Afternoon, and welcome to NatWest Group Annual Results 2021 Fixed Income Presentation. Today's presentation will be hosted by Katie Murray and Treasurer Donal Quaid. After the presentation, we will open up for questions. Katie, please go ahead.
Good afternoon, everyone. Thank you for joining us for our full year 2021 Fixed Income Results presentation. I am joined today by Donal Quaid, our Treasurer, and Paul Pybus, Head of Debt IR. I will take you through the headlines for the full- year, give an update on our strategic priorities, and then move on to some of the detail. Donal will then take you through the balance sheet, capital and liquidity, and we'll open it up for questions. Starting with headlines on Slide 3. We reported a strong performance for 2021, with a profit before tax of GBP 4.3 billion compared to a loss of GBP 351 million in the prior year. We generated attributable profit of GBP 3 billion, and our return on tangible equity was 9.4%. We're also delivering on income growth, cost reduction, and capital.
Net lending grew GBP 7.8 billion or 2.6%, driven mainly by growth in mortgage lending. Reduced costs by 4% or GBP 256 million. We are reporting a CET1 ratio of 18.2% or 15.9% on a pro forma basis for regulatory change introduced in January 2022. To remind you, we have committed to an annual dividend distribution of at least GBP 1 billion for 2021, 2022 and 2023. We announce today a final dividend of 7.5 pence, bringing total dividends for the year to GBP 1.2 billion. We have also executed on market buybacks of GBP 750 million, and we announce today a further GBP 750 million, including the GBP 1.1 billion directed buyback we made last March.
This brings total distributions for 2021 to GBP 3.8 billion. Those are the headlines. I'll move on now to our strategic priorities on Slide 4. Two years ago, we set out our purpose-led strategy, which places customers at the heart of our business. We are delivering our strategy through four strategic priorities, with the aim of driving long-term sustainable value and delivering on our 2023 targets, which we are now updating. In 2022, we expect to deliver income of more than GBP 11 billion, excluding Ulster Bank. We are amending our cost reduction target to 3% per annum for 2022 and 2023, reflecting higher inflation and ongoing investment in the business, but maintaining our strong focus on continued cost discipline. We retain our 2023 CET1 ratio of 13%-14%, with the aim of getting to 14% by the end of 2022.
We have upgraded our return on tangible equity target for the group in 2023 to comfortably over 10%. Let me talk in more detail about how we are putting customers at the heart of our business on Slide 5. We already hold strong positions serving 19 million customers, including one in four U.K. businesses, and we know customer needs and expectations are changing rapidly. This represents an opportunity for banks that can stay close to their customers and anticipate their evolving demands. Our investments in data and technology means that we can better understand our customers, create deeper relationships, and support them more effectively at key stages throughout their lives, whether it's helping to buy a house, save for the future, set up or grow a business. You can see on this slide how we are gaining traction.
To give some examples, since March 2020, we have gained almost 500,000 new customers who have their primary banking relationships with NatWest Group. Almost 90% of our retail customers now have their needs met digitally, compared to 53% two years ago. Another way in which we are responding to changing customer needs is by helping them transition to a low carbon economy where there is a strong commercial, economic and social imperative. On Slide 6, you can see that we are a leading underwriter of green bonds, and we reached our 2021 target of raising GBP 20 billion in sustainable funding and financing early. We announced a new target to deliver a further GBP 100 billion by the end of 2025, and have contributed over GBP 8 billion towards that target in the second half of the year.
For smaller businesses, last week we announced green loans to help SMEs finance assets such as solar panels, electric vehicles or heat pumps in order to achieve their sustainability ambitions. For consumers, we have completed GBP 728 million of Green Mortgages since their launch in Q4 2020, which give a discounted interest rate on energy-efficient properties. We're also working with other organizations to accelerate change and better serve our customers. I'll now turn to capital management on Slide 7. We reduced the capital intensity of the business with a reduction from 54%- 43% over the last two years. In commercial, we have exited portfolios with low returns, delivering a reduction of RWAs of GBP 1.5 billion in 2021. We have largely completed our refocusing of NatWest Markets, reducing RWAs from GBP 38 billion in 2019 to GBP 24 billion in 2021.
