Good afternoon, and welcome to NatWest Group Q1 Results 2023 Fixed Income Call. Today's presentation will be hosted by CFO Katie Murray and Treasurer Donal Quaid. We also have Head of Debt IR, Paul Pybus , our Head of Treasury DCM, Scott Forrest, on the line for questions. After the presentation, we will open up for questions.
Katie, please go ahead.
Good afternoon, everyone. Thank you for joining our quarter one fixed income results presentation. I'm joined today by Donal Quaid, our Treasurer, and Paul Pybus, our Head of Debt IR. I will take you through the headlines for the quarter and then move on to some of the detail. Donal will then take you through the balance sheet, capital and liquidity, and then we'll open up for questions. Starting on slide 3, our strategy continues to deliver against the backdrop of increased market volatility since we last spoke in February. We are well-positioned, both for the upside as we build on our strong customer franchise to drive targeted growth and for the downside as a result of our strong balance sheet and liquidity, high quality deposit base, and disciplined risk management.
We delivered an operating profit of GBP 1.8 billion in the first quarter, an increase of 49% on the same period in 2022. Attributable profit was GBP 1.3 billion, up 52% on the first quarter last year. Our return on tangible equity increased from 11.3%-19.8%. Income, excluding all notable items, grew 37% to GBP 3.8 billion. Costs increased by GBP 240 million, which includes the one-off payment we made to staff in January to help manage the rising cost of living, and we continue to focus on tight cost discipline. We expect to generate and return significant capital to shareholders this year and intend to maintain our 40% payout ratio. We have completed more than half of the GBP 800 million on market buyback announced in February.
The government shareholding now stands at just over 41%. We have regulatory permission to undertake a directed buyback, though any transaction remains at the government's discretion. Turning to slide 4. An overview of the balance sheet. We have seen an expected reduction in deposits during the quarter, which Donal will talk about later. Our funding is well diversified. Our loan-to-deposit ratio is 83%, resulting in surplus deposits of GBP 53 billion. Our liquidity coverage ratio of 139% is well in excess of minimum requirements with headroom of GBP 43 billion. On the asset side, we have a well-diversified loan book, where our top 10 wholesale customers account for around 5% of total loans. We have limited exposure to commercial real estate, which is around 5% of the total book.
93% of the personal lending is secured, and our mortgage books have prudent loan-to-value ratios with an average of 53%. The book's performance demonstrates our strong risk management, with low levels of arrears and impairment. Procyclicality remains at low levels, and we continue to monitor this closely. Turning to slide 5. You can see from this slide that we're making good progress on our objectives and are on track to meet our 2023 guidance on income, cost, capital. As a leading provider of sustainable financing, we play an important role in helping our customers transition to a net zero economy. We have delivered over GBP 40 billion of climate and sustainable funding since July 2021 to meet our GBP 100 billion target. In addition to our focus on driving targeted growth, we continue our strong track record of disciplined cost management and investment.
We're on track to meet our cost guidance for the year of around GBP 7.6 billion and our guided cost-income ratio of less than 52%. We expect to invest in the region of GBP 3.5 billion over the next three years, continuing our digital transformation, which includes improved customer journeys, data analytics, machine learning, and robotics. We continue to allocate capital effectively across the business as we continue our phased withdrawal from the Republic of Ireland. RWAs have reduced by a further GBP 800 million in the quarter to GBP 4.6 billion. Around 95% of accounts are now closed or in the process of being closed, and we expect the agreed asset sales to complete by the year-end.
As I said earlier, we expect to make significant distributions to shareholders in 2023 and intend to maintain our payout ratio of 40%, for which we have accrued GBP 500 million in the quarter. Moving on to net interest income on slide 6. Net interest income, excluding notable items, was broadly stable at GBP 2.9 billion. Net interest margin, excluding notable items, increased 2 basis points to 327. Wider deposit margins added 12 basis points, reflecting the benefit of higher average interest rates, partly offset by lower average deposit balances, ongoing pass-through to savers, for which there is a timing lag, and ongoing customer migration to higher interest-paying accounts. Lower lending margins reduced NIM by 9 basis points, driven by lower front book mortgage margins.
