NatWest gains despite Q1 profit fall; closely watched net interest margin rises

Investing.com - NatWest's (LON:) first-quarter profit fell sharply, data showed Friday, but the British bank still outperformed expectations, having weathered a sector-wide squeeze on income over the past year.

The bank's pretax operating profit for the three months to March 31 was £1.3 billion (£1 = $1.2515), down from £1.8 billion pounds a year earlier and just above expectations for £1.2 billion.

"This is an industry-wide trend and was expected by the market; it reflects some of the annualised impacts of changes in customer behaviour we saw in 2023," Chief Executive Paul Thwaite said of the profit fall.

“NatWest's Q1 was characterised by asset growth tilted to corporate and deposit mix away from non-interest bearing deposits,” said analysts at Jefferies, in a note dated. 

Additionally, NatWest’s net interest margin - a closely watched measure of lending returns - rose to 2.05% after three consecutive quarters of declines.

This news was welcomed, and indicated the bank was coping well with the increasingly competitive market.

“Group deposits were stable, with £2bn increase in Retail off-setting a £1.2bn reduction in commercial and Institutional. The mix continues to show signs of stabilization,” Morgan Stanley noted.

The group’s full-year revenue guidance has been maintained at £13-13.5 billion, but the U.S. bank said “we would expect the target to be raised with the Q2 results.”

Impairments, a closely-watched measure of loan losses, were £93 million for the quarter, compared with analyst expectations of £186 million.

Morgan Stanley maintained an ‘equal-weight’ rating, with a 300p price target, while Jefferies kept its ‘underperform’ rating, with a 140p target price.. 

NatWest stock rose almost 5% Friday to 303.6 pence, climbing to the highest since February 2023, and are up by nearly a third this year.

NatWest is looking to end the state ownership that has been in play since the global financial crisis. It has been buying back shares while the government considers a further sale to retail investors to reduce its almost 29% stake.