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NatWest (RBS) profits rise 41% amid cost of living concern

Alison Rose at NatWest AGM 2022
Alison Rose after the AGM in Edinburgh (pic: Terry Murden)

NatWest (RBS) has posted a 41% surge in first quarter profits, ahead of forecasts, as rising interest rates and higher income boosted the bank’s performance.

Pre-tax profit came in at £1.2 billion for the first three months of the year, up from £885m the previous year, restated to exclude its now divested Irish business Ulster Bank.

The profit was well ahead of the £755m average of analyst forecasts compiled by the bank.

Total income for the three months rose 16.8% to £3bn, driven by strong growth in its mortgage division and favourable movements in the bond market.

The net interest margin increased to 2.46% from 2.32% a year earlier while the core capital ratio fell to 15.2% from 18.2% last time.

Retail banking improved as consumer spending levels recovered following the end of Covid restrictions, and there were higher levels of transactional banking fees.

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Mortgages increased by 1.5% compared to the final quarter of 2021 to £2.7bn and customer deposits rose £800m quarter on quarter.

The bank also released £38m of cash held back during the Covid crisis.

Chief executive Alison Rose said the bank was “very aware of the challenges and concerns the cost-of-living crisis is causing for many of our customers up and down the country. NatWest Group is focussed on providing practical help and support for the people, families and businesses we serve.

“Despite the challenging environment, I am pleased with our performance as we continue to execute well against our strategy, driving sustainable growth and returns.  Income and profits are substantially up, costs are down and we remain well capitalised as we build long-term value and deliver a simpler and better banking experience for our customers.”

The government’s stake reduced to about 48% in Q1; the first time it has fallen below 50% since the financial crisis.

“This was an important milestone for our bank and a further demonstration of the progress we are making,” said Ms Rose who became chief executive in 2019 and has overseen a return to profitability against controversial branch closures and a new pay scheme, approved by shareholders yesterday, that will see her receive a package of more than £5m.

Market reaction

Russ Mould, investment director at AJ Bell, said: “Like several of its rivals NatWest smashed forecasts but for investors the focus is much more on the outlook, which despite the boost to profit implied by rising interest rates, is heavily clouded by the risk of an increase in bad debts linked to the cost-of-living crisis.

“Households are under such severe financial pressure that it seems almost inevitable that some of the bank’s customers will get into difficulty.”

John Moore, senior investment manager at Brewin Dolphin, said: “Like its peers earlier this week, NatWest has delivered a strong set of results, with profits ahead of expectations.

“The bank continues to transform, with a potential strategic acquisition in the offing and government ownership falling beneath 50% for the first time since its bailout.

“Despite the challenges presented by the conflict in Ukraine and the cost of living, there is an optimism in today’s statement from NatWest, which bodes well for the year ahead and it wouldn’t be surprising to see the government’s stake fall further.”

See also: NatWest bosses win pay hike.. and a pledge on the Edinburgh HQ: full AGM report

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