During the year, NatWest Markets also returned GBP 1 billion in dividends to the group. Now that the refocusing of NatWest Markets is largely complete, we will be further simplifying the group by bringing together our commercial, NatWest Markets, and RBS International businesses to create a new franchise called Commercial and Institutional. This will enable us to deliver more products and services for our customers through the full life cycle from right across the franchises. We continue to make good progress on our withdrawal from Ulster Bank. In December, we announced a binding agreement with Permanent TSB for the sale of EUR 7.6 billion performing retail and SME loans. Together with our agreement with Allied Irish Banks on EUR 4.2 billion of performing commercial loans, this means that around 60% of the Ulster loan book is now agreed for sale.
We expect the majority of AIB and Permanent TSB asset sales to be largely complete by the end of 2022. Now let me turn to some of the detail on Slide 8. As we progress with our withdrawal from the Republic of Ireland, over time, all of this will move to discontinued operations as the withdrawal completes. From now onwards, my comments are predominantly for the go-forward group, which excludes all of Ulster Bank. We reported total income of GBP 2.6 billion for the fourth quarter, down 1.9% from the third quarter. Within this, net interest income was up 3% at GBP 1.9 billion, and non-interest income was down 13% to GBP 660 million. Operating expenses increased 21% to GBP 2.2 billion, driven by higher strategic costs and the U.K. bank levy.
The net impairment release of GBP 328 million represents 37 basis points of gross customer loans and compares to a release of GBP 226 million, or 26 basis points in the third quarter. Taking all of this together, we reported operating profit before tax of GBP 710 million for the quarter. I'll move on now to net interest income on Slide 9. Net interest income for the fourth quarter of GBP 1.9 billion was GBP 53 million higher than the third. This increase reflects continued mortgage and unsecured balance growth and the higher yield curve. Turning to net interest margin, this increased by 3 basis points to 238 basis points. Higher structural hedge income and a change in the bank rate in mid-December added 2 basis points. Mix and price developments added a further basis point, driven by higher unsecured balances.
Turning to the drivers of margin on Slide 10. Gross yield for the group fell by 5 basis points to 168, reflecting the further growth in lower-yielding liquid assets. There was moderate pressure on retail banking loan yields due to a lower mortgage rate, while commercial banking yields improved due to mix. On the liability or deposit side, group funding costs declined by 3 basis points to 28, a more typical quarterly level. Retail and Commercial deposit costs were stable. We anticipate an increase in net interest margin through 2022, driven by changes in the yield curve and mix and price. Starting with the yield curve, as we enter a period of rising U.K. base rates, we have taken action to increase our customer mortgage rates given the sharp rise in swap rates from October last year. Customer deposit rates have remained low.
This led to an increase in customer spread, which will come through in higher deposit income and is only partially offset by lower mortgage income. On the other side of the equation is the benefit we derive from higher swap rates through our structural hedge. For our hedge deposits, the ongoing increase in swap rates will be reflected through an increase in our product structural hedge income. Looking now at customer assets on Slide 11. Gross loans increased GBP 4 billion, or 1% in the quarter to GBP 356 billion. U.K. mortgage lending grew GBP 1.4 billion or 0.8%. Net mortgage growth of GBP 10.9 billion for the full year includes a record GBP 36 billion of gross new lending. Our Retail Banking mortgage shop share grew to 11%, driven by flow share of 11.5%.
U.K. unsecured balances grew a further GBP 200 million, following a return to growth in Q3. In Commercial Banking, gross customer loans reduced by GBP 1.9 billion, reflecting continued repayments on government schemes and targeted sector reductions, mainly across real estate, to manage our risk positions. Overall, 2021 was a year of strong growth in lending as we supported our customers to buy homes, grow their businesses, and manage their spending. Turning now to non-interest income on Slide 12. Non-interest income, excluding notable items, was GBP 598 million or 7% lower than the third quarter. Within this, income from trading and other activities decreased 71% to GBP 39 million. Our Currencies & Capital Markets business in NatWest Markets performed well, but there was continued weakness in fixed income, driven by an underperformance in rates.
