National Westminster Bank Plc/media/Files/R/RBS...National Westminster Bank Plc (NWB), its subsidiary Ulster Bank Limited (UBL) and The Royal Bank of Scotland plc (RBS) are the main

FINANCIAL INSTITUTIONS

CREDIT OPINION17 December 2020

Update

RATINGS

National Westminster Bank PlcDomicile London, United

Kingdom

Long Term CRR Aa3

Type LT Counterparty RiskRating - Fgn Curr

Outlook Not Assigned

Long Term Debt Withdrawn

Type Senior Unsecured MTN- Dom Curr

Outlook Not Assigned

Long Term Deposit A1

Type LT Bank Deposits - FgnCurr

Outlook Stable

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Edoardo Calandro +44.20.7772.1097VP-Senior [email protected]

Laurie Mayers +44.20.7772.5582Associate Managing [email protected]

Nick Hill [email protected]

Maxwell Price +44.20.7772.1778Associate [email protected]

National Westminster Bank PlcUpdate following rating affirmation

SummaryThe A1 long-term deposit rating and the A2 issuer rating of National Westminster BankPlc (NWB), the main ring-fenced bank of NatWest Group plc (NWG, Baa2 positive,baa21), reflect the bank's standalone creditworthiness, expressed in a baa1 Baseline CreditAssessment (BCA); very low and low loss-given-failure, respectively, which provide twonotches of uplift to the long-term deposit rating and one to the issuer rating under ourAdvanced Loss Given Failure (LGF) analysis; and our assessment of a moderate probabilityof support from the Government of the United Kingdom (Aa3 stable), which leads to anadditional notch of uplift.

NWB's baa1 BCA reflects the bank's strong capital and stable retail funding, as well as ourexpectation of asset-quality deterioration and profitability challenges as a result of theeconomic shock caused by the coronavirus pandemic.

We also assign BCA and ratings to the other UK ring-fenced banks of NWG, The Royal Bankof Scotland plc (RBS) and NWB's subsidiary Ulster Bank Limited (UBL), in line with thoseof NWB, to reflect the high level of operational integration between the three banks. Theoutlook on the long-term deposit of NWB, RBS and UBL is stable, while the banks' outlookon the issuer ratings is positive.

On 17 December 2020, we affirmed all the ratings and assessments of NWB, RBS and UBL;we also maintained a stable outlook on the banks' long-term deposit ratings, and a positiveoutlook on the banks' issuer ratings.

Exhibit 1

Rating Scorecard - Key financial ratios

1.3%

22.0%

0.0%

14.5%22.1%

0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

Asset Risk:Problem Loans/

Gross Loans

Capital:Tangible Common

Equity/Risk-WeightedAssets

Profitability:Net Income/

Tangible Assets

Funding Structure:Market Funds/

Tangible BankingAssets

Liquid Resources:Liquid Banking

Assets/TangibleBanking Assets

Solvency Factors (LHS) Liquidity Factors (RHS)

National Westminster Bank Plc (BCA: baa1) Median baa1-rated banks

So

lve

ncy F

acto

rs

Liq

uid

ity F

acto

rs

Source: Moody's Investors Service

This document has been prepared for the use of Gabriella Dispenza and is protected by law. It may not be copied, transferred or disseminated unlessauthorized under a contract with Moody's or otherwise authorized in writing by Moody's.

http://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBM_1256547https://www.moodys.com/credit-ratings/National-Westminster-Bank-Plc-credit-rating-535900/summaryhttps://www.moodys.com/credit-ratings/National-Westminster-Bank-Plc-credit-rating-535900/summaryhttps://www.moodys.com/credit-ratings/NatWest-Group-plc-credit-rating-651925/summaryhttps://www.moodys.com/credit-ratings/United-Kingdom-Government-of-credit-rating-788250/summaryhttps://www.moodys.com/credit-ratings/The-Royal-Bank-of-Scotland-plc-credit-rating-830100764/summaryhttps://www.moodys.com/credit-ratings/The-Royal-Bank-of-Scotland-plc-credit-rating-830100764/summaryhttps://www.moodys.com/credit-ratings/Ulster-Bank-Limited-credit-rating-600021082/summary

MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS

Credit strengths

» Strong capital

» Stable retail funding and sound liquidity

Credit challenges

» Profitability challenged by the pandemic-induced shock

» Likely asset-quality deterioration

OutlookThe outlook on the issuer ratings of NWB, RBS and UBL is positive. The outlook reflects the balance between on one hand, the benefitprovided by the years of restructuring; on the other, our expectation of a weakening in asset quality and profitability deriving from thecoronavirus-induced economic shock. The upward pressure on the issuer ratings is also indicated by a BCA that is at the bottom of thescorecard-indicated range.

