NatWest profits rise by a quarter as lending and deposits grow

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UK bank NatWest has reported a 25.7 per cent rise in quarterly profits and upgraded its forecasts for the year thanks to improved margins and growth in its lending and deposit base.

Pre-tax operating profit in the three months to September was £1.7bn, compared with £1.3bn in the same period last year and above analyst expectations of £1.5bn. Revenues rose to £3.7bn, slightly above forecasts. 

The bank now expects its return on tangible equity — a key measure of profitability — to be above 15 per cent this year, compared with a previous forecast of 14 per cent. Its shares were up nearly 5 per cent in morning trading in London on Friday.

However, NatWest also set aside £245mn in provisions for bad loans, well above expectations of £173mn, and flagged a rise in troubled commercial and institutional loans in particular.

NatWest’s commercial bank said it had increased its exposure to commercial property and financial institutions this year and reviewed the situation regularly “with particular focus on sector clusters deemed to represent a heightened risk”.

Chief executive Paul Thwaite said the charge it booked related to a “small number of larger impairments” but added that “the underlying level of impairments remains very low”.

Its net interest margin — the difference between the interest it receives on loans and the rate it pays for deposits — rose from 2.1 per cent to 2.18 per cent quarter on quarter thanks mainly to deposit margin growth as it increased its deposit base by £2.2bn in the quarter.

Loans at its retail bank grew 2 per cent in the quarter after its purchase of a £2.3bn loan book from rival Metro Bank.

“Businesses are borrowing, individuals are borrowing for mortgages, they’re saving and investing, and sentiment has improved,” said Thwaite. “But it has dipped a little bit in the last couple of months due to uncertainty,” he added, referring to the US election and UK Budget.

The chief executive also said businesses had varying levels of confidence depending on their location within the UK and their sector. The picture was similarly nuanced for retail consumers, he added.

“Not all customers are feeling the same,” said Thwaite. “Whilst discretionary debit card spending on smaller items like clothing has risen, we are seeing larger purchases being delayed with consumers saving at a higher rate than they were pre-pandemic.”

NatWest also flagged a quarterly decline in staff costs following its withdrawal from Ireland and the cancellation of plans for a mass retail share offering. Thwaite said the group had been reviewing its skills and offering voluntary redundancies.

The UK government bailed out NatWest’s predecessor RBS at the height of the 2008 financial crisis, but the state now owns less than 16 per cent, down from about 38 per cent last December.