NatWest Markets' performance at the beginning of 2022 has been in line with expectations, and this includes the F ixed Income business. Fees and commissions in our Retail and Commercial businesses grew by GBP 31 million- GBP 560 million. This was driven by higher payments income due to increased corporate activity as well as growth in card and lending fees. Turning now to Payments on Slide 13. We made a net impairment release of GBP 328 million, or 37 basis points of gross customer loans in the fourth quarter. This brings the overall release for the full- year to GBP 1.3 billion. The Q4 release was driven by an update to our economic assumptions, in line with prevailing market conditions at the year-end, improved underlying risk metrics in our performing book, and a continued low level of defaults.
Following the actions taken to de-risk the book, we are updating our through-the-cycle impairment loss rate to 20-30 basis points, down from 30-40 basis points. We expect to be below this through-the-cycle average for both 2022 and 2023. Turning now to expected credit loss on Slide 14. Our group ECL provision at the end of the year was GBP 3.8 billion, down from GBP 2.4 billion at the start. GBP 1.5 billion of this reduction was driven by improved economics, with a further GBP 166 million reduction due to the reclassification of Ulster portfolios that we have agreed to sell to AIB and PTSB. The GBP 3.8 billion ECL includes GBP 1 billion of post-model adjustments. GBP 584 million of the PMA relates to economic uncertainty, down by a further GBP 145 million in the quarter.
The ECL release has reduced our ECL coverage to 1.03%, and we are comfortable with this level of coverage. Our PMA for economic uncertainty accounts for 15 basis points, and the remaining coverage of 88 basis points is below 2019 levels, which feels reasonable given the de-risking we have undertaken. There are no particular issues in the book, and we continue to be comfortable with how it is performing. With that, I'll hand over to Donal.
Thanks, Katie. Good afternoon, and thank you for joining today's call. I will start by sharing some of the highlights from 2021 before moving into more detail on capital and liquidity. I will then give an update on our funding plans for 2022 before we open up for questions. Starting with the highlights on Slide 16, we ended the year with a strong set of balance sheet metrics against our capital funding and liquidity requirements, with a liquidity coverage ratio of 172% and a CET1 ratio of 18.2%, or 15.9% on a pro forma basis as at 1st January , 2022. We successfully executed a number of milestone transactions across the capital stack, meeting our 2021 funding plans and making further progress on capital optimization.
On ratings, Moody's upgraded NatWest Group and subsidiaries earlier in the year, and both Fitch and S&P revised their outlooks on the long-term issuer ratings for all entities in the NatWest Group from negative to stable. We have also seen further progress on our ESG ratings, with Sustainalytics reducing our risk score to low risk. Turning to our capital and leverage position on Slide 17. Our CET1 ratio at the year-end was 18.2%. You recall that regulatory changes impacting capital and risk-weighted assets took effect on the 1st of January of this year. In line with our expectations, risk-weighted assets increased by approximately GBP 19 billion, with the majority of GBP 15 billion related to new mortgage models. The increase in RWAs reduced CET1 by 200 basis points.
Taking that change, together with the removal of the software intangibles capital benefit of 20 basis points and the tapering of IFRS 9 transitional relief of 10 basis points, results in a pro forma CET1 ratio on January the 1st of 15.9%. This leaves our CET1 ratio well above our current maximum distributable amount on our 13%-14% full- year 2023 target range. In December last year, the Financial Policy Committee announced an increase in the U.K. countercyclical buffer rate from 0% to 1%. This rate will come into effect from December this year in line with the 12-month implementation period.
