Strong performance

NatWest (RBS) hikes bonuses as bank back in profit

RBS and Alison Rose
Alison Rose: strong performance

NatWest Group, trading as RBS in Scotland, returned to profitability in the year to the end of December, and hiked annual bonuses by 44%.

The bank posted an annual operating profit of £4 billion, excluding the Irish operations of Ulster Bank which is being sold.

The whole group reported operating profit of £4.3bn figure which compares to a loss of £351m in the previous 12 months.

The bank is distributing £298m in bonuses, a 44% increase on 2020 and 3% lower than in 2019. A proposed final divided of 7.5p a share will be distributed to shareholders.

It is buying back up to £750 million of shares in the first half of the year, taking total distributions deducted from capital in the year to £3.8 billion.

In a statement, chief executive Alison Rose said: ““NatWest Group delivered a strong performance in 2021 as we returned to profitability, made progress against our strategy and distributed more than £3.8bn of capital to our shareholders, including £1.7bn to the taxpayer.

“We are acutely aware of the challenges that many people, families and businesses continue to face up and down the country and are working alongside our customers to provide the support they need – whether that is managing their money better, saving for a house or retirement or starting or growing a new business – as well as playing a leading role in the transition to Net Zero.

“As our economy recovers and the trend towards digital services accelerates, we are investing to deliver long term value in the bank and drive sustainable growth.  We will do this by building closer and deeper relationships with our customers and by supporting their evolving needs and expectations at every stage of their lives.”

It also reiterated that a vote for Scottish independence may “may adversely impact NatWest Group”, adding that “any changes to Scotland’s relationship with the UK or the EU would impact the environment in which NatWest Group and its subsidiaries operate, and may require further changes to NatWest Group’s structure, independently or in conjunction with other mandatory or strategic structural and organisational changes which, any of which could adversely impact NatWest Group.”

In a media call, Sir Howard Davies dismissed reports that he was planning to stand down as chairman and that a successor was being sought.

Market reaction

Danni Hewson, financial analyst at AJ Bell, said: “Expectations are set pretty high for the UK banks heading into their latest reporting season and this helps explain why, despite a return to profit and otherwise pretty positive update, NatWest got us off to a subdued start in terms of its share price.

“After all, the banking sector is one of the few industries which will be waving flags and cheering as interest rates are increased as it allows them to generate a higher return from their lending activities.

“The better than expected earnings and hike in the outlook were, to some extent, baked in, and investors may be concerned about the possibility of an increase in bad debts as its customers face a cost of living crisis. This could outweigh any boost to profitability from higher rates.

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“NatWest seems relaxed on this score and has actually reduced its guidance on impairments – whether that view will be tested in 2022 remains to be seen.

“If it holds, then NatWest should be in a position to dole out more generous shareholder returns, which is a key attraction of investing in the sector. It should also enable it to further reduce the Government’s stake by buying shares.

“NatWest has slipped a little bit behind target on cost reduction, thanks to higher inflation, which may be adding to some investor nervousness and the company is yet to see any progress on that key measure of profitability – net interest margin.”

Zoe Gillespie, investment manager at Brewin Dolphin, said: “NatWest has beaten expectations again and looks set to continue on its positive trajectory. The net impairment release of nearly £1.3 billion, bumper profits, and strong capital reserves point to a bank in good health.

“The increased dividend and share buyback programme suggest NatWest’s management team are optimistic about the year ahead, while rising interest rates should only benefit its core business.

“NatWest is now much more attractive as an investment prospect, notwithstanding the likelihood of the government winding down its substantial stake in the bank.”



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