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Financial instruments - valuation (Tables)

12 Months Ended

Dec. 31, 2021

Financial instruments - classification

Schedule of financial assets and liabilities at fair value by valuation hierarchy


		2021								2020
		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
		£m		£m		£m		£m		£m		£m		£m		£m
Assets
Trading assets
Loans		—		33,482		721		34,203		—		39,550		225		39,775
Securities		19,563		5,371		21		24,955		21,535		7,599		81		29,215
Derivatives		—		105,222		917		106,139		—		165,441		1,082		166,523
Other financial assets		—				—
Loans		—		359		207		566		—		185		168		353
Securities		28,880		7,951		186		37,017		35,972		8,850		167		44,989
Total financial assets held at fair value		48,443		152,385		2,052		202,880		57,507		221,625		1,723		280,855
As % of total fair value assets		24	%	75	%	1	%			20	%	79	%	1	%

Liabilities
Trading liabilities
Deposits		—		38,658		2		38,660		—		44,062		7		44,069
Debt securities in issue		—		974		—		974		—		1,408		—		1,408
Short positions		20,507		4,456		1		24,964		19,045		7,734		—		26,779
Derivatives		—		100,229		606		100,835		—		159,818		887		160,705
Other financial liabilities		—				—
Debt securities in issue		—		1,103		—		1,103		—		1,607		—		1,607
Other deposits		—		568		—		568		—		796		—		796
Subordinated liabilities		—		703		—		703		—		793		—		793
Total financial liabilities held at fair value		20,507		146,691		609		167,807		19,045		216,218		894		236,157
As % of total fair value liabilities		12	%	88	%	0	%			8	%	92	%	0	%

(1)	Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.

(2)	For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk.

Schedule of financial instruments valuation adjustments


		2021		2020
Adjustment		£m		£m
Funding – FVA		90		140
Credit – CVA		390		390
Bid – Offer		113		148
Product and deal specific		119		172
		712		850

Schedule of valuation techniques for unobservable inputs of level 3 financial instruments


								2021				2020
Financial instrument		Valuation technique		Unobservable inputs		Units		Low		High		Low		High
Trading assets and Other financial assets
Loans		Price-based		Price		%		—		106		—		105
		Discount cash flow		Credit spreads		bps		40		102		69		119
		Discount cash flow		Discount margin		bps		46		55		51		226


Debt securities		Price-based		Price		%		—		240		—		232

Equity Shares		Price-based		Price		GBP		—		30,378		—		27,737
		Price-based		Price		%		—		7		—		80
		Discount cash flow		Discount margin		%		6		8		7		9
		Net asset valuation		Net asset value		%		80		120		80		120

Derivative assets and liabilities
Credit derivatives		Credit derivative pricing		Credit spreads		bps		6		635		2		500
				Correlation		%		(15)		95		(50)		95
				Volatility		%		30		108		27		80
				Upfront points		%		—		100		—		100
				Recovery rate		%		—		60		10		40

Interest rate & FX		Option pricing		Correlation		%		(50)		100		(50)		100
derivatives				Volatility		%		17		77		17		60
				Constant Prepayment Rate		%		2		16		2		18
				Mean Reversion		%		—		92		—		92
				Basis volatility		bps		8		18		15		21
				Inflation volatility		%		1		2		1		2
				Inflation rate		%		2		3		1		2

Equity derivatives		Option pricing		Correlation		%		(53)		87		(53)		87

(1)

Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV or similar measures.

(2)	NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.

Schedule of financial instruments carried at fair value on the balance sheet by valuation sensitivities for level 3 balances


		2021						2020
		Level 3		Favourable		Unfavourable		Level 3		Favourable		Unfavourable
		£m		£m		£m		£m		£m		£m
Assets
Trading assets
Loans		721		10		(10)		225		10		—
Securities		21		—		—		81		—		—
Derivatives		917		60		(70)		1,082		80		(80)
Other financial assets
Loans		207		10		(10)		168		20		(10)
Securities		186		20		(20)		167		30		(20)
		2,052		100		(110)		1,723		140		(110)

