NatWest, trading as Royal Bank of Scotland north of the border, saw its shares tumble as much as 18% after revealing its margins had fallen further than expected as depositors shifted their cash into high interest paying accounts.

The taxpayer-backed bank reported a 23% rise in pre-tax profit to £1.3 billion for the July-September period, up from £1.1bn in the prior year and broadly in line with the £1.4 billion average of analyst forecasts compiled by the bank.

Net interest margin (NIM) of 2.94% was 19 basis points lower than Q2 2023 with the reduction largely due to changes in deposit mix as customers shifted balances from non-interest bearing current accounts to interest bearing savings accounts, particularly term.

The bank’s shares closed 23.80p (11.56%) lower at 182,.95p.

It also said today that an initial review into the Nigel Farage row found shortcomings in the bank’s treatment of him, and that the bank would implement all of the report’s recommendations.

Chief executive, Paul Thwaite, insisted the Q3 results show that NatWest is a strong bank which is performing well, generating sustainable profits and returns.

“This performance is built on the foundations of strong customer franchises and a robust balance sheet with high levels of liquidity and a well-diversified loan book. As a result, credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty.”.

The cost:income ratio (excl. litigation and conduct) was 49.9% for the nine months ended 30 September 2023 compared with 55.6% for the same period in 2022.

The net impairment charge was £229m in Q3 2023, or 24 basis points of gross customer loans, which reflects continued low and stable levels of stage 3 defaults across the portfolio and good book charges related to unsecured lending.

The bank said it expects total income excluding notable items to be around £14.3bn and full year bank NIM to be greater than 3% based on its latest expectations for the mix of our deposit book and the assumption that Bank of England base rates remain flat at 5.25% for the remainder of the year.

It expects to deliver a cost:income ratio (excl. litigation and conduct) below 52% or around £7.6bn of Group operating costs, excluding litigation and conduct costs.