NatWest joins rivals in toasting profits that exceed expectations

NatWest Group has become the latest banking giant to report better-than-expected third-quarter profits after a jump in lending and deposits.

The owner of Royal Bank of Scotland announced a pre-tax operating profit of £1.7 billion for the three months ended September, compared with analyst forecasts of £1.5 billion.

Profits were supported by revenues rising 7.3 percent year-on-year to £3.7 billion, driven by higher lending volumes, growth in deposit margins and increased customer activity in the capital markets.

The net interest margin – the difference between what banks pay to savers and what banks charge to borrowers – rose by eight basis points compared to the previous quarter to 2.18 percent.

At the same time, net consumer lending rose by £8.4 billion, much of which came from the acquisition of Metro Bank’s residential mortgage portfolio.

NatWest’s profits further benefited as operating costs fell by £102m to around £1.8bn, partly due to staff cuts and failure to repeat losses on property sales.

But NatWest declared £245 million in impairments for the period, compared to £45 million in releases in the same period last year.

This was more than the £173m that analysts had expected the bank to set aside for bad loans.

NatWest now expects a tangible equity return of more than 15 per cent and income, excluding notable items, of around £14.4 billion.

Paul Thwaites, CEO of NatWest, said: ‘With customer activity increasing, default rates remaining low and optimism rising among businesses and consumers, we are well placed to deliver success for our customers and for our shareholders.’

NatWest’s results come just after Barclays and Lloyds both also announced they had exceeded analyst expectations in their third quarter results.

Barclays said its pre-tax profits rose 18 percent to £2.2 billion in the July to September period, boosted by dealmaking at its investment banking division.

And on Tuesday, Lloyds Banking Group reported £1.8 billion in pre-tax profits, which it attributed to structural hedge income boosting overall income levels.

Structural hedging is a financial strategy that banks use to protect profits against the fluctuations of interest rate movements.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: ‘Looking ahead, the start of a rate cutting cycle has eased pressure on deposits and mortgages.

“All this time, the expected economic pain of higher rates has never actually materialized – or at least not yet.

‘That leaves NatWest well-placed to benefit from improving trends and lean on the structural hedge, which will act as a strong driver of earnings over the medium term.’

NatWest Group shares rose 5.2 percent to 380.5p on Friday morning, making them the FTSE 100’s best-performing index and taking their year-to-date gains to around 72 percent.