The outlook on the deposit ratings of NWB, RBS and UBL is stable. The outlook balances the potential benefit coming from years ofrestructuring with a likely lower uplift from government support should the unsupported long-term deposit ratings move up towardsthe UK sovereign debt rating.

The rapid and widening spread of the pandemic, the deteriorating global economic outlook, subdued oil prices and the decline in assetprices are creating a severe and extensive credit shock across many sectors, regions and markets. Banking is one of the sectors thathave been affected by the economic shock, given the likely impact on asset quality and profitability.

Although the initial shock from the pandemic has been similar across countries, the economic outcomes will differ because of thedifferent capacities of nations to withstand the shock. The overall risks to our baseline forecasts2 for all countries are skewed to thedownside.

We regard the pandemic as a social risk under our environmental, social and governance (ESG) framework, given the substantialimplications for public health and safety.

Factors that could lead to an upgradeThe A2 issuer ratings of NWB, RBS and UBL could be upgraded if there is an upgrade of the baa1 BCA or a significant increase in thestock of more junior bail-in-able liabilities of the three banks.

An upgrade of the A1 long-term deposit rating of NWB, RBS and UBL is unlikely. A higher BCA or a significant increase in the stock ofmore junior bail-in-able liabilities of the three banks would likely be offset by the removal of the notch of government support uplift,due to the proximity to the UK sovereign debt rating.

The baa1 BCAs of NWB, UBL and RBS could be upgraded if there were an improvement in their asset-risk profiles; and an improvementin profitability, provided that the macroeconomic environment in the UK does not deteriorate more significantly.

Factors that could lead to a downgradeA downgrade of the A1 long-term deposit rating and the A2 issuer rating of NWB, RBS and UBL is unlikely, as indicated by the currentpositive outlook.

The A1 long-term deposit rating and the A2 issuer rating could be downgraded if there were a downgrade of the baa1 BCA or asignificant reduction in the stock of bail-in-able liabilities of the three banks.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

2 17 December 2020 National Westminster Bank Plc: Update following rating affirmation



The baa1 BCAs of NWB, UBL and RBS could be downgraded if there were a material deterioration in operating conditions in the UK,leading to significantly higher asset risk and lower profitability; a decline in capitalisation; a significant weakening of the subgroup’sliquidity; or a weakening of the intragroup capital and liquidity support mechanisms.

Key indicators

Exhibit 2

National Westminster Bank Plc (Consolidated Financials) [1]

06-202 12-192 12-182 12-172 12-162 CAGR/Avg.3

Total Assets (GBP Billion) 359.8 316.0 309.9 339.0 314.1 4.04

Total Assets (USD Billion) 444.5 418.7 394.7 458.6 388.2 3.94

Tangible Common Equity (GBP Billion) 19.3 18.3 18.6 15.8 14.8 7.84

Tangible Common Equity (USD Billion) 23.8 24.3 23.6 21.3 18.3 7.84

Problem Loans / Gross Loans (%) 1.3 1.2 1.5 0.9 1.1 1.25

Tangible Common Equity / Risk Weighted Assets (%) 22.0 22.6 24.6 27.8 23.0 24.06

Problem Loans / (Tangible Common Equity + Loan LossReserve) (%)

15.2 13.9 14.8 10.4 12.0 13.35

Net Interest Margin (%) 1.7 1.9 1.8 1.8 1.6 1.85

PPI / Average RWA (%) 4.1 2.5 4.6 4.7 2.0 3.66

Net Income / Tangible Assets (%) 0.0 1.2 0.5 0.8 1.9 0.95

Cost / Income Ratio (%) 62.0 78.4 63.8 61.2 78.3 68.85

Market Funds / Tangible Banking Assets (%) 17.6 14.5 15.3 19.8 12.3 15.95

Liquid Banking Assets / Tangible Banking Assets (%) 24.0 22.1 29.3 11.6 35.6 24.55