We continue to expect net interest margin for the full year of around 320 basis points. Turning now to loan growth on slide 7. We are pleased to have delivered a strong quarter of balanced lending growth across the group. Gross loans to customers across our three businesses increased by 1.6% or GBP 5.7 billion to GBP 356 billion. Taking retail banking together with private banking, mortgage balances grew by GBP 3.9 billion or 2% in the quarter. Gross new mortgage lending for the quarter was GBP 10 billion, representing flow share of around 17%. This is higher than normal, reflecting our decision to stay in the market during the market volatility in Q4, when others withdrew, and for a shorter period between application and completion of mortgages in Q1.
Unsecured balances increased by a further GBP 200 million in the quarter to GBP 14.4 billion, driven by new card issuance and market share gains. In commercial and institutional, gross customer loans increased by GBP 1.5 billion. At the mid to large end, we saw good demand across RCS, term lending, and funds banking. At the small end, demand remains muted, and we have seen some de-leveraging by customers with surplus liquidity, as well as ongoing repayment of government lending schemes. I'd like to turn now to non-interest income on slide eight. Non-interest income, excluding notable items, was GBP 918 million. We are pleased with the performance of our Markets business, which delivered higher fixed income revenues and benefited from currency volatility. Capital markets income grew as we supported more commercial customers with their issuance.
Fees and commissions decreased GBP 32 million to GBP 583 million due to seasonally lower spending. Going forward, non-interest income will be influenced by economic activity and customer confidence, as you would expect. Turning now to costs on slide 9. Other operating expenses were GBP 1.9 billion for the first quarter. That's up GBP 214 million or 12.5% on the same period last year. Excluding the one-off cost of living payments to staff and higher strategic costs relating to our phased withdrawal from the Republic of Ireland, cost growth was around 7% year-on-year. We continue to expect other operating costs of GBP 7.6 billion for the full year, equivalent to around 4% annual cost growth.
I'd like to turn now to credit risk on slide 10. We have a well-diversified prime loan book, which is performing well. Over 50% of our group lending consists of mortgages, where the average loans value is 53% or 69% on new business. Overall, we have low levels of arrears and forbearance in our mortgage book. 91% of our book is at fixed rate, 5% are trackers, and 4% is on a standard variable rate. Over two-thirds of mortgage balances are on five-year fixed rates and less than a quarter are two year. Our personal unsecured exposure is less than 4% of group lending and is performing in line with expectations.
Our corporate book is well diversified and we have brought down concentration risk over the past decade. Our commercial real estate exposure represents less than 5% of group loans with an average loan to value of 47%. We have carefully managed this exposure for several years, reducing absolute exposure and pivoting away from retail towards industrial. We are comfortable with the risk in this actively managed portfolio.
Turning now to look at impairment on slide 11. We're reporting a net impairment charge of GBP 70 million for the first quarter, equivalent to 7 basis points of loans on an annualized basis. We have not updated our economic scenarios this quarter, as we are comfortable they adequately reflect the current macro uncertainty. This charge largely reflects stage three impairments, which remain stable. Our through-the-cycle impairment guidance is 20-30 basis points, and I continue to see this as an appropriate level for 2023, given both the economic outlook and the relatively benign trends in our book.
Our expected credit loss coverage is broadly stable at GBP 3.4 billion, equivalent to 89 basis points of loans. This includes GBP 330 million of post-model adjustments for economic uncertainty, which are also broadly stable in the quarter. We remain comfortable with coverage of the book, which is not showing any material signs of stress.
With that, I will hand over to Donal.
Thanks, Katie. Good afternoon, and thank you for joining today's call. I will start by sharing some highlights from the first quarter before moving into more detail on deposits, liquidity, and capital. I will then give an update on our progress against our funding plans for 2023, before we open up for questions. Starting with the highlights on slide 13. We ended the quarter with a strong capital MREL and leverage position, comfortably above the regulatory minima with a CET1 ratio of 14.4%, a leverage ratio of 5.4%, and a total loss absorbing capacity ratio of 32.4%. The group's funding is well diversified. We have a strong deposit franchise and a robust liquidity position.