Liabilities
Trading liabilities
Deposits		2		—		—		7		—		—
Debt securities in issue		—		—		—		—		—		—
Short positions		1		—		—		—		—		—
Derivatives		606		30		(30)		887		50		(40)
Other financial liabilities		—		—		—		—		—		—
		609		30		(30)		894		50		(40)

Schedule of movement in level 3 assets and liabilities


		2021								2020
		Trading		Other						Trading		Other
		assets		financial		Total		Total		assets		financial		Total		Total
		(2)		assets (3)		assets		liabilities		(2)		assets (3)		assets		liabilities
		£m		£m		£m		£m		£m		£m		£m		£m
At 1 January		1,388		335		1,723		894		2,233		321		2,554		1,317
Amounts recorded in the income statement (1)		(93)		(29)		(122)		(90)		127		(21)		106		(67)
Amounts recorded in the statement of comprehensive income		—		23		23		—		—		63		63		—
Level 3 transfers in		125		3		128		20		165		98		263		188
Level 3 transfers out		(104)		(6)		(109)		(168)		(139)		—		(139)		(368)
Purchases/originations (4)		965		452		1,416		305		441		327		768		127
Settlements/other decreases		(47)		(364)		(411)		(28)		(293)		(153)		(446)		(59)
Sales		(573)		(17)		(590)		(321)		(1,148)		(301)		(1,449)		(245)
Foreign exchange and other		(3)		(3)		(6)		(3)		2		1		3		1
At 31 December		1,658		394		2,052		609		1,388		335		1,723		894

Amounts recorded in the income statement in respect of balances held at year end - unrealised		(93)		(32)		(126)		(90)		129		(22)		107		(68)

(1)	There were £3 million net losses on trading assets and liabilities (2020 - £194 million net gain) recorded in income from trading activities. Net losses on other instruments of £29 million (2020 - £21 million net losses) were recorded in other operating income and interest income as appropriate.

(2)	Trading assets comprise assets held at fair value in trading portfolios.

(3)	Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.

(4)

Movement in the period includes new loan originations classified as HTC&S under IFRS 9 and fair valued through other comprehensive income. 2021 purchases include a new leveraged finance loan of £450 million. As a result of its composition and illiquid nature, pricing is based on unobservable inputs and the judgment of valuation experts.

Schedule of carrying value and fair value of financial instruments carried at amortised cost on the balance sheet


		Items where
		fair value
		approximates		Carrying				Fair value hierarchy level
		carrying value		value		Fair value		Level 1		Level 2		Level 3
2021		£bn		£bn		£bn		£bn		£bn		£bn
Financial assets
Cash and balances at central banks		177.8		—		—		—		—		—
Settlement balances		2.1		—		—		—		—		—
Loans to banks		0.1		7.5		7.5		—		5.0		2.5
Loans to customers		—		359.0		354.1		—		28.0		326.1
Other financial assets - securities		—		8.6		8.6		4.4		0.7		3.5
2020
Financial assets
Cash and balances at central banks		124.5		—		—		—		—		—
Settlement balances		2.3		—		—		—		—		—
Loans to banks		0.1		6.9		6.9		—		3.8		3.1
Loans to customers		—		360.5		359.2		—		25.2		334.0
Other financial assets - securities		—		9.8		10.1		5.9		1.2		3.0
2021
Financial liabilities
Bank deposits		4.9		21.4		21.0		—		18.7		2.3
Customer deposits		442.4		37.4		37.6		—		18.1		19.5
Settlement balances		2.1		—		—		—
Other financial liabilities - debt securities in issue		—		47.7		48.6		—		41.4		7.2
Subordinated liabilities		—		7.7		8.3		—		8.2		0.1
Notes in circulation		3.0		—		—		—		—		—
2020
Financial liabilities
Bank deposits		4.4		16.2		16.2		—		11.3		4.9
Customer deposits		371.7		60.0		60.1		—		10.1		50.0
Settlement balances		5.5		—		—		—		—		—
Other financial liabilities - debt securities in issue		—		43.4		44.6		—		34.7		9.9
Subordinated liabilities		—		9.2		9.8		—		9.7		0.1
Notes in circulation		2.7		—		—		—		—		—