Gross Loans / Due to Customers (%) 96.0 96.8 86.4 85.4 76.9 88.35[1] All figures and ratios are adjusted using Moody's standard adjustments. [2] Basel III - fully loaded or transitional phase-in; IFRS. [3] May include rounding differences because of thescale of reported amounts. [4] Compound annual growth rate (%) based on the periods for the latest accounting regime. [5] Simple average of periods for the latest accounting regime. [6]Simple average of Basel III periods.Sources: Moody's Investors Service and company filings

Exhibit 3

The Royal Bank of Scotland plc (Consolidated Financials) [1]

12-192 12-182 12-172 CAGR/Avg.3

Total Assets (GBP Billion) 90.6 94.5 2.2 537.14

Total Assets (USD Billion) 120.0 120.4 3.0 530.44

Tangible Common Equity (GBP Billion) 4.7 6.5 0.1 642.54

Tangible Common Equity (USD Billion) 6.3 8.2 0.1 634.84

Problem Loans / Gross Loans (%) 2.6 2.7 -- 2.75

Tangible Common Equity / Risk Weighted Assets (%) 16.4 18.7 19.3 18.16

Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 25.8 23.0 -- 24.45

Net Interest Margin (%) 1.9 2.6 1.1 1.95

PPI / Average RWA (%) 3.6 5.5 1.3 3.56

Net Income / Tangible Assets (%) 0.7 0.7 0.1 0.55

Cost / Income Ratio (%) 50.8 44.1 78.8 57.95

Market Funds / Tangible Banking Assets (%) 10.0 12.0 12.2 11.45

Liquid Banking Assets / Tangible Banking Assets (%) 31.1 25.4 0.5 19.05

Gross Loans / Due to Customers (%) 72.6 81.8 -- 77.25[1] All figures and ratios are adjusted using Moody's standard adjustments. [2] Basel III - fully loaded or transitional phase-in; IFRS. [3] May include rounding differences because of thescale of reported amounts. [4] Compound annual growth rate (%) based on the periods for the latest accounting regime. [5] Simple average of periods for the latest accounting regime. [6]Simple average of Basel III periods.Sources: Moody's Investors Service and company filings




ProfileNational Westminster Bank Plc (NWB), its subsidiary Ulster Bank Limited (UBL) and The Royal Bank of Scotland plc (RBS) are themain UK ring-fenced banks of NatWest Group plc (NWG), managing the group's retail, small and medium-sized enterprise (SME), andcorporate business.

NWB focuses its activity in England, RBS in Scotland and UBL in Northern Ireland. NWB and RBS, together with Ulster Bank IrelandDAC (UBI DAC, A2 positive, baa1) are owned by NatWest Holdings Limited, which sits between the operating banks and the ultimateholding company NWG.

Exhibit 4

NWB, RBS and UBL are NWG's UK ring-fenced banksNWG's simplified structure

Other firms

RBS AA Holdings (UK) Limited

National Westminster

Bank Plc

The Royal Bank of

Scotland plc RBS Holdings N.V.

Ulster Bank Limited

(Northern Ireland)

Ulster Bank Ireland

DACNatWest Markets N.V.

The Royal Bank of Scotland International

Limited

NatWest Group plc

NatWest Holdings Limited NatWest Markets PlcThe Royal Bank of Scotland International

(Holdings) Limited

Ring-fenced banks Non-ring-fenced banks

Source: Moody's Investors Service and NWG

Detailed credit considerationsNWB, its subsidiary UBL and RBS are highly integrated operationally, and they have intragroup capital and liquidity supportmechanisms. This report, therefore, includes the analysis of the consolidated financials of NWB, which include UBL, and those of RBS,where available.

Likely asset-quality deteriorationWe assign an a3 Asset Risk score to NWB, three notches below the Macro Adjusted score, to reflect our expectation that problem loanswill increase from the current low base.

We estimate that NWB's problem loans were 1.3% of total loans as of June 2020 (1.2% as of December 2019), which is low. RBS'problem loans were higher (2.6% as of December 2019), given its higher proportion of commercial loans. We expect the percentageof problem loans of NWG's UK ring-fenced banks to increase in the coming quarters, as the UK economy continues to contract,unemployment increases and the forbearance measures for retail and business clients come to an end.