Liquidity coverage ratio was 139% at the end of the quarter, giving us a comfortable surplus over minimum requirements, with the liquidity portfolio primarily concentrated in central bank deposits. We've made good progress against our funding requirements in the quarter, achieving over 50% of our annual issuance requirements despite challenging market conditions. It was very pleasing to see further progress on our credit ratings this month, with S&P upgrading all NatWest Group entities, recognizing Group's strong earnings outlook, resilient balance sheet, and solid funding and liquidity.
Turning to liquidity on slide 14. Our liquidity position remains robust, although we are seeing a reduction from elevated levels with a LCR ratio at 139% at the end of Q1, reflecting around GBP 43 billion of surplus primary liquidity above minimum requirements. Our liquidity coverage ratio was 151% on a 12-month rolling average view. The decrease in the ratio in the quarter was primarily due to a reduction in the customer funding surplus as customer deposits reduced and lending grew, partially offset by treasury funding activity. We continue to manage a high-quality liquid asset pool, with primary liquidity of GBP 149 billion and secondary liquidity of GBP 61 billion.
Primary liquidity is concentrated in cash with GBP 120 billion deposited with central banks. The remaining GBP 29 billion comprises highly rated government and other Level 1 LCR bonds, the majority of which are held on the balance sheet at fair value. Approximately 4% of our primary liquidity, or GBP 6.5 billion, is held to collect at amortized cost, so the fair value is not reflected in the group balance sheet.
Looking at customer deposits on slide 15, customer deposits across our three businesses were GBP 422 billion at the end of the quarter, resulting in a loan-to-deposit ratio of 83%. During the quarter, we saw a reduction in balances across our three core franchises from the elevated position built up during the pandemic, reducing by approximately GBP 11 billion, driven by increased competition and tax payments, which were around GBP 8 billion higher than the fourth quarter. Retail banking deposits reduced by GBP 4.4 billion in the quarter, driven by tax payments and higher customer spending. In the private bank, the impact of tax was most pronounced given the customer demographic. In commercial and institutional, deposits reduced by GBP 2.8 billion, mainly reflecting the reduction in system liquidity. Within central and other, we saw a further GBP 8.7 billion reduction.
Around half of this is the result of our phased withdrawal from the Republic of Ireland, with the remainder due to Treasury repo activity. Going forward, our deposit flows will be a function of macroeconomics, changes in net lending, and customer behavior. We think deposit balances at the end of 2023 are likely to be stable to modestly lower than GBP 433 billion at the end of 2022, although the evolution of balances remains difficult to predict. Looking at the deposit mix on slide 16. We operate with a diverse deposit franchise with a mix of retail and commercial deposits across interest-bearing and non-interest-bearing product offerings. During the quarter, we saw limited change between interest-bearing balances, which account for 60% of the mix, and non-interest-bearing balances, which make up the remainder.
Within interest-bearing balances, we continue to see migration from instant access into term accounts. Term deposits are around 8% of total deposits, up from 6% at the year-end and 3% at the end of 2021. Around 40% of total deposits are insured, although this varies by customer type. Across our retail and private banking businesses, 68% of deposits are insured, although this is higher in retail banking than in private. For corporate customers, around 11% of balances are insured, and this will be higher for small business banking customers than for markets and funds banking customers. Our cumulative pass-through is now around 40% across interest-bearing deposits, up from 35% at Q4, and this includes pricing decisions after the base rate increase to 4.25% in March.