The Financial Policy Committee also indicated that if the economy recovery proceeds broadly in line with central projections and absent material change in the outlook for U.K. financial stability, it would expect to increase the rate further to 2% in the second quarter of this year, which would take effect in Q2, 2023. In addition, the PRA confirmed late last year that Pillar 2A will revert from a nominal amount to a percentage of risk-weighted assets later this year as part of the supervisory review and evaluation process. The U.K. leverage ratio was 5.8%, leaving 255 basis points of headroom above the U.K.'s minimum requirements of 3.25%. Moving to Slide 18 and our quarterly movements in CET1 and risk-weighted assets.
The CET1 ratio is down 50 basis points compared to the third quarter and fully reflects the final dividend accrual and the GBP 750 million buyback announced this morning, which together reduced the ratio by 75 basis points. This reduction was offset by approximately 40 basis points benefit due to lower RWAs and an increase in attributable profit, net of changes to IFRS 9 transitional relief. Our IFRS 9 transitional relief is 40 basis points, down from 60 basis points at Q3. This reflects the release of stage one and stage two expected credit loss, which would previously have been added back to our capital position. RWAs fell by GBP 2.8 billion in the quarter to GBP 157 billion. This was driven by lower credit risk, which decreased by GBP 2.2 billion, mainly reflecting lower commercial lending balances.
The regulatory changes that took effect on the 1st of January , 2022 have increased RWAs by GBP 18.8 billion- GBP 176 billion. We expect the majority of the AIB and Permanent TSB asset sales to be largely complete by the end of 2022, and for RWAs to follow this trajectory. Turning to our liquidity positions on Slide 19. We have maintained strong liquidity levels during the year with our LCR ratio increasing from 165% to 172%, reflecting over GBP 89 billion of surplus primary liquidity above minimum requirements. We continue to manage a high quality liquid asset pool with primary liquidity of GBP 209 billion.
The increase in primary liquidity was mainly driven by continued growth of customer deposits, a drawing of GBP 12 billion from the TFSME scheme in Q4, offset by Ulster Bank's repayment of TLTRO drawings of EUR 3.1 billion. Secondary liquidity is lower due to a reduction in pre-positioned collateral with the Bank of England in support of the TFSME funding received. Moving to Funding on Slide 20. We operate with a stable and diverse source of funding. Our wholesale funding is GBP 77 billion or about 14% of our total funding and reflects a range of different sources and maturities. Around 2/3 of our wholesale funding is to meet our senior MREL and non-equity regulatory capital requirements. We continue to look at all options available to us to assess the optimal blend and most cost-effective means of funding.
Looking at customer deposits in more detail on Slide 21, you can see that deposit levels remained elevated. Customer deposits increased GBP 48 billion during the year with a GBP 17 billion increase in retail, GBP 10 billion in commercial and GBP 7 billion in private. Retail Banking deposits are now GBP 189 billion, and Commercial Banking deposits are GBP 178 billion. As Katie mentioned, we've made good progress in our plans to withdraw from the Republic of Ireland. We currently have EUR 22 billion of customer deposits in our Ulster Bank legal entity, and we expect those balances to substantially reduce over the next 12- 18 months. Our loan to deposit ratio is 75%, underpinning our strong liquidity and funding position, as well as our strong ability to lend. Turning now to our MREL position on Slide 22.
Our Total Loss-Absorbing Capacity ratio continues to look very healthy at 39.8%, significantly higher than our RWA requirement of 25.7%. Our senior unsecured MREL stock is now approximately GBP 23 billion or 12.9% of Risk-Weighted Assets on a pro forma basis compared to our RWA requirement of 11.6%. As you can see from the profile on this slide, we expect around GBP 7 billion of senior unsecured MREL to lose eligibility during 2022. Last week, we announced the call of our first callable senior unsecured MREL security. I expect to be issuing in the region of GBP 3 billion-GBP 5 billion senior unsecured MREL in 2022 to maintain our steady state requirement of GBP 19 billion-GBP 21 billion. Now turning to capital on Slide 23.