The level of cumulative expected loss allowances grew significantly in H1 2020 for NWB. As of June 2020, the expected loss allowancewas £3.8 billion, up 88% from that as of December 2019.

NWM's loan book of £263 billion as of June 2020, which includes UBL, comprises residential mortgages (55%), loans to small andmedium enterprises and corporates (21%), loans to property and financial institutions (9% each), other personal loans (3%), andsovereign and credit cards (1% each).

RBS' loan book is significantly smaller than that of NWB and more concentrated on commercial loans. As of December 2019 (the latestdata available), RBS reported a £55 billion stock of loans, of which 55% related to its commercial banking business (SME and largecorporates) and 41% was classified under the UK Personal Banking segment, comprising retail and mass affluent individuals. Only 1%of RBS' loan book related to the Private Banking segment, and 3% of loans were classified under the residual Central items & Otherscategory.

Riskier mortgages with a high loan to value (above 90%) of retail and mass affluent clients for NWB are relatively small, accounting for1.9% of the total as of June 2020 and below those of NWB's UK peers.



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As of June 2020, NWB had a £30.5 billion exposure to the sectors that we consider at risk of default during the coronavirus pandemic3,of which £10.4 billion related to loan commitments and contingent liabilities. This amount is more than double NWB's CommonEquity Tier 1 (CET1) capital of £14.3 billion as of June 2020. Currently, around 65% of these loans are already classified as Stage 2 underIFRS 9, with a cumulative provisioning allowance of 4%; 3% of the loans that we consider at risk are classified under Stage 3, and theyhave a cumulative provisioning of 52%.

Strong capitalWe assign an aa3 Capital score to NWB, two notches below the Macro Adjusted score, to reflect constraints on raising capital at grouplevel and our expectation of a moderate decrease in capital ratios over the next two years because of lower profitability and risk-weighted asset inflation.

NWG's UK ring-fenced banks have strong risk-adjusted capital ratios, which compare favourably with those of most of their peers (seeExhibit 4).

Exhibit 5

NWB has the highest tangible common equity/tangible banking assets among UK ring-fenced banksMain capital ratios of NWB and RBS compared with those of peers as of June 2020

16.3%

13.2%

14.6% 14.5%13.4%

14.2%

22.0%

16.4%

20.8%

18.7%17.8%

16.9%

4.7%5.3% 5.3%

4.7%5.8% 5.5%5.4% 5.2%

6.1%

4.5%5.5%

4.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

NWB RBS Lloyds SanUK HBUK BBUK

CET1 ratio TCE % RWA UK leverage ratio TCE % TBA

The peer group shown in this chart includes Lloyds Bank plc (Lloyds, A1 stable, a3), Santander UK Group Holdings plc (SanUK, Baa1 negative, a3), HSBC UK Bank Plc (HBUK, Aa3 negative/A1 stable, a3) and Barclays Bank UK PLC (BBUK, A1 negative, a3). The ratios for RBS are as of December 2019, because more recent data is not available.Sources: Moody's Investors Service and company filings

In light of the support mechanism for NWG's UK ring-fenced banks, capital of NWB and RBS is managed as a whole. As of June 2020,NatWest Holdings Limited, which includes the Irish UBI DAC, had a strong 16.2% Common Equity Tier 1 (CET1) ratio, calculated usingthe transitional arrangements under IFRS 9. This ratio is materially higher than the 10.3% minimum regulatory ratio distributableamount requirement4 for NatWest Holdings Limited as of June 2020. Excluding the IFRS 9 transitional arrangements, as of June 2020NWG's CET1 would still be strong at 15.1%.

The majority shareholder of NWG, which is indirectly the sole shareholder of NWB and RBS, is the UK government, which still owns a62% stake in NWG following the 2008 bailout. NWG's ability to issue capital as a regular course of business, which could be used torecapitalise NWB and RBS, is constrained by the government ownership.

Profitability challenged by the pandemic-induced shockWe assign a ba2 Profitability score to NWB, five notches above the Macro Adjusted score, to reflect our expectation of the bank'sprofitability over the next two to three years.

Ahead of the ring-fencing, in 2018, several services and functions were transferred to NWB and RBS from other companies within thegroup. As such, 2019 is the first fiscal year for which the income statement fully represents the current functions of NWB and RBS, anda comparison with previous years would not be like-for-like.

