FTSE 100 bank NatWest Group
NWG
But in a mixed release the company downgraded its net interest margin (NIM) forecasts for the full year.
At 240.1p per share NatWest’s share price was basically flat on the day.
Income at the high street bank soared 24% in the six months to June, to £7.7 billion. This was driven by a 62-basis-point improvement in the company’s NIM which rose to 3.2%.
The NIM measures the difference between what banks charge borrowers and the interest they offer to savers.
However, NatWest’s NIM declined to 3.13% during the second quarter from 3.27% in the prior three months. It said that this chiefly reflected “asset margin pressure and changes in deposit mixfrom non-interest bearing to interest bearing balances.”
The firm also reduced its NIM forecasts for the full year, to 3.15%, assuming that the Bank of England lifts interest rates to 5.5% this quarter and maintains this level to the end of the year.
Impairments Rise But Profits Beat
NatWest also set aside £223 million during the first half for bad loans. This is on top of the £337 million charge it took in 2022, though the business said that “defaults remain stable and at low levels across the portfolio.”
Its common equity tier 1 (CET1) capital ratio, meanwhile, dropped to 13.5% as of June from 14.2% at the start of the year.
Operating pre-tax profit soared 37% year on year between January and June, to £3.6 billion. This encouraged the company to lift the interim dividend to 5.5p per share from 3.5p a year earlier.
The FTSE 100 firm also announced plans to buy back £500 million worth of shares in the second half.
A Wild Week
Chief financial officer Katie Murray commented that “NatWest Group’s strong performance for the first half of the year is underpinned by our robust balance sheet, with a high-quality deposit base, high levels of liquidity and a well-diversified loan book.”
She added that “as a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain economic environment.”
In a troubled week for the company, chief executive Alison Rose stepped down on Wednesday after talking to a journalist about the bank’s Coutts division refusal to do business with British political figure Nigel Farage.
Head of Coutts Peter Flavel also resigned on Thursday as the fallout of the scandal continued.
Mixed News
Commenting on today’s financial update, Matt Britzman, analyst at Hargreaves Lansdown said that half-year numbers “probably don’t do the group any favours either, despite a slight beat on the bottom line.”
He noted that “markets are laser-focused on net interest margin and at 3.13% for the second quarter that was below expectations, leading to a miss on net interest income.”
Downgraded full-year NIM forecasts as savers take their money to banks with better rates is cause for disappointment at NatWest, Britzman said.
However, he added that “the UK borrower continues to look robust and this was one area of strength in today’s results.” The analyst said that lower-than-predicted loan defaults during the second quarter “reflects default levels that remain low across the portfolio.”
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