NatWest quarter profits almost triple to £1.3bn as higher interest rates offset bad loan provision
NatWest recorded bumper profits in the final quarter of last year as the boost from higher interest rates outweighed funds set aside to cope with bad loans.
Profits at the bank increased to £1.3bn in the final quarter, in line with market expectations and doubling compared to last year.
This brought yearly profits to £3.6bn, jumping 34 per cent from last year. As a result the bonus pool increased to £367.5m from £298m last year.
The bank was boosted by higher interest rates with net interest income rising 49 per cent in the final quarter compared to the year before.
NatWest’s net interest margin – the difference between what banks pay out and receive in interest payments – widened to 3.20 per cent from 2.99 per cent in the previous quarter.
Across 2022 as a whole the bank’s net interest margin was 2.85 per cent. It said it expects the 2023 figure to be around 3.20 per cent, although it stressed the economic outlook remains “uncertain”.
CEO Alison Rose said the bank “delivered a strong performance in 2022…We made considerable progress against our strategic goals, maintained a well-balanced loan book and distributed significant capital to our shareholders, including the UK Government.”
The bank proposed a buyback programme of up to £800m in the first half of 2023, more than analysts had predicted.
After a decade of ultra-low interest rates, sharp hikes throughout 2022 have widened banks’ net interest margins and earned them bumper profits. But High Street lenders have also faced scrutiny for failing to pass on higher interest rates to their customers’ savings accounts.
NatWest set aside £144m in the final quarter, bringing the total amount to £337m over 2022. The bank said this reflected the “latest macroeconomics…with more weight being placed on the downside scenario.”
Customer deposits over the year also decreased by £29.5bn, coming mainly from the commercial lending due to “market liquidity contraction” in the second half of the year.
Rose said the bank was “not yet seeing significant signs of financial distress among our customers” although the bank was “acutely aware that many people and businesses are struggling right now”.
Banks set aside loss provisions in order to cushion losses on loans when economic conditions darken. Higher interest rates have slowed down the wider economy, raising the risk that the UK could enter a recession very soon.
The news comes after Barclays reported a disappointing set of results on Wednesday. Profit fell eight per cent in the last quarter while it forecast a slimmer net interest margin going into 2023 than markets had expected.