09/02/2022 - ABN Amro Bank NV: Quarterly Report 2021 Q4

Introduction/  Figures at a glance

Figures at a glance

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Introduction

Net profit/(loss)	Return on equity
(in millions)	(in %) Target is 8%

750					15
500				552	10				10.8
	393	343			7.6
					6.5
250					5
54					0.7
0	-54				0
					-1.6
-250					-5
Q4 20	Q1 21	Q2 21	Q3 21	Q4 21	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Earnings per share
(in EUR)
0.75
		0.56
0.50	0.39	0.34
0.25
0.03
0
-0.08
-0.25

Q4 20

Q1 21

Q2 21

Q3 21

Q4 21

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Cost/income ratio

(in %)

125
100	99.8
77.8		70.9	75.1
75			62.8
50
25
Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Cost of risk

(in bps) Target is 20bps through-the-cycle

60
40	35
20					11
0				-2
-20		-13	-23
	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Net interest margin

(in bps)

200
160	134
130	128	117	128
120
80
40
Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

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Capital

CET1 ratio (Basel III)	CET1 ratio (Basel IV)
(end-of-period, in %)	(end-of-period, in %) Target is 13%

Leverage ratio (CRR2)

(end-of-period, in %)

management

20	17.7	17.4	18.3	17.8
	16.3
16
12
8
4
	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

20
16	15	15	16	16	16
12
8
4
	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

7.5
6.0	5.8	5.6	5.8	5.8	5.9
4.5
3.0
1.5
	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21

Other

Introduction/  Message from the CEO

Message from the CEO

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Introduction

Another year dominated by Covid has made it abundantly clear that we need to collaborate to tackle global challenges. We are not as close to the end of the pandemic as I would have hoped, but the world is now better prepared and has demonstrated resilience. The acceleration of digitalisation will shape our future. At the same time, major challenges such as climate change and social inequality have intensified.

As we began to emerge from the pandemic, the economy has proven flexible. For the Netherlands 2021 was a year of economic recovery as the vaccination rate increased and government support continued when necessary. Demand for corporate lending was sustained in Q4 and client loans grew by EUR 4.3 billion. Meanwhile, house prices in the Netherlands continue to rise, mainly due to low mortgage interest rates. With a new government in place, measures are set to be taken to increase housing supply and help meet demand.

Net profit in Q4 was EUR 552 million, reflecting strong fee income growth, the proceeds of the sale and leaseback of our head office and seasonally higher levies, while pressure on deposit margins persisted. The resulting return on equity (ROE) for Q4 was 10.8%. Net interest income was EUR 1,339 million as we qualified for the additional TLTRO discount, offsetting an additional provision for revolving consumer credit. We met our cost guidance of EUR 5.3 billion for 2021, excluding the AML settlement, reflecting our focus on cost discipline.

We remain fully committed to our cost target of below EUR 4.7 billion in 2024. Impairments in Q4 were EUR 121 million, related to a management overlay for collateralised loans, while impairments for the full year showed a release of EUR 46 million. As the wind-down of the CIB non-core portfolio has been largely completed, well ahead of schedule, we have recalibrated the through- the-cycle cost of risk from 25-30 basis points to around 20 basis points.

The financial results for 2021 were marked by the low interest rate environment and low impairments. The resulting ROE for 2021 was 5.8% (7.3% excluding CIB

non-core). Our capital position remains very strong, with a fully-loaded Basel III CET1 ratio of 16.3% and a Basel IV CET1 ratio of around 16%. In line with our capital framework, we propose a final cash dividend equivalent to EUR 0.61 per share. In addition, we have announced an inaugural share buyback of EUR 500 million as we are committed to returning excess capital to our shareholders. With this programme we add share buybacks as an instrument to manage our capital position. The Basel IV threshold for share buybacks remains unchanged for now as our capital buffer is sufficient to consider future share buybacks. We aim for a gradual reduction over time, in constructive dialogue with our regulator.