In 2019, NWB reported a net profit of £884 million, 0.28% of the bank's tangible assets, which is weak. The bank calculates a 79%cost-to-income ratio, which is also weak. At the same time, the results incorporate £603 million of charges related to the mis-selling ofpayment protection insurance (PPI), which we do not expect to recur in the coming years because a few quarters have passed since the



https://www.moodys.com/credit-ratings/Lloyds-Bank-plc-credit-rating-449565/summaryhttps://www.moodys.com/credit-ratings/Santander-UK-Group-Holdings-plc-credit-rating-824399292/summaryhttps://www.moodys.com/credit-ratings/HSBC-UK-Bank-Plc-credit-rating-830721622/summaryhttps://www.moodys.com/credit-ratings/Barclays-Bank-UK-PLC-credit-rating-830102652/summary


deadline of August 2019 for complaints expired. NWB's operating costs also include £907 million of strategic costs, some of which arenon-recurring.

On the other hand, RBS reported a net profit of £660 million in 2019, which is equivalent to a good 0.73% return on tangible assets.RBS' better performance reflects the extra PPI charges and strategic costs for NWB, as well as a higher exposure to commercial bankingfor RBS, which carries higher risks but higher returns.

In the first half of 2020, NWB reported a small £33 million loss. The bank reported a large spike in impairment losses because of thesignificantly weaker macroeconomic forecasts. In H1 2020, NWB's impairment losses were £1.9 billion, up from just £0.3 billion in theyear-earlier period. A £0.4 billion reduction in operating expenses was not sufficient to offset the higher expected losses. Revenue,indicated by the bank as total income, was £4.5 billion, unchanged from that recorded in H1 2019. RBS does not report interimfinancials.

NWB's UK Personal Banking and Commercial Banking divisions were the most affected by the economic shock. The UK PersonalBanking division recorded a lower spike in impairment losses, given its lower risks. However, revenue decreased because of lowerbusiness activity and persistently low interest rates. The Private Banking division, which represents a much smaller business than theother two, was instead fairly resilient.

Exhibit 6

Commercial Banking recorded the largest spike in impairment losses for NWBComparison of NWB's H1 2019 and H1 2020 income statements by division

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

H1 2019 H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 H1 2019 H1 2020

UK Personal Banking Commercial Banking Private Banking Central items & other

Net interest income Non-interest income Operating expenses Impairment losses/releases Operating pre-tax profit

£ m

illio

n

Sources: Moody's Investors Service and NWB

We expect profit to remain weak for the remainder of 2020, reflecting lower business activity and further credit provisions and loanlosses because of the pandemic-induced economic shock. We also expect profitability to partially recover in 2021 and 2022, providedthe economy rebounds in line with our macroeconomic forecasts.

Stable retail funding and sound liquidityWe assign an a3 Combined Liquidity score, reflecting an a2 Funding Structure score and a baa1 Liquid Resources score, both in line withtheir respective Macro Adjusted scores.

In line with peers, NWG's UK ring-fenced banks are predominantly deposit funded, and we expect this status to continue. We estimatethat NWB's gross loans to due to customer ratio was 96% as of June 2020, and the ratio for RBS was 73% as of December 2019.

Wholesale funding is predominantly internal, with senior, dated subordinated and Additional Tier 1 (AT1) notes issued to NWG. Only asmall portion of wholesale funding is external; these are all junior notes issued by NWB several years earlier, and covered bonds. In linewith NWG's funding plan, we expect all future unsecured issuances of NWB and RBS to be to NWG and we expect only NWB to issuesecured debt in the market.

As of June 2020, NWG's ring-fenced banks had £10 billion funding outstanding under the Bank of England's schemes: £5 billion underthe Term Funding Scheme (TFS) and £5 billion under the new Term Funding Scheme with additional incentives for SMEs (TFSME). This




amount is small in the context of the funding profile of NWB and RBS. We expect the outstanding TFS to be gradually replaced withTFSME in the coming quarters.

Liquidity of NWG's UK ring-fenced banks is sound. As of June 2020, we estimate that NWB's liquid assets were 24% of its tangiblebanking assets (December 2019: 22%). RBS' liquid assets/tangible banking assets was 31% as of December 2019.

