Operator: Our next question comes from Alvaro Serrano from Morgan Stanley.
Alvaro Serrano : I’ve got a follow-up, apologies on the margin and what to expect. If we put to one side the — what looks pretty conservative rate assumption, how much of the mortgage sort of your 80 basis points on mortgage product spread? And how much more headwinds should we expect in the first half of ’24? And similarly, we’ve seen sector data point to very stable deposit movement in November and December, so is there much more drag on deposit margins as well? And if I look related to that. If I look at your above 13% RoTE in 2026 versus the 12% this year, is it — and I compare that to the 9 rate cuts you’ve got? It does feel like your revenues are not going to grow until we’re done with rate cuts. Is that kind of what’s reflected in that 2026 improvement, that once you get through the rate cuts in ’25, it will improve?
And sorry for that long first question. And Paul, maybe one more for you in your opening sort of — in your section, you talked about improving share in targeted segments. When we look back over the last few years, it’s been very much focused around mortgage growth. When you think about the next 3 years in your plan, what would you highlight of your key sort of focus on growth areas versus what we’ve seen in the past?
Katie Murray : I’ll take question one. So if I look at the mortgage margin, obviously we talked a lot last year about how the book would ultimately stabilize around that 80 basis points; and that’s where we are at the end of that year — at the end of the year. What we can see is that the level of churn and come down that we’ve had in that rate has obviously kind of come to an end. Well, I would say, at the moment, we’re currently writing around 70 basis points. And so the impact of the mortgage book refinancing headwind will be lower in 2024 than it was in 2023, but there will still be a little bit of movement around about that. And I think that we do expect there to be some stabilization in mid-2024. Clearly, the volatility in the swap rates we’ve written some of the business over time, a bit below the 80.
And we’re comfortable with the level of writing we’re doing just now. You can see that we’re managing that in terms of the flow share that we have. On deposits. I mean I guess the way that I would look at it as we look at both at the Bank of England data and the data, the experience we’re seeing in our own book, we are still seeing some migration. You can see that we went from 15% to 16.4% at the end of the year. So still kind of seeing that. We do expect that to continue for another couple of quarters and we expect that it will probably stabilize in the kind of the summer months. If I look at revenue into 2026: I mean, Alvaro, that’s certainly not the impression that revenue is flat from here till there. That’s something we’ve been talking a lot about this throughout last year.
As you see that deposit stabilization and then the mortgage stabilization as well what — and then you start to see the structural hedge kind of come through, we expect the second half income of 2024 to be better than the first half. And we expect that to continue to develop into ’25 and to 2026. And Paul, I’ll give you question two.
Paul Thwaite : Yes. Thanks, Katie. Alvaro, I’m thinking quite broadly around the opportunities for growth in the business. You rightly pointed out in my presentation I highlighted a number of areas. I think, just going through the different customer businesses, we have the mortgages as we’ve positioned. If the market is there, the demand is there and the pricing is right, then we’re now the second biggest lender, but we’ll continue to grow there. So that’s one area of continued growth in retail, providing the margins and the returns are there. We’ve also made good progress on the unsecured side in retail. We’re happy there with both the returns but also the credit quality, so we see — and obviously we’re underweight relative to some of our peers in those areas, so that’s an opportunity that the retail team are astutely focused on.
In the kind of commercial and institutional business, we’ve seen some good growth around our project finance, infrastructure and funds business. We believe they’re businesses and asset classes that offer good upside over the course of the next couple of years. We’re not only building, I guess, for the next year or 2. We’re also making big market share gains in areas like startups and youth, where we’re now over 20%. And the way I think about that is we’re kind of we’re filling the pipe for future, the future revenue and future returns, so we’re very focused on growth, but we’re very focused on disciplined growth. That’s how I and the team talk about it. And we think there’s plenty of opportunities embedded within the core businesses of NatWest to do that.