Our total capital ratio at the full- year is 24.1% on a CRR endpoint basis and 20.9% on a 1st January , 2022 pro forma basis. With the uplift in RWAs to GBP 176 billion on 1st January , 2022, our AT1 ratio is 2.2% and our Tier 2 ratio is 3%. We are well positioned on both AT1 and Tier 2, and I have no expected issuance requirements this year. However, this is subject to the evolution of risk-weighted assets throughout the year, including the planned reduction in Ulster Bank's RWAs. Now turning to Slide 24. We continue to proactively take opportunities to reduce our legacy capital stack via liability management exercises, calls, and maturities.
In 2021, we purchased GBP 1.7 billion of securities through liability management exercises that targeted Tier 1 and Tier 2 legacy capital and bullet Tier 2 securities with less than five years to maturity, reducing inefficient capital and generating ongoing reductions in our interest expense. Additionally, we bought six Tier 2 securities for NatWest Group and NatWest Bank, including our four outstanding discounted perpetual Tier 2s, totaling around GBP 750 million. At the year-end, we had GBP 2.5 billion of outstanding legacy securities, which have no regulatory capital value after the 1st January, 2022. Our strategy and focus on taking action on legacy instruments has continued into 2022.
Earlier this month, we announced the call of three legacy Tier 1 instruments with a notional of $1.1 billion that lost regulatory capital value of approximately GBP 575 million on the 1st of January, 2022. These actions reduced the outstanding balance to below $2 billion and a further $1.3 billion matures during the year, which will significantly reduce the balance to approximately $600 million by the end of this year. Looking back at our issuance in 2021 on Slide 25. I'm very pleased with the transactions we've executed during the year.
Again, thank you for your continued support for NatWest Group and NatWest Markets. On MREL, we achieved the targets we set out early last year, and we've made good progress on our ESG issuance plans with a EUR 1 billion senior MREL social bond and a GBP 600 million senior MREL green bond issued under our Green, Social and Sustainability Bond Framework. We have now completed four transactions in green, social, and sustainable format, and this continues to be a key area of focus for us. In addition to our GSS issuance, we were also active in the dollar and euro markets with both a $1.5 billion and a EUR 1 billion transaction. On capital, we returned to the sterling market with the GBP 400 million additional Tier 1, followed by EUR 700 million additional Tier 1.
We also issued GBP 1 billion and EUR 750 million Tier 2, meeting our requirements for the year. Finally, from NatWest Markets OpCo, we issued approximately GBP 4 billion in four benchmark transactions in both euro and dollar markets. I expect NatWest Markets to target GBP 4 billion- GBP 5 billion in public benchmark transactions this year, and we may also look to be active in the NatWest Markets N.V. name through private placements. Turning to ratings on Slides 26 and 27. I'm very pleased with the ratings upgrades by Moody's. For NatWest Group, the senior unsecured debt rating moves to Baa1 from Baa2 while retaining a positive outlook. For National Westminster Bank Plc and The Royal Bank of Scotland plc, the issuer ratings move to A1 from A2 with a stable outlook.
For NatWest Markets and NatWest Markets N.V., the senior unsecured debt ratings move to A2 from A3, retaining a positive outlook. The short-term ratings moved to P1 from P2. S&P and Fitch changed their outlook to stable from negative for all group-rated legal entities in June and July, reflecting a stronger than expected U.K. economic recovery and NatWest Group's strong financial profile. We also continue to make progress on our ESG ratings, reflecting the increased focus and engagement effort we've had with the ESG rating agencies and our purpose-led strategy. Sustainalytics announced an improvement in our Risk Score to 17.3 in May last year, which now places NatWest Group as low risk. Finally, finishing on our investment case on Slide 28. We're a capital generation business with capital and leverage ratios well above minimum requirements and improving return on tangible equity.
We're reducing state ownership through directed buybacks and efficiently deploying excess capital through dividends and on-market buybacks. We have a robust liquidity position with a high-quality liquid asset pool and a disciplined approach to risk with resilient asset quality. We continue to make progress on ratings across both credit and ESG. We've diversified issuance needs with a continuing focus on green, social, and sustainable issuance in multiple currencies and tenors. With that, I'll open up to Q&A.