In light of the liquidity support mechanism for NWG's UK ring-fenced banks, liquidity of NWB and RBS is managed as a whole. Asof June 2020, NatWest Holdings Limited, which includes the Irish UBI DAC, had a liquidity coverage ratio of 142% and a net stablefunding ratio of 137%, which are good.

ESG considerationsIn line with our general view of the banking sector, NWB and the other ring-fenced banks of NWG have low exposure to environmentalrisks and moderate exposure to social risks. See our Environmental risks heat map and Social risks heat map for further information.

NWB is exposed to some high-carbon emission sectors, which are prone to environmental risks. The bank's exposure to the oil and gasindustry was £1.3 billion as of June 2020 (no data available for RBS), which is small relative to the size of its loan book (around 0.5%).This risk exposure is unlikely to translate into a significant credit impact over the outlook horizon.

Our assessment of moderate social risks for NWB, RBS and UBL also takes into account the banks' exposure to the pandemic-inducedeconomic shock. Since 2011, at the group level, NWG has made around £6 billion in provisions for costs and customer redress relatedto the mis-selling of PPI. We expect any further PPI charges to be marginal, because a few quarters have passed since the deadlinefor UK consumers to claim for a compensation (29 August 2019), and the outstanding requests that the group needs to process aresignificantly lower than those in the past. At group level, in Q2 2020 NWG booked a £150 million write-back for PPI.

Governance is highly relevant for NWB, RBS and UBL, as it is to all banks. Corporate governance weaknesses can lead to a deteriorationin a bank’s credit quality, while governance strengths can benefit its credit profile. Governance risks are largely internal rather thanexternally driven, and for NWG's UK ring-fenced banks, we do not have any particular governance concern. Nonetheless, corporategovernance remains a key credit consideration and requires ongoing monitoring.

Because the ring-fenced banks NWB, RBS and UBL are subject to separate governance arrangements compared with NWG, they havetheir own boards, which act independently from the group and prioritise the interests of NWB, RBS and UBL over those of NWG.

Support and structural considerationsAffiliate supportWe expect a very high probability of support from NWG, reflecting the central role of NWB and the other UK ring-fenced banks withinthe broader group. However, as the notional BCA of NWG is lower than the BCA of NWB, the affiliate support does not result in anyuplift.

Loss Given Failure (LGF) analysisNWB is subject to the UK implementation of the European Union's (EU) Bank Recovery and Resolution Directive, which we consider anoperational resolution regime.

We believe that, in a resolution scenario, losses imposed on creditors will typically depend on a country-based division of assets andliabilities and not necessarily on those of the consolidated group. We also believe that NWB, RBS and UBL will be resolved as a singleunit, reflecting the capital support agreements between these banks, and because they are all domiciled in the UK. Our Advanced LGFanalysis, therefore, takes into account the consolidated financials of NatWest Holdings Limited from which we deduct the tangiblebanking assets and liabilities of Irish UBI DAC.

Our analysis assumes a residual tangible common equity of 3%, post-failure losses of 8% of tangible banking assets, a 25% runoff injunior wholesale deposits and a 5% runoff in preferred deposits, and assigns a 25% probability to deposits being preferred to seniorunsecured debt. We also assume that the junior proportion of NWH's UK deposits is consistent with the estimated EU-wide average of26%. These assumptions are in line with our standard assumptions.



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Our LGF analysis indicates that NWH's UK deposits are likely to face very low loss-given-failure because of the loss absorption providedby subordinated debt (including the debt downstreamed from NWG), and the volume of deposits and senior debt themselves. Thisresults in a two-notch uplift for the long-term deposit ratings from the bank's BCA. The LGF analysis indicates that NWH's UK seniorunsecured debt is likely to face low loss-given-failure because of the limited volume of senior debt externally issued by NWB, RBS andUBL. This results in a one-notch uplift for the senior unsecured debt ratings from the bank's BCA.

Junior securities issued by NWB are likely to face high loss-given-failure, given the small volume of debt and limited protection frommore subordinated instruments and residual equity. We also incorporate additional notching for junior subordinated and preferenceshare instruments, reflecting coupon features.