Turning to our capital and leverage position on slide 17. Our CET1 ratio at the end of the year was 14.4%. The CET1 ratio is well above the current maximum distributable amount of 9.5% and above our target range of 13%-14%. This leaves us well positioned to participate in a directed buyback from the government should they choose to sell. Our total capital ratio for the first quarter is 19.6%. Given our CET1 target range of 13%-14%, we expect to operate with optimal levels of AT1 and Tier 2 capital relative to minimum requirements. We have a comfortable AT1 position with GBP 3.9 billion sterling equivalent in issue, an AT1 ratio of 2.2% compared to a minimum regulatory requirement of 2.1%.
We have no near-term AT1 considerations with the next call date in August 2025. Our Tier 2 ratio is 3% with our most recent issuances last December and in March of this year. Our U.K. leverage ratio was 5.4%, leaving around 115 basis points of headroom above the Bank of England's minimum requirements. Moving to slide 18 on our quarterly movements in CET1 and Risk-Weighted Assets. We generated 50 basis points of capital pre-distributions. This includes 72 basis points of capital from earnings, partly offset by the change in IFRS 9 transitional relief of 8 basis points and Risk-Weighted Asset growth of 16 basis points. The ordinary dividend accrual is equivalent to 29 basis points. RWAs increased by GBP 2 billion in the quarter to GBP 178.1 billion.
Credit risk RWAs increased GBP 1.7 billion, primarily due to stronger lending. Operational risk RWAs increased following the annual recalibration exercise. This was partially offset by a GBP 0.8 billion reduction in market risk. Looking at our issuance during the quarter on slide 19, I'm very pleased with the transactions we've executed in the quarter, particularly in light of the challenging market conditions. Thank you for your continued support for NatWest Group and NatWest Markets. From NatWest Group, we issued around GBP 2 billion sterling equivalent in senior preferred format. Including a $2 billion dual tranche trade, as well as a EUR 500 million social bond, with proceeds dedicated to supporting women-led enterprises. The first such issuance by a European financial institution. In addition to issuing Senior MREL, we also issued EUR 700 million of Tier 2.
Finally, from NatWest Markets Plc, we issued one and a half billion euro in fixed and floating formats. Turning to credit ratings on slide 20. It's pleasing to see further progress in our credit ratings this year. This month, S&P upgraded the ratings of all NatWest Group entities. The NatWest Group holding company is now rated triple B+ . The ring-fence bank core operating companies are now A+ , and our non-ring-fenced banking operation companies are now A. The outlook for Moody's, S&P, and Fitch are stable across all group entities. We will continue to proactively engage with the agencies to support ongoing progress in our credit and ESG ratings.
With that, I'll hand back to Katie.
Thank you, Donal. I'd like to finish with guidance on slide 22. For 2023, we continue to expect income, excluding notable items, to be around GBP 14.8 billion. Net interest margin of about 3.2%, group operating costs, excluding litigation and conduct, to be around GBP 7.6 billion, delivering an improvement on the cost-income ratio to below 52%. We anticipate a loan impairment rate in the range of 20 to 30 basis points, together, we expect this to lead to a return on tangible equity of 14%-16% and to be at the upper end of this range.
We expect to return significant capital to shareholders this year with a payout ratio of 40% and capacity for additional buybacks. In the first quarter, we have already accrued just over GBP 500 million for dividend payments and completed more than half of our GBP 800 million on market buyback.
With that, I'll open the line for questions.
Thank you, Katie. If you would like to ask a question today, you may do so 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'll pause for a moment to give everyone an opportunity to signal for any questions. As we wait for you to ask, we've had a few pre-submitted questions. The first asks: Can you tell me about your funding plan and expected currency mix for 2023?
Donal, do you wanna take that?
Yeah, sure, Katie. Thanks for the question. From-- We're 50% complete, as you can see in our slides, year to date. In effect, what we have left, if I remind you what we guided to at full year results. From a Tier 2 perspective, we said we had up to GBP 1 billion to do. You see that we did one transaction, so there is a further transaction that we'd look at probably in H2. We'll keep our options open on that. Then from Senior MREL, we got into GBP 3 billion-GBP 5 billion. From the midpoint there, we are 50% complete with the $2 billion dual tranche and also the EUR 500 million social bond.
