NatWest profits fall 27% as interest rate benefits fade

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

UK high-street bank NatWest has reported a 27 per cent drop in first-quarter profits, as the benefits of rising interest rates fell away across the sector.

In results for the three months to March the lender reported pre-tax operating profit of £1.3bn, compared with £1.8bn in the same period a year earlier — in line with analyst expectations. Revenues fell year on year to £3.5bn, just above market expectations. Its shares rose 3 per cent in morning trading.

Net interest margin — the difference between the interest it receives on loans and the rate it pays for deposits — rose overall at the group level from 1.99 per cent in the previous quarter to 2.05 per cent. However, it fell slightly to 2.22 per cent at the retail bank due to increased competition in the mortgage market, and is down overall from 2.25 per cent in the same quarter last year.

The bank said net loans at its retail unit decreased by £1.7bn as more customers paid off their mortgage balances early. Total gross new mortgage lending fell to £5.2bn in the period, compared with £9.9bn a year earlier.

NatWest, one of the UK’s largest retail banks, set aside £93mn in provisions for bad loans — well below the £186mn that analysts expected, and reported “strong performance” in its lending book.

“Levels of default remain stable and at low levels across the portfolio despite inflationary pressures and the higher interest rate environment,” the bank wrote.

Chief executive Paul Thwaite said cost of living challenges remained but pressure on retail consumers was easing thanks to signs of falling inflation and interest rate cuts.

NatWest customers moving off fixed-rate home loans faced an average £250 increase a month in their mortgage payments, he added.

Shares in NatWest have risen more than 31 per cent since the start of the year, as the bank has named a new chief executive and chair following a “debanking” scandal last year caused by the closure of politician Nigel Farage’s account at its private bank Coutts.

Thwaite said NatWest was implementing recommendations from an independent review by law firm Travers Smith of the way it handles account closures. He added that the bank had already implemented draft government legislation on increasing the notice period for customer account closures from 60 to 90 days.

The UK government, which bailed out the bank during the financial crisis, remains its largest shareholder. However, it ceased to hold a controlling stake in NatWest last month, cutting its shareholding to below 30 per cent.

Thwaite said he was “pleased” with the reduction in state ownership.

“Returning NatWest Group to private ownership is a shared ambition and we believe it is in the best interests of both the bank and all our shareholders.”

The government has said it will decide on whether to launch a further sale of its shareholding — including to the public — as early as this summer.

Thwaite said the bank was “taking the necessary steps and measures to be ready for that” if the government decided to go ahead.

The bank’s operating costs rose by £64mn year on year to £2bn, reflecting a new Bank of England levy on balance sheets, which came into effect in March to provide funding for the BoE, as well as higher staff costs because of wage inflation and severance costs.

Customer deposits rose 0.2 per cent to £420bn, fuelled by growth in the retail bank and offsetting a £1.2bn reduction in its commercial and institutional business.

The group said it had capacity to start a buyback of government shares in May. Earlier this week, shareholders approved a proposal to increase the amount of stock the bank could buy back from the government in a year, from just under 5 per cent to 15 per cent.