Profits at NatWest tripled in the third quarter driven by the release of provisions taken at the height of the pandemic to cover bad debts, but shares fell due to squeezed margins and higher than expected costs.
The state-backed UK bank reported pre-tax profits of £1.1bn in the period, up from £355m in the third quarter of last year and 60 per cent ahead of analysts’ forecasts. Revenues of £2.8bn beat consensus by a more modest margin of 6 per cent, and were up 15 per cent from last year.
Chief executive Alison Rose said the company had “continued to deliver a strong operating performance” in the quarter.
NatWest announced a release of £242m of provisions taken to cover losses in the worst of the pandemic, significantly above the expected impairment charge of £40m. Rose said there had been “limited signs of default across our book”, with around £1.1bn of bounceback loans repaid in full.
However, the share price fell close to 4 per cent in morning trading, though it remains up about 40 per cent in the year to date.
In part that fall is due to operating expenses of £1.9bn, around 2 per cent above consensus, and inflated by £294m of litigation costs. This includes provisions for an anticipated fine by the Financial Conduct Authority over the bank’s failure to stop alleged money laundering.
Joseph Dickerson, an analyst at Jefferies, said that another reason for the decline was that NatWest’s net interest margin (NIM) — the difference in income between interest charged and paid out, and a core measure of bank profitability — fell slightly. “NatWest is a very rate-sensitive bank,” he said.
However, along with many of its peers the bank said that it was raising rates on fixed-rate UK mortgage deals in response to the NIM contraction and rising inflation.
Rose also warned that there were signs of pressure on small and medium-sized businesses across the country. “The speed of the economic recovery and how tightly supply chains have been wound down has taken a little bit of adjustment . . . and that’s definitely caused some impact.”
She said that business confidence had also been affected by fears of skill shortages and access to labour, although added that she was “cautiously optimistic about the economic recovery”.
The company has bought back £402m of its shares to date, she said, more than half of the £750m buyback that it announced at its half-year results.
Its common equity tier one ratio, an indicator of capital strength, rose 0.5 percentage points year on year to 18.7 per cent, significantly above its required level.
Mortgages played an important role in the results, with £2.5bn of mortgage growth in the third quarter. Several UK banks have reported a continued surge in lending despite the end of the stamp duty holiday in September.
Rose also emphasised NatWest’s green credentials, referring to a recent target of delivering an additional £100bn of climate and sustainable funding and financing by the end of 2025. It is the banking sponsor of the COP26 climate change conference, starting in Glasgow at the end of the month.
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2021-10-29 07:07:29Z
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