I would expect to be active in Q2 on a Senior MREL perspective. We'll, as always, keep our options open from a currency perspective. You know, I think sterling euros are probably two that we would look at just given current levels. Probably expect at least one to two MREL transactions in Q2.
Thank you very much. Our next question comes from Robert Smalley of UBS. Robert, if you could please unmute and go ahead.
Hi. Morning, and thanks for doing the call. Just wanted to talk two things. One on if you could walk me through the provision line, why the 7 basis points? You're keeping your economic assumptions the same as they were on to start the year, and your base case is still pretty big fall off in house prices and commercial real estate. If you could just walk me through how that squares up with the provision where it is? Second part is, how does that translate for the rest of the year, and are you concerned about a market perception with that going up to meet the guidance? Third, unrelated question.
One of your competitors bought Silicon Valley Bank's U.K. operations. There was a change in or an allowance in the ring-fencing rules around that. Can this prompt a discussion about changing the ring-fencing rules and some of the corporate structure for banks in the U.K.? Thanks.
Thanks, Robin. Thanks very much for joining. I'll take the first one, and then I'll let Donal talk a little bit about the second bit. If I look at the provision line, in terms of why a 7 basis points, the reality is the book is incredibly. It's performing incredibly well. If you look at the underlying, that 7 basis points, what you actually saw was a crit coming through from C&I, reflecting the lack of the kind of deterioration within that book. Where you've made provisions, they've kind of moved from Stage 2 back into stage one. There's the normal kind of Stage 3 charges you'd expect to see in retail, but again, not kind of significant, which is why you get the GBP 70 million charge.
If I look at the, kind of the economics that are there, I mean, obviously we built them in at the end of the year. We then re-examined them each quarter, what we kind of felt was they were broadly, basically where they were, and we're not keen to kind of keep moving economics by small amounts. Rather wait till there's actually something more significant. We will do another review of them as we go into Q2. When I look to the 20-30 basis point guidance we've given you, I'd probably say that I'm increasingly comfortable about the kind of that number in terms of where we'd land on that, particularly given where we've kind of started at the 7 basis points.
Probably expect to be a bit lower, at the lower end rather than at the upper end in terms of where that would be. You know, as we look at the book, it's performing well. If I look at the macro, it's still a challenging kind of macro environment. We would expect companies to have at some point to take a bit more pain than they're taking. I think we're also really conscious it's only Q1, so there's, let's not kind of get ahead of ourselves at this point.
Let's wait to see what happens over sort of H1 and then into Q3 in terms of making any change on that. You know, in terms of Silicon Valley, I mean, obviously, the change they made was they're very much out of a resolution kind of action in terms of that change. I mean, Donal, I know you're working a lot on some of the CRR reviews and things. How would you look at that question?
Hi, Rob. No, I think, you know, Katie's right. I think the exemption that you've seen from HSBC's perspective is purely under resolution. It is very, very specific to what went on. I think in terms of potential changes to ring-fencing rules, we're in the process of just finalizing our response to the first call for evidence, which will be submitted next week. That's really related to the, I suppose the resolution potential overlap between resolution regime and ring-fencing regime. You know, there was, I think one of the recommendations which raised the question of whether ring-fencing is required going forward if resolution is embedded. My own views, I'm not expecting any material change, I think to those regimes in the near future.
Probably more importantly, as we move into H2, there'll be the second call for evidence, which will focus on the other recommendations that were laid out in the CRR report, including, you know, the definition of RFB, not maybe excluded activities. That's one probably where we'll be more focused on probably where there's more potential for change, potentially to some of the ring-fencing rules. We'll probably update if there's any progress on that into it likely be into 2023 before we get more clarity.
That's great. Thanks very much.
Thanks, Rob.
Thanks very much.
Thanks.
Thank you. Our next question comes from Paul Fenner-Leitao of Société Générale. Paul, please do go ahead.
Hi, Paul.
If I just unmute and go ahead.
Hi. Can you hear me?
We can. Thank you.