Ladies and gentlemen, if you would like to ask a question today, you may do so by using the raise hand function on the Zoom app. If you are dialing in by phone, you can press Star nine to raise your hand and Star six to unmute once prompted. We will pause for a moment to give everyone an opportunity to signal for questions. Our first question asks, Could I get your thoughts on there being no Tier 2 issuance requirements for the year?
Donal, I'll hand that one to you.
Yeah. Thanks, Katie. Based on our risk-weighted assets of GBP 177 billion as of the 1st of January , 2022, you can see our current Tier 2 percentage is approximately 3%. I'd say just a number of points to consider here. Firstly, I talked previously around the bullet Tier 2 securities that we've had with about GBP 7.5 billion notional that are less than five years to maturity, amortizing 20% per annum. We've obviously made a lot of progress on liability management exercise on those securities over the last couple of years. At the end of 2021, they just had about GBP 1 billion of regulatory capital value outstanding at the end of the year.
That should reduce to about GBP 400 million at the end of this year. Hence reducing the previous annual requirements we have in Tier 2. Secondly, given expectation of the Ulster Bank asset sales with AIB and Permanent TSB being materially completed by the end of this year, you can expect a corresponding reduction in group risk-weighted assets, so again, reducing Tier 2 requirements. Remind you, we've had GBP 11.6 billion of risk-weighted assets in the Ulster Bank entity at present. Finally, there's also potential for further reduction in our Pillar 2 requirements when we return to a fixed percentage of risk-weighted assets later this year. We'll wait and see how that lands later on in Q3 or Q4 of this year.
I suppose the last point to note is we still run excess CET1 through 2022 and into 2023 as well. As I sit here today, no requirements for Tier 2 for the year, but as I said in my opening remarks, that is gonna be driven by the evolution of risk-weighted assets through the year. If that changes, we'll update later on in the year. Thank you.
Thank you. Our next question comes from Robert Smalley of UBS. Robert, if you could please unmute and go ahead.
Hi. Hi, Katie. Hi, Donal.
Hi, Robert.
Thanks for doing the call. Three questions. First, on deposits. In a rising rate environment, we're obviously going to see deposit rates go up. Are there certain breakpoints or certain interest rates where it becomes very competitive or that you have contractual deposits where you have to raise rates? If so, could you give us an idea of how much? On mortgages, how much of your book reprices this year and next year? Also on mortgages.
We're seeing loan-to-values go down as house prices go up. In some cases pretty quickly. Usually as credit analysts, we worry about it the other way, but when we see house prices go up so much, you know, is there any kind of rule of thumb or metric that you look at for any kind of extra provisioning there or extra caution around the market given the robustness of the housing market? Thank you.
Laura, do you want to talk to deposits and I'll pick up the mortgage one?
Yeah. Thanks for the question, Robert. In terms of breakpoints, you know, I think the answer is none that we see visible at this stage. We have talked around our rate sensitivity and the fact that we expect pass-through assumptions to increase as rates move higher. That, you know, that's reflected in the lower rate sensitivity that we provided this morning based on a higher yield curve as at the end of the year. You're right. I think in terms of, you know, rising rates, higher inflation and also, quantitative tightening in the U.K., you know, that is likely to have an impact, I think, on the, I suppose, huge surplus levels of liquidity that we've seen in the U.K. economy over the last few years.
I do expect kind of any reduction there to be slow. It's probably, you know, expected that we will see more competition in the deposit market as we move into probably H2 of this year and into next year. No real breaking point to call out.
In terms of mortgages, look, our fixed rate book is a mix of two-year and five-year products, of which GBP 60 billion, so about a third of the book, churns each year. You'd see that kind of mixture coming through as 30 billion kind of new to bank customers and 30 billion of kind of internal switches. That's the kind of third of it does that. We have 10%, less than 10% is on SVR. And that, they don't stay on SVR for a terribly long time, so it's generally relatively transitory. In terms of loan-to-value, you're absolutely right. It's come down about 3% for us this year. That is positive in terms of obviously absolute recovery.
