Natwest announced a new share buyback scheme after beating expectations in the second quarter, but cut its guidance as customers increasingly seek out higher rates on their deposits.
Operating pretax profit hit £1.8bn, rising from £1.4bn last year and significantly higher than the £1.5bn expected by analysts.
The bank was able to cash in on rising interest rates, with net interest income rising to £2.8bn, which was £500m more than the same period last year. On the back of this it upped its interim dividend to 5.5p per share, substantially higher than the 3.5p dividend announced last year, and announced a new £500m buyback scheme.
Shares in Natwest were trading 2.9 per cent higher on Friday afternoon.
However, the bank’s net interest margin – a measure of the difference between what it pays out and receives in interest payment – fell to 3.13 per cent, 14 basis points lower than the quarter before.
Natwest said this came as customers moved their money form non-interest bearing accounts into interest bearing balances.
Chief financial officer Katie Murray said “with our communications going on to customers, we’re definitely seeing much more active management of people’s deposits, which is a very sensible thing for them to be doing.”
It now expects its full year net interest margin to be less than 3.20 per cent, likely around 3.15 per cent, having previously guided for 3.20 per cent.
Benjamin Toms at the Royal Bank of Canada said: “The bank is a clear beneficiary of higher rates in an environment where deposit betas have stayed low.
“However, as discussion in the market turns from rate rises to rates potentially coming down, we expect that investors will switch from interest rate sensitivity into stocks which are higher quality and are likely to deliver more sustainable shareholder returns,” he continued.
Impairment charges climbed to £153m, more than the double the £70m set aside last year. While arrears increased slightly, they remained relatively low.
Murray said the bank was “not seeing any signs of material financial distress within our loan book” but noted that some businesses and households are “really struggling right now”.
The results come as Natwest battles to contain the fallout from the furore over Nigel Farage’s debanking. The lender has been engulfed in turmoil since it was revealed Nigel Farage’s account was closed, partially because of his political opinions.
Chief executive Alison Rose has already resigned while boss of private bank Coutts stepped down yesterday.
Farage has called on the entire board to stand down over the issue while leading shareholders have expressed their doubt about the position of chair Howard Davies, who is due to step down next year in any case.