CEO declares 'resilience'
NatWest RBS to pay dividend ‘as soon as possible’
NatWest RBS’s Gogarburn HQ (pic: Terry Murden)
NatWest RBS has reported a return to profit for the third quarter as chief executive Alison Rose hailed the resilience of the underlying business and the strength of its balance sheet.
She declared her intention to restart dividend payments once the regulator has given clearance, expected at the end of the year.
“We have very strong capital ratios,” she told journalists on a media call. “It’s my intent to start paying dividends as soon as possible.”
Operating profit before tax came in at £355 million compared to loss of £8m at Q3 2019.
Attributable profit to ordinary shareholders was £61 million including a £324 million loss on redemption of own debt.
The bank took an impairment charge for the period of £254m and said it believes the full year charge is likely to be at the lower end of the £3.5-4.5 billion range following the limited level of defaults across lending portfolios and associated ECL stage migration within the third quarter.
In her statement with the figures, Ms Rose, pictured, said: “These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty.
“Our sector-leading capital position, strong levels of liquidity and intelligent and consistent approach to risk mean we can continue to provide our customers and communities with the support they need.
“Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear. Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.
“We continue to deliver well against our strategy, building a bank that champions potential and has the capability to grow. By building deeper relationships with our customers at every stage of their lives, simplifying the bank further, investing in innovation and partnerships and allocating capital well, we will deliver sustainable returns to our shareholders.”
Assessing the figures, Donald Brown, senior investment manager at Brewin Dolphin, said: “There were some encouraging signs in results from Barclays and Lloyd earlier this week, and NatWest’s update strikes a similar tone.
“The bank is well capitalised; delivered a profit before tax in the third quarter, comfortably ahead of analysts’ expectations; and expects impairment charges to be at the lower end of guidance, all of which marks an improvement on three months ago.
AJ Bell investment director Russ Mould, said: The outlook is somewhat better than had been feared with impairments coming in at the lower end of guidance and the company receiving a boost from a pick-up in lending.
Profitability is already fairly weak thanks to ultra-low interest rates, it might not take much to tip the bank into a loss– Russ Mould, AJ Bell
“However, whether the situation can remain this way as UK joblessness grows is another question and, in fairness, it is one which the bank acknowledges.
“Profitability is already fairly weak thanks to ultra-low interest rates, it might not take much to tip the bank into a loss.
“The destiny of its dividend depends on a decision by the regulator – expected before the end of the year – at least here Natwest can point to probably the most generous capital buffer in the sector.
“Though, whether that will be enough to sway the decision in such an uncertain environment remains to be seen.”
“However, there is a great deal of uncertainty on the horizon for the bank – as confirmed by the chief executive, who referred to ‘challenging times ahead’ – largely in the form of a second wave of Covid-19 and the small matter of Brexit.
“The market clearly remains pessimistic about NatWest’s immediate prospects, with the shares still around 50% below where they started the year.”
Key Q3 financials
- Operating profit before tax – £355m
- Compared to loss of £8m at Q3 2019
- Impairment charge – £254m
- We believe the full year impairment charge is likely to be at the lower end of the £3.5-4.5 billion range following the limited level of defaults across lending portfolios and associated ECL stage migration within the third quarter
Other key metrics
- CET1 ratio – 18.2%
- 17.2% at end of Q2
- Liquidity Coverage Ratio – 157%
- 166% at end of Q2
- Costs – £193m lower for first nine months than in 2019
- Remain on track to achieve target cost reduction of £250m in 2020
- Growth – total loans grew £31bn to £371bn for the first nine months
- Mortgage applications up 91% on Q2, with gross new mortgage lending up 10%
- RWAs – £173.9bn
- Down £7.6bn from Q2
- We now expect NatWest Group RWAs to be below our previously guided range of £185-195 billion at the end of 2020
- NatWest Markets RWAs – £30.0bn
- Ahead of 2020 target reduction to £32bn (now targeting around £30bn by end of 2020)
COVID 19 support and customer activity
- Approved £13.0bn of lending to businesses through government lending initiatives as at 30 September
- Facilitated approximately £8.8bn of Corporate Financing Facilities issuances as at 30 September
- Approximately 250k customers helped with initial mortgage holidays in first nine months
- 85% of mortgage holidays have now ended, with just a small number in arrears
- 95% of branches kept open through COVID
- Increased digital adoption, with 9.3m active digital users. Added almost a quarter of a million newly active mobile users during Q3, taking the total to 7.6m
- More than 50,000 colleagues enabled to work from home, with 31,000 tech bundles delivered to homes in first nine months