branch staff with expensive software engineers.

Katie Murray, CFO

Can I take the first? So you'd expect me to say this, but think of our 2026 income guidance as reasonable and not cautious. In terms of the specific question on the cost of the capital actions, you should think in your model of a negative GBP 100 million in 2026 in terms of that additional cost. They make great sense to do. You can see that we actually, in effect, paid for much of our lending with those capital actions, and that's taking off lower-performing capital and replacing it with higher-performing. So we're really pleased with the performance of the business on that piece. In terms of RWAs, we reduced RWAs by GBP 10.9 billion this year. Those are multi-year transactions. So some of that RWA benefit will roll into 2026 and beyond. We continue to do further transactions in the year as well.

Edward Hugo Firth, Analyst

Sorry. Katie, in terms of risk-weighted assets, what sort of reduction do you get to that GBP 100 million?

Katie Murray, CFO

So in terms of that, the GBP 10.9 billion RWA reduction was the number this year. You should think of that as a series of transactions over multiple years. The GBP 100 million is the run-rate P&L impact for 2026 associated with the capital management actions we've taken. Some of the RWA reductions are already reflected in 2025 and others will flow in over time.

Paul Thwaite, CEO

And Ed, on the broader question around unit costs and whether AI delivers a quantum shift, it's a fair and important question. You can see from our numbers today that our cost-income ratio has moved down materially, and our absolute cost base has been well controlled—well below inflation, well below wage inflation. The targets we've set out imply less than 45%, which would make us the most efficient large U.K. bank. So by definition, we expect to continue improving. I do think there's a significant change going on where you can see a business model and operating model that operates at a much lower unit cost with a higher income base. Over time, as AI and automation mature and we responsibly deploy agentic capabilities, I expect material productivity gains. How much and how fast will depend on regulatory constraints, risk management, and how we choose to allocate efficiency gains between reinvestment and cost reduction. But the direction is clear—better unit economics over time—and that's what we're targeting beyond 2028 as well.

Operator, Operator

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

Paul Thwaite, CEO

Yes, that went quickly. So thank you, everybody, for joining us for the second time this week. As you've heard, we've delivered a very strong performance in 2025, continuing our track record of growth on both sides of the balance sheet and fees. Very attractive returns for shareholders. Our total distributions for the year were GBP 4.1 billion. That includes the GBP 750 million share buyback we announced on Monday alongside the acquisition of Evelyn Partners. That creates the U.K.'s leading private bank and wealth manager; we're very excited by that because it gives us another growth engine for the group. So hopefully, you've seen from today's numbers, we're ambitious for the business. We've set out new targets and we're determined to deliver returns greater than 18% in 2028. Thank you. Have a good weekend.

Operator, Operator

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