I think more important is also just how well that book is performing and the level of deposits that the mortgage owners are holding. That also gives you some comfort around that piece. There's not a particular trigger when we sort of say LTVs get below this level and then we're kind of worried. I think we're very much focused on actually how the book is performing rather than the absolute LTV for the total book. We're very comfortable at those levels.
That's very helpful. Thanks. Thanks for doing the call.
Yeah. Lovely. Thanks.
Thanks, Robert.
Thanks, Robert.
Thank you. Our next question comes from David Covey of M&G. David, would you please unmute and ask your question?
Hi, guys. I hope you can hear me.
Yeah. Hi, David.
Thanks for the call. A couple questions. First, just to clarify the loan impairment guidance of 20-30 basis points, does that include potential releases of post-model adjustments for the next couple of years? You know, I know you said it would be much lower than the 20-30 basis points. I'm curious to know what the breakdown is between potential releases and actual defaults or losses. And if the answer is yes, then, you know, how do you expect actual credit defaults and losses to evolve over the next couple of years? And then second, you know, you did mention the ongoing de-risking. Just to confirm, you said the de-risking since 2018, is that primarily Ulster and maybe a little bit in NatWest Markets?
is there other areas where you feel like your loan book has been de-risked?
Yeah. When we talk about the de-risking point, David, it's very specifically in terms of what we've done in our commercial book. We managed down GBP 1.5 billion of our RWAs this year, primarily in real estate exposures. It's actually a conversation separate from Ulster and NatWest Markets, where we would see them as much more strategic restructuring of the group. This is kind of within the core book, managing the day-to-day risks within that, but has been principally focused on real estate, I think, in this last year. If we then look to the loan impairment guidance, yes, 20-30 basis points through the cycle, and we do expect to be lower than that over the next couple of years.
That would be as a result of some of the unwind of the PMA. We haven't said specifically how we think that might unwind. I think we're as we go into this year, obviously we ended last year strong. We made a relatively big release. You could imagine that now it's still relatively stable in terms of the quality of that group. What you could see is some initial releases, and then as things start to get tighter and the impact of things like inflation and rising rates might start to impact the group, which they are not today, then you'll see more of those charges coming through. Certainly lower than the 20-30 for the next couple of years.
Thank you.
Lovely. Thanks, David.
Thank you. As a reminder, if you would like to ask a question today, you can do this by raising a hand by pressing Star nine or by raising a hand using the app. Our next question comes from Daniel David of Autonomous. Daniel, would you please unmute and go ahead.
Good afternoon. Thanks for taking my questions. Hopefully you can hear me okay.
Yeah.
I've got three, if that's okay. So the first one is just on ESG and noting your credentials. Clearly we've got a stress test coming up this year. Just a bit worried that we're gonna get a lump of data which is aggregated and not being able to decipher much in terms of bank by bank. I was wondering, are you planning to disclose anything in terms of the results so we can, I guess, so you can maybe benefit from any good outcomes or we can maybe read into a bit more along those lines? Maybe if there's anything you can tell us in terms of the process or how it might have impacted your ESG systems or outlook would be really interesting.
The second one's just on LIBOR. Given that we've been through the sterling LIBOR cessation date, I'm just interested if you've got any contracts which are referencing the synthetic extension, if there's any operational challenges, and also how long you think that will be available. Then finally is just on MREL. So you've got an awful lot of MREL, and I hear what you just said on the Tier 2 answer to the question. Is there a way that we should think about the actual target for your MREL stack? So close to 40%, clearly it's large, but is this 30% more realistic or should it be 200 basis points above the regulation?
I'm just trying to get a sense for where we should see it longer term. Thanks.