Government support considerationsGiven the systemic importance of NWB, RBS and UBL to the UK economy, reflecting their combined large market share in SME lendingand deposits in the country, there is a moderate probability of government support for the senior unsecured debt and deposits ofNWG's UK ring-fenced banks, resulting in a one-notch uplift.

We apply a low government support assumption to junior securities, resulting in no uplift.

Counterparty Risk (CR) AssessmentsCR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and they are distinct from debtand deposit ratings in that they (1) consider only the risk of default, rather than both the likelihood of default and the expectedfinancial loss; and (2) apply to counterparty obligations and contractual commitments, rather than debt or deposit instruments. The CRAssessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing),derivatives (for example, swaps), letters of credit, guarantees and liquidity facilities.

The CR Assessments of NWB, RBS and UBL are positioned at Aa3(cr)/Prime-1(cr)The long-term CR Assessments, before government support, are three notches above the banks' standalone BCAs of baa1. The upliftresults from the buffer against default provided to the operating obligations by substantial bail-in-able debt and deposits. A moderateprobability of government support results in one additional notch of uplift. The main difference from the Advanced LGF approach thatis used to determine instrument rating is that the CR Assessment captures the probability of default on certain senior obligations,rather than the expected loss. Therefore, we focus purely on subordination and take no account of the volume of the instrument class.

Counterparty Risk Ratings (CRRs)The CRRs are opinions on the ability of entities to honour the uncollateralised portion of non-debt counterparty financial liabilities(CRR liabilities) and also reflect the expected financial losses in the event that such liabilities are not honoured. CRR liabilities typicallyrelate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralised portion of payables arising fromderivative transactions and the uncollateralised portion of liabilities under sale and repurchase agreements. CRRs are not applicable tofunding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations,and other similar obligations that arise from a bank performing its essential operating functions.

The CRRs of NWB, RBS and UBL are positioned at Aa3/Prime-1The long-term CRRs, before government support, are three notches above the banks' BCAs of baa1. The uplift derives from thebuffer against default provided to the operating obligations by substantial bail-in-able debt and deposits. A moderate probability ofgovernment support results in one additional notch of uplift. Although NWB, RBS and UBL are likely to have more than a nominalvolume of CRR liabilities at failure, this has no impact on the CRRs because the significant level of subordination below the CRRliabilities at the banks already provides the maximum amount of uplift under our rating methodology.




Methodology and scorecardAbout Moody's scorecardOur scorecard is designed to capture, express and explain in summary form our Rating Committee's judgement. When read inconjunction with our research, a fulsome presentation of our judgement is expressed. As a result, the output of our scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.

Rating methodology and scorecard factors

Exhibit 7

National Westminster Bank Plc

Macro FactorsWeighted Macro Profile Strong + 100%

Factor HistoricRatio

InitialScore

ExpectedTrend

Assigned Score Key driver #1 Key driver #2

SolvencyAsset RiskProblem Loans / Gross Loans 1.3% aa3 ↓↓ a3 Expected trendCapitalTangible Common Equity / Risk Weighted Assets(Basel III - transitional phase-in)

22.0% aa1 ↓ aa3 Expected trend Access to capital

ProfitabilityNet Income / Tangible Assets 0.0% caa1 ↑↑ ba2 Expected trendCombined Solvency Score a2 a3LiquidityFunding StructureMarket Funds / Tangible Banking Assets 14.5% a2 ↔ a2 Extent of market

funding relianceLiquid ResourcesLiquid Banking Assets / Tangible Banking Assets 22.1% baa1 ↔ baa1 Stock of liquid assetsCombined Liquidity Score a3 a3Financial Profile a3Qualitative Adjustments Adjustment

Business Diversification 0Opacity and Complexity 0Corporate Behavior 0

Total Qualitative Adjustments 0Sovereign or Affiliate constraint Aa3BCA Scorecard-indicated Outcome - Range a2 - baa1Assigned BCA baa1Affiliate Support notching 0Adjusted BCA baa1

Balance Sheet in-scope(GBP Million)

% in-scope at-failure(GBP Million)

