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Bank hit by Covid impact

NatWest/RBS swings to loss as bad debts mount

Drummond House

RBS forecasts rising impairments (pic: Terry Murden)

NatWest/RBS swung to a first half operating loss before tax of £770 million compared to a £2.7 billion profit the previous year.

The newly-renamed bank reported a £2.1bn impairment charge for the second quarter, more than twice the size of its first quarter provision.

The bank is forecasting a full year 2020 impairment charge in the range of £3.5bn to £4.5bn as it anticipates a potential surge in loan losses due to the COVID-19 pandemic.

Operating profit before impairment losses came in at £2.088bn.

The net interest margin (NIM) of 1.67% was 22 basis points lower than Q1 2020.

Alison Rose, chief executive, said performance had been significantly impacted by coronavirus.

“However, NatWest Group has a robust capital position, underpinned by a resilient, capital generative and well diversified business.”

In a conference call chairman Howard Davies stressed that the bank had a robust balance sheet and was “not in any way in the same position as during the last financial crisis”.

He said: “We are in a strong position to support our customers.”

CFO Katie Murray said there had been little impact on customer numbers since the rebrand in February, although it had seen 1,500 additional customers at its Coutts private bank.

She said this was probably because during lockdown people had addressed their banking needs.

Market reaction

Donald Brown, senior investment manager at Brewin Dolphin, said: “NatWest is the latest major bank to set aside billions for a likely surge in bad loans as a result of Covid-19’s economic impact, with a further £2.1bn earmarked for potential bad debts – significantly higher than analysts’ expectations.

“The re-brand earlier this month, from Royal Bank of Scotland, is a clear attempt to break with the past – and it almost seems apt that it should happen during another crisis.

“Banks are expected to bear a lot of the economic fallout from Covid-19 and their share prices are down significantly this year – in NatWest’s case more than 50%. It is likely to be a treacherous road ahead for NatWest and many of its peers. With the UK banking season nearly complete, NatWest’s statement adds to the downbeat tone heard this week.”

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