Hello. Hi, team. Just a very quick point on the Donal, on the Tier 2, I don't know if your comments around euro and sterling were specific to the senior unsecured or also included Tier 2. You're thinking of doing up to GBP 1 billion. You've done GBP 600 million, you've got a maximum of GBP 400 sterling left to do. Obviously, that's a pretty small transaction in euros, and it's probably pretty small transaction in sterling. I'm just trying to understand what it is that you're thinking there, or maybe you go to another market. Can you just?
Yeah. No. What I'd say is, Paul, yeah, I think we'll be open from a currency perspective on Tier 2 as well, obviously, just depending on the time. I would say I know we did guide up to GBP 1 billion. I don't think we would hold ourselves strictly to a cap of GBP 400 million or whatever is left. You know, I think we'd be cognizant of the fact of doing a benchmark transaction size when we did come. We'll look across the three majors, I think, and decide when the time is right.
Okay. It could be another euro .
It could. We wouldn't rule out another euro, but I think, you know, a number of our recent, you know, the recent Tier 2 issuance in euros, so we probably will have a preference for a, for another currency, but we won't commit to that at this stage.
Okay. Very clear. Thank you.
Thank you.
Thank you. Our next question comes from Jesse Norcross of Ninety One Asset Management. Jesse, please do unmute and go ahead.
Hi, Jesse.
Hi. Good afternoon. Thanks for the call, both. Just two questions from me. The third question was just asked by Paul. In terms of your deposits, particularly on the corporate segment, like non-interest-bearing deposits, is there any reason for you to potentially look at changing your assumptions in terms of duration and stress outflow levels, just given obviously the recent volatility in the U.S. The second question really on the recent proposals from the European Commission on implementing depositor preference, I was just wondering if you've had any discussions with U.K. authorities on something similar or what your expectations would be potentially if this would be implemented in the U.K. as well.
Just from memory, I think there has been a review, but I'm not sure about any updates.
Yeah. I have to take that. Maybe starting with the second question. No conversations to date on those preferences. You know, no indications that it's something that they're looking at in the U.K. I think any of the kind of comments, I think to date have been really around the Financial Services Compensation Scheme and potential, I suppose increases in the level of insured deposits. Again, no active dialogue really at this stage on that topic. I think in terms of duration stress outflow assumptions, you know, I would say, you know, when you get events like SVB and CS, you'll always look at your, you know, your internal assumptions. We're very comfortable in terms of the way we approach our risk management and liquidity management is very prudent.
Again, we have seen comments from regulators around looking at potential outflow assumptions more under kind of liquidity coverage ratio. Again, we'll, you know, we'll keep well up to date and engaged with the regulator on any potential change. You know, we're, as I said, overall, very, very comfortable with the approach we take internally on our risk management process.
Okay. Thanks.
Thank you.
Maybe just a quick follow-up, if I may, on the Tier 2, actually. Yeah, just given your guidance up to GBP 1 billion, but you've already got a Tier 2 tranche of 3%, yeah, my inclination would be to think that then there wouldn't be any Tier 2, but is, yeah. Is that correct or incorrect?
Yeah. I think probably I would say point in time, 3%, you know, we do have two maturities through 2023. We've a June 2023 maturity and also a December 2023 maturity as well. You know, I expect us to kind of when we guide that kind of GBP 1 billion, it is taking into account maturities. What we said is we do try and run our AT1 and Tier 2 to more optimal levels. Really it is looking ahead and refinancing that needs to take place.
Okay. Thank you very much.
Thank you.
Thank you. If you'd 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 spotted. We do also have an additional pre-submitted question which asks, "Can you give us an update on the shape of your bond portfolio? Do you hedge all your securities in your liquid asset portfolio?
Yes, I shall take that one as well, Katie. From a bond portfolio perspective, we have actually included some more detailed disclosure on, in the, in the fixed income decks. You can see actually our bond composition of our liquid asset buffer is quite small at GBP 29 billion. The large majority of our portfolio is sitting in cash, 81%. In terms of that GBP 29 billion of securities, the large majority of it is hedged. Maybe just to give a little bit more detail there, we've also broken it down by the securities component of what's held in fair value to OCI and amortized costs. The fair value to OCI portfolio, which makes up 77% of it, is fully hedged.