% at-failure

Other liabilities 53,998 13.7% 86,153 21.9%Deposits 315,241 80.1% 283,087 71.9%

Preferred deposits 233,279 59.3% 221,615 56.3%Junior deposits 81,963 20.8% 61,472 15.6%Dated subordinated bank debt 4,539 1.2% 4,539 1.2%Junior subordinated bank debt 782 0.2% 782 0.2%Preference shares (bank) 140 0.0% 140 0.0%Senior unsecured holding company debt 7,120 1.8% 7,120 1.8%Equity 11,809 3.0% 11,809 3.0%Total Tangible Banking Assets 393,630 100.0% 393,630 100.0%




De Jure waterfall De Facto waterfall NotchingDebt ClassInstrumentvolume +

subordination

Sub-ordination

Instrumentvolume +

subordination

Sub-ordination

De Jure De FactoLGF

NotchingGuidance

vs.Adjusted

BCA

AssignedLGF

notching

AdditionalNotching

PreliminaryRating

Assessment

Counterparty Risk Rating 21.8% 21.8% 21.8% 21.8% 3 3 3 3 0 a1Counterparty Risk Assessment 21.8% 21.8% 21.8% 21.8% 3 3 3 3 0 a1 (cr)Deposits 21.8% 6.2% 21.8% 6.2% 2 2 2 2 0 a2Dated subordinated bank debt 4.4% 3.2% 4.4% 3.2% -1 -1 -1 -1 0 baa2Junior subordinated bank debt 3.2% 3.0% 3.2% 3.0% -1 -1 -1 -1 -1 baa3Non-cumulative bank preference shares 3.0% 3.0% 3.0% 3.0% -1 -1 -1 -1 -2 ba1

Instrument Class Loss GivenFailure notching

Additionalnotching

Preliminary RatingAssessment

GovernmentSupport notching

Local CurrencyRating

ForeignCurrency

RatingCounterparty Risk Rating 3 0 a1 1 Aa3 Aa3Counterparty Risk Assessment 3 0 a1 (cr) 1 Aa3(cr)Deposits 2 0 a2 1 A1 A1Dated subordinated bank debt -1 0 baa2 0 Baa2Junior subordinated bank debt -1 -1 baa3 0 Baa3 (hyb) Baa3 (hyb)Non-cumulative bank preference shares -1 -2 ba1 0 Ba1 (hyb)[1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information.Source: Moody’s Investors Service




Ratings

Exhibit 8

Category Moody's RatingNATIONAL WESTMINSTER BANK PLC

Outlook Stable(m)Counterparty Risk Rating Aa3/P-1Bank Deposits A1/P-1Baseline Credit Assessment baa1Adjusted Baseline Credit Assessment baa1Counterparty Risk Assessment Aa3(cr)/P-1(cr)Issuer Rating A2Subordinate -Dom Curr Baa2Jr Subordinate Baa3 (hyb)Pref. Stock Non-cumulative -Dom Curr Ba1 (hyb)Commercial Paper P-1

ULT PARENT: NATWEST GROUP PLC

Outlook PositiveBaseline Credit Assessment baa2Adjusted Baseline Credit Assessment baa2Senior Unsecured Baa2Subordinate Baa3Jr Subordinate Ba1 (hyb)Pref. Stock Non-cumulative Ba2 (hyb)Commercial Paper P-2Other Short Term -Dom Curr (P)P-2

ULSTER BANK LIMITED

Outlook Stable(m)Counterparty Risk Rating Aa3/P-1Bank Deposits A1/P-1Baseline Credit Assessment baa1Adjusted Baseline Credit Assessment baa1Counterparty Risk Assessment Aa3(cr)/P-1(cr)Issuer Rating A2

Source: Moody's Investors Service

Endnotes1 The bank ratings shown in this report are the bank’s deposit rating, senior unsecured debt rating (where available) and Baseline Credit Assessment.

2 Our latest macroeconomic forecasts are included in our Global Macro Outlook 2021-22: Nascent economic rebound takes hold globally but recovery willremain fragile, published on 12 November 2020.

3 Based on NWB's disclosure, we consider the following sectors more at risk of default during the pandemic: airline and aerospace, land transport andlogistics, leisure, oil and gas, retail and shipping. NWG classifies these sectors as “in focus for management”.

4 We calculate the 10.3% minimum CET1 ratio, which excludes the undisclosed Prudential Regulatory Authority (PRA) buffer, as the sum of Pillar 1 (4.5%),Pillar 2A (c.1.8%), capital conservation buffer (2.5%) requirements, and 1.5% systemic risk buffer.



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