NatWest, trading north of the border as Royal Bank of Scotland, has posted a hike in profit and dividends and said the outlook for the year is more positive.

Chief executive Paul Thwaite said the bank was making good progress but said the board was being “realistic” about the challenges ahead.

Speaking after the bank reported an attributable profit for the 12 months to the end of December of £4.5 billion against £4.39bn in the previous year, he declined to comment on further potential acquisitions amid speculation linking NatWest to Santander’s UK operations

In recent months it has added banking services from Metro and Sainsbury’s and is believed to be interested in acquiring assets in the wealth management industry. Evelyn Partners has been named as a likely target.

“It’s a very high bar. Any acquisition has to be financially compelling for shareholders and in line with our strategy,” he told reporters in a media call.

The bank’s balance sheet continues to strenthen and the dividend is hiked by 26%. It expects to pay ordinary dividends of around 50% of attributable profit from 2025 and will consider buybacks as appropriate. Operating profit came in unchanged at £6.2bn.

Despite the rise in profits and dividend, shares in NatWest closed 8.9p lower at 424.72p as analysts looked for clearer signs of growth.

The bank said that confidence among investors means it should fully return to private ownership this year. The Treasury’s holding is now 6.98% from 38% in December 2023.

Against an uncertain external backdrop, Mr Thwaite said it made good progress on its strategic priorities, grew all three of its customer businesses, and saw an acceleration in the reduction of the UK Government’s shareholding.

In a statement with the results, Mr Thwaite said: “When I was permanently appointed as chief executive in February 2024, I set out three clear priorities to create value for our shareholders.

“Firstly, to deliver disciplined growth; secondly, to enable bank-wide simplification; and finally, to focus on active balance sheet and risk management. We made good progress against each of these, and we now have strong conviction they are the right priorities to help us succeed.

“Our operating profit before tax was up on 2023, at £6.2bn [2023: £6.18bn]. Importantly, we welcomed around 500,000 new customers to NatWest Group, grew each of our three customer businesses and delivered growth on both sides of the balance sheet – with increases in lending and deposits, as well as assets under management.”

On the year ahead, he said: “As we enter 2025, we are realistic about the challenges and opportunities ahead.

“However, there are some reasons for optimism. Inflation in the UK has come down from previous highs, with modest economic growth predicted in the year ahead.

“While consumer and business confidence dipped in the latter part of 2024, we have seen resilience and good levels of activity amongst our customer base. The new government has a clear intent to deliver growth across all nations and regions of the UK and, importantly, has recognised the role that our bank and the wider sector can play. 

“We can take confidence from our 2024 performance, and it is validation that our strategy is working. However, there is no room for complacency in today’s competitive landscape. We are fully focused on delivery as we shape the future of NatWest Group as a vital and trusted partner to our customers and to the UK, and in doing so, create further value for our shareholders.

“2025 is also likely to be the year that NatWest Group returns to full private ownership. The acceleration towards privatisation has attracted investment from those that share our growth ambition and will mark a new, forward-looking chapter for the bank.”

A final dividend of 15.5 pence per share is proposed, bringing the total for the year to 21.5 pence. Total distributions deducted from capital in the year are £4bn.

It is also reported that Reform UK leader Nigel Farage is considering taking legal action over the ‘debanking’ issue that led to the departure of Mr Thwaite’s predecessor Dame Alison Rose.

Market reaction

Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “NatWest is in fine fettle. The bank has beaten expectations, exceeding its own upgraded guidance for 2024, while the government has accelerated the reduction of its stake.

“On this trajectory, NatWest could potentially return to full private ownership this year and, with that, new opportunities may open up to the bank.

“Combined with an expanding loan book – buoyed on the retail side by the acquisitions of Sainsbury’s Bank and Metro Bank’s mortgage portfolio – a simplified business model, and a strengthening balance sheet, NatWest has built a solid foundation for its next era and, all things being equal, should be free of the distractions of the past.”

Russ Mould, investment director at AJ Bell, said: ““It may be Valentine’s Day but there is not a huge amount of love for NatWest this morning – its results were received more like petrol station forecourt flowers than a bumper bouquet of roses.

“For the most part, the UK banking sector came into full-year earnings season with a fair bit of share price momentum. With two of the big names now having reported (NatWest and Barclays), that momentum looks to be ebbing away.

“NatWest’s numbers were solid enough – and actually came in slightly above expectations – but the 2025 outlook was only in line with the existing guidance and the market has reacted negatively to the lack of upgrades.”

He added that “The ideal scenario for NatWest is that Bank of England interest rate cuts remain gradual while the health of the UK economy improves and a lid is kept on bad debts.

“The company displayed some confidence in its future prospects by lifting the payout ratio to 50% and has said it is mulling share buybacks.

“An alternative use of its capital might be to pursue M&A, with CEO Paul Thwaite signalling late last year that he was looking for deals after taking over Sainsbury’s Bank in June.

“Thwaite was at pains to signal that these would be easy-to-swallow transactions – likely mindful that the market will remember the mess the company got into with its acquisition spree in the mid-to-late 2000s.”