We continued to execute on our agenda in 2021. The wind- down of the CIB non-core portfolio has been largely completed, improving the bank's risk profile. To further strengthen the execution of our strategy we launched new initiatives for our clients, simplified our organisational structure and strengthened the foundation of our digital and data capabilities to support our new client service model. In April, we accepted a settlement from the Netherlands Public Prosecution Service and we are making good progress with our remediation programmes. We remain focused on the fight against money laundering, providing us with our licence to grow as it is the bank's responsibility to ensure compliance with all regulations to protect our clients. We have resumed dividend payments and announced a share buyback programme. The bank operates from a position of strength, with a distinct profile, clear strategic focus

and a very strong capital position.

We embedded our core values of care, courage and collaboration, enhancing the bank's culture and further anchoring our purpose 'Banking for better, for generations to come'. In line with our purpose, we aim to contribute to a society where everyone can participate, and this past year we devoted more attention to vulnerable groups.

In an increasingly digital world, we have launched several initiatives to help young people keep their spending in check, including podcasts and budget coaches.

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Introduction/  Message from the CEO

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Introduction

We value our long and trusted relationships with our clients. As a personal bank in the digital age, we engage with our clients on a 'digital-first' basis to provide the highest level of convenience and better anticipate their needs, enhancing the customer experience. Clients expect easy delivery in apps, fully digital services and seamless self-service through a single channel. We provide expertise when it matters, whether through tailored solutions, our sector specialists, or personal interaction using video banking. This results in more client contact - especially more high-value interactions with clients in our focus segments - while increasing efficiency. From Q3 2022, we will offer our full range of services remotely, including cardless cash withdrawals and the possibility to digitally open a joint account.

As clients continue to shift to digital, we will further rightsize our branch network in line with client behaviour. We are committed to digital inclusion and want all our clients to benefit from the digital age. We have therefore doubled the number of financial coaches to ensure clients who need support maintain access to banking services.

Sustainability is core to our purpose and we aim to lead by example by making our own office buildings more energy-efficient. Having completed the sale and leaseback of our head office, we are redeveloping one of our locations in Amsterdam into a Paris-proof campus designed to facilitate hybrid working. ABN AMRO firmly supports the goal of limiting global warming to 1.5 degrees Celsius and our biggest impact is through our lending and investment services. As the focus on ESG intensifies, including regulation, we have raised our targeted volume of sustainable client loans and investments from 30% to 36% in 2024. The transition to a more sustainable revenue model can be challenging. To support our clients, we have introduced a standardised version of sustainability-linked loans for smaller companies - the transition loan.

In this pilot, ESG goals related to the sustainability transition are linked to the interest rate, enabling clients to receive a discount.

I am pleased that we were at the top of the Ministry of Economic Affairs and Climate Policy's Transparency Benchmark, putting us among the most transparent organisations in sustainability reporting in the Netherlands. Our latest rating in S&P Global's Corporate Sustainability Assessment was 76 points. As a result, the bank is no longer listed in the DJSI World Index, but we are still included in the DJSI Europe Index.

We are building a future-proof bank by rigorously simplifying and centralising our operating model, delivering a better customer experience. Products and services such as payments and savings are already highly digitalised, and we are further digitalising our onboarding and KYC processes. The increase in our mortgage market share from 14% to 16% in 2021 in a highly competitive market reflects the strong operational capabilities that result from strategic investments in our infrastructure. We continue to streamline our product portfolio around the needs of clients and are aiming for a 60% reduction by 2024, supporting further rationalisation, harmonisation and digitalisation of our product offering.

I want to sincerely thank Christian Bornfeld for his vision and leadership and the work he has done for ABN AMRO. He has been a driving force for the bank and we will miss his knowledge, skills and companionship. I would also like to thank our staff for their continued commitment to our clients and their resilience in the current challenging circumstances. This is what drives our achievements and gives me confidence in our journey to become a personal bank in the digital age. I am proud of how all of us at ABN AMRO are working together throughout the Covid pandemic, with our clients and with each other.

