For the three months to end June, NatWest reports earnings ahead of analyst forecasts. The results represent positive news for NatWest for the second day in succession. Yesterday, NatWest ranked the biggest winner in the latest quarterly switching league tables. By contrast, the week kicked off with a succession of PR disasters for the bank, culminating in the departure of CEO Alison Rose. The head of Coutts followed her by resigning, all over the bank-account closure saga.

For the year to date, NatWest posts pre-tax profits up 37% y-o-y to £3.59bn (H1 2022: £2.62bn).

NatWest Q2 2023 highlights

  • Net interest margin of 3.20% in H1 2023 compares with 2.58% in H1 2022. On the other hand, the Q2 NIM of 3.13% is down by 14 basis points from the prior quarter. This reflects asset margin pressure and changes in deposit mix from non-interest bearing to interest bearing balances.
  • The cost income ratio of 49.3% (excluding litigation and conduct) is down by 6.7 ppt from H1 2022.
  • Defaults remain stable and at low levels across the group;
  • Net loans to customers increase by £6.0bn billion to £352.7bn during H1 2023 primarily reflecting £5.9bn of mortgage growth in retail banking;
  • Customer deposit balances are stable in the second quarter following outflows in the first quarter.

Less positive metrics

  • Deposits decrease by £11.8bn billion to £421.1bn during H1 2023.
  • Retail banking customer deposits fall by £5.3bn or 2.8% in the first half. According to NatWest this primarily reflects the impact of customer tax payments which were higher than previous years, lower household liquidity and increased competition for savings balances. Personal current account balances decrease by £5.5bn. This is partially offset by an increase in personal savings of £0.2bn in H1 2023.
  • Operating expenses are £323m, or 9.3%, higher than H1 2022.
  • For the full fiscal, NatWest now forecasts a net interest margin of 3.20% against its previous guidance of 3.15%

H2 share buybacks

Chief Financial Officer, Katie Murray, said: “NatWest Group’s strong performance for the first half of the year is underpinned by our robust balance sheet, with a high-quality deposit base, high levels of liquidity and a well-diversified loan book. As a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain economic environment. Although arrears remain low, we know that people, families and businesses are anxious about their finances and many are really struggling. We are being proactive in our support for those who are hardest hit, helping to build the financial resilience of the customers and communities we serve.”

NatWest intends to kick off on-market buyback programme of up to £500m in H2 2023. This is in addition to the £1.3bn directed buyback completed in Q2 2023. It will bring total distributions deducted from capital to £2.5bn for H1 2023.

NatWest H1 2023 private banking income +23% y-o-y

First half growth in private banking profits reflects increased deposit income supported by interest rate rises. This is partially offset by a reduction in mortgage margins. The private banking net interest margin is 116 basis points higher than H1 2022. This reflects higher deposit income, supported by interest rate rises, partially offset by a reduction in lending margins, lower deposit balances, as well as increased capital issuance and funding costs. Net loans to customers decrease by £0.1bn in H1 2023 as gross new lending of £1.4bn, of which £0.9bn related to mortgages, was offset by higher repayments.

Customer deposits decrease by £4.7bn, or 11.4% in H1 2023. This reflects the impact of customer tax payments which were higher than previous years, as well as increased competition for savings balances. Current account and instant access savings account balances decrease by £7.0bn partially offset by an increase in term savings products. AUMAs increase by £4.5bn, or 13.5%, in H1 2023. This primarily reflects AUM net new money of £1.0bn. This represents 6.0% of opening AUMA balances, positive market movements, and acquisition of Cushon which contributes £2.0bn.

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For the year to date, the NatWest share price is down by 11%.