Thanks so much. In terms of the EBA piece and the publication of the stress test, I don't believe there'll be a lot of bank by bank analysis. I think it will be much more kind of sector-wide. We are, and as I'm sure you're aware, doing a little bit further of follow-up work as the PRA have come back with additional questions, I think, following all of our submissions. They're more qualitative rather than quantitative in nature. I think we'll wait to see what ultimately they disclose, unless there's any other comment we can make on that, though traditionally we don't when it's in terms of stress tests. It does generally stand alone.
I do think, though, that the stress test was really helpful for the organization in exactly along those lines, as you mentioned, around making sure that we established our systems and processes. You could start to do some of these calculations. While it's a stress test, it's very specific to work out an impairment number. It doesn't look well enough into or at the rest of the income statement and balance sheet. I do think it was incredibly helpful to kind of start the process of people really understanding what it meant. Donal, do you want to pick up the LIBOR question?
Yeah, I'll take. On LIBOR, I think it's probably fair to say large majority of the sterling exposure is now transitioned. There is a very small rump that will avail of the synthetic extension, mainly around kind of tough legacy products. In terms of my view on how long that will last, I think that's just something that we review on an annual basis from a Bank of England regulatory perspective. You know, as I say, I would expect that rump to actually roll off as well from our perspective over the next couple of years as deals mature. Not an issue and no real operational complexity that we can talk about with the transition either. We're very comfortable where we are. On the MREL question, I...
Probably Slide 22 in the fixed income deck is the best place to look at it. You're right. You know, when we're showing a full- year 2021 TLAC ratio of 39.8%, so quite high. I suppose a number of different moving parts there. CET1, which we've guided to already today of approximately 14% by the end of 2022 and the 13%-14% kind of range between by the end of 2023. You will see obviously a reduction there. We're moving closer to our book. It's in AT1 and Tier 2, and we're also kind of giving some steady state requirements on our senior MREL there of GBP 19 billion-GBP 21 billion as well.
that will obviously bring you know, closer to the 30% than where we're standing today.
Great. Thanks a lot.
Thank you.
Thanks, Daniel.
Thank you. Our last question comes from Aileen Barbiellini Amidei of Longfellow. Aileen, if you'd like to please unmute and go ahead.
Thank you very much, Katie and Donal, for this webinar. Just two things really for me, and these are mainly target questions. The first one is just trying to get your timing target for the, you know, sale of the remaining Ulster book that is not under the agreement. Obviously, we've got the Permanent TSB and the Allied agreements in place that you mentioned will complete this year. For the remaining ones, do you have a target for that? The second question I have is also a target, a timing target, in terms of the pace of the stake ownership reduction. Are you more opportunistic in that, or has there been a thought of how you want to reduce UKGI ownership? That's it for me.
Yeah, sure. Thanks very much, Aileen.
Yeah, sure.
If I think of the Ulster piece, first of all, you know, there are two main groups of loans left that are not covered by the binding agreement. The tracker mortgage group of about EUR 6 billion and a EUR 1 billion portfolio of non-performing loans. Excuse me. Discussions are ongoing with other strategic counterparties about the potential interest in other parts of the bank. Those conversations are ongoing, and we will continue to update you as and when we conclude any discussions. We do, as you know, expect the withdrawal process to continue to be capital accretive as well. In terms of the government ownership, we're at 50.94%. If I take that back to a year ago, we were about 62. There's been a lot of progress made on that ownership this year.
You know, the sell-down of the stock is at the UKGI's discretion, not ours. The job that we have to do is to make sure that we're building an organization that tells a good quality equity story so that there is the interest to kind of make that purchase. I think what you've seen over the last year kind of supports that build has been made and the actions that they have taken. You know, they are actively selling in a program at the moment, and we would look to participate in any directed buyback that they might do at a future date. Thanks, Aileen.
Thank you very much. I'd now like to hand the call back to Katie for any closing comments.
Well, thanks very much everyone for your time. It is always really appreciated that you take time to come on the call today. If you do have any further questions, please don't hesitate to contact Paul Pybus in our Debt IR and also to me. Donal Quaid and I look forward to talking to you in July at our next call after H1 results. Thanks very much indeed, and thanks for the ongoing support.
Thank you.