Robert Swaak

CEO of ABN AMRO Bank N.V.

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Introduction/  Strategic KPIs

Strategic KPIs

We are focused on executing our strategy to become a personal bank in the digital age, the outcome of our comprehensive strategy review announced in November 2020. Our strategic pillars - customer experience, sustainability and future-proof bank - remain our guiding principles in acting on our purpose 'Banking for better, for generations to come'. Delivering on our strategy means delivering on our bank-wide strategic KPIs. We will announce our updated strategic KPIs when we publish our Q2 results in August 2022. The updated KPIs will reflect our simplified organisational structure, i.e. we have replaced four business lines by three units organised around client segments (Personal & Business Banking, Wealth Management and Corporate).

Customer experience

We focus on attractive segments in the Netherlands and Northwest Europe where we can grow profitably and will further develop our leading positions in mortgages and SMEs with new propositions. Our goals are to achieve positive NPS scores and to increase our market share to above 20% in both segments.

We aim to safeguard income by growing market share in focus segments (mortgages, SMEs, wealthy and affluent clients, entrepeneurs, and corporate banking in Northwest Europe) by 2 to 5 percentage points by 2024. Mortgage volumes were very high in 2021, driven by low interest rates and strong increases in house prices. ABN AMRO's market share in new mortgage production grew to 16%, reflecting strong operational capabilities and a well- balanced pricing strategy in an increasingly competitive market. In 2021, we repositioned the Moneyou mortgage label to intermediary channels broadening our offering and supporting growth.

Our relational NPS for SMEs has decreased, influenced by the general sentiment around the AML settlement, closing of branches, fee increases and operational changes related to KYC and Covid-19, and the transformation of our client service model. The relational NPS in the second half of the year was stable compared with the first half. Operational improvements take some time before they affect NPS scores.

Sustainability

Our clients increasingly need expertise to support them in the sustainability shift. We aim to increase the asset volume of sustainable client loans (including mortgages and corporate loans) and ESG & Impact investments as part of the bank's outstanding mortgage loan book, corporate loan book and relevant client asset volume from around one-fifth to one-third in 2024. We are making good progress, with a score of 27% at the end 2021. Our ESG client assets (in line with Sustainable Finance Disclosure Regulation definitions and disclosures) have grown to EUR 89 billion. And already 25% of our mortgages have an energy efficiency label A or higher. To live up to our purpose and achieve our strategic goals, we need to have the right talent on board and continually invest in diversity and inclusion. A key factor is fostering an inclusive climate for both our people and our clients

• an environment in which the diversity of our society is reflected. The percentage of women at the subtop increased from 28% to 30% in 2021. We aim to improve the inclusiveness of our products and services and have established an Inclusive Banking team that will focus on removing barriers experienced by various client groups, such as female entrepreneurs.

Future-proof bank

We are building a future-proof bank that is digital by design. We are targeting costs lower than EUR 4.7 billion in 2024, reflecting further cost savings of EUR 700 million compared to 2020. We met our cost guidance of EUR 5.3 billion for 2021, excluding the AML settlement, reflecting our focus on cost discipline. In 2021 we invested in strengthening our foundation, expanding digital and data capabilities to support our new client service model. As the wind-down of the CIB non-core portfolio has been largely completed, we have recalibrated the through-the-cycle cost of risk from 25-30 basis points to around 20 basis points.

We target an ROE of around 8% by 2024 when the cost of risk is expected to have normalised, cost-saving programmes will have been completed and growth initiatives will be delivering results. We have set out our capital framework and have resumed payment of dividends at a payout ratio of 50% of net profit, after deduction of AT1 coupon payments and minority interests. Basel IV is our primary capital metric, with a CET1 target of 13%. Progress on our financial targets is addressed in the relevant sections of this report.

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Introduction

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