Within the amortized cost portfolio, there is a small portion of securities there that sit within our RBSI entity offshore, where those securities form part of the structural hedge in that legal entity. That would be only component of our liquid asset portfolio that's unhedged. You'll see in our full year 2022 disclosures, we disclose all our securities held at amortized cost and the carrying value of those securities as well. Thank you for the question.
Thank you. We do have another raised hand from Stéphane Suchet of Point72. Please do go ahead with your question.
Hi, Stéphane .
Hello there. If you don't mind, I would like to ask three-pointed question on commercial real estate. The first one is it possible to know what is the level of provisioning you hold against your commercial real estate portfolio? Secondly, do you plan to expand this portfolio? Because for a number of real estate companies, wholesale funding is more challenging to get. Thirdly, if I may, do you expect more deterioration on this portfolio? Obviously, you made a point around LTVs being low. What do you see on the ground, and do you take advantage of that to expand margin on this part of the portfolio, if I may ask?
Yeah, sure. Let me take that. Thanks so much, Stéphane . If you look at the provisions, I'd guide you to page 17 of our statement, where you can see the-- No, sorry, that's the BBLs. Forgive me. Forgive me. Sorry, page 16, where you can see in terms of what we've got in terms of the loans and the amount of ECL provision that we have against them. You'll be able to pull that up. Annoyingly, my eye is not landing on real estate just immediately. Overall, if I look at the total portfolio, I mean, we've got 377 of loans, and the total Stage 3 we have against that is GBP 1.7 billion. It's very small. Yeah, GBP 1.7 billion.
Thanks very much in terms of the numbers. Sorry, forgive me. Thank you very much. Paul just helped me from the side. We've got total loans within real estate of GBP 32.5 million and GBP 229 million of provisions at stage three against them. Total provisions of GBP 441 million . You, if you went to our year-end account, you'd be able to see how that's evolved. No particular plans to expand CRE per se. Happy at the size it is within the portfolio. Just at kind of around 4% and a 47% kind of LTV. Obviously, we work with our customers as they're coming up for renewal. That process starts about 18 months before they actually do renew to see what they have in mind.
We've worked, well over the last 10 years to really kind of, limit the amount of exposure that we've got in this space, but make sure that we're exposed to the things that we see as very good credits and very good quality companies within the organization. Just remind me of your third point. Sorry, Stéphane .
Yeah. It was around margin expansion, potentially, because wholesale funding is more challenging for some of these companies. In terms of asset quality, even though LTVs are quite low, what do you see for me, if I may ask?
Yes. I mean, I guess the way that I would look at this in terms of margin expansion is it's not something I would say is a philosophy overall for the portfolio as an aim for the organization. As each of these trades will be coming up for renewal, we'd be looking at them and pricing them on a case-by-case basis, very much linked to the underlying risks that we're covering and the exposures that they have within there. Obviously, we would look at that time to the funding that we are paying, but it's not something that we go, actually, that's a strategic thing that we're going to definitively expand that. They'll be priced on an individual basis.
Okay. Understood. Thank you very much, Katie.
Thanks so much, Stéphane . Have a good day.
Sure.
Thank you. There are no more questions at this time. I'd like to hand back to Katie for any closing comments.
Super. Thanks very much indeed. Well, just as ever, thanks very much for joining us this afternoon. We hope that it was helpful, just to be able to touch base given the volatility that has been in the market. As ever, we also thank you tremendously for your support. We really do appreciate it. If you've any other further queries or anything you'd like to follow up on, Paul Pybus from our Debt IR is always happy to take your call. Thanks very much indeed. Take care and enjoy your afternoon and weekend when you get to it.
Thank you.
That concludes today's presentation. Thank you for your participation. You may now disconnect.