NetWest has increased its dividend by 9% despite profit and income falling in the half-year and quarter periods ending June 30th compared to a year ago. However, a second-quarter rebound provided a source of optimism.
Yesterday, we reported that Lloyds earnings are often a barometer for UK banking earnings as they tend to report first. NatWest’s results are almost a carbon copy of Lloyds.
Income was down on last year due to lower interest rates. NatWest reported a 7.7% drop in total income to £7.1bn, with the looming interest rate cuts weighing on the net interest margin, which fell to 2.07% in the first half compared to 2.23% in the same period a year ago.
Lower total income inevitably dragged profits lower, and operating profit before tax slipped 15% despite NatWest registering much lower impairment costs for bad debts than this time last year.
The poor metrics were to be expected. The peak in interest rates has been well-telegraphed, and nobody expected higher half-year income or profits going into the report. It was all about the quarterly results in which profit rose compared to the first quarter of the year.
There are some positives to take away from NatWest’s results. The group increased its interim dividend by 9% to 6p. NatWest has a historical yield of around 55, and investors will be pleased to see payouts growing.
Investors will also be please to see Q2 2024 performance way ahead of expectations providing reason to be optimistic going into the third quarter.
“As with Lloyds yesterday, it’s the quarter-on-quarter numbers that investors are paying attention to. Second-quarter results have pretty much beaten expectations on every key metric, from income to margins,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“It’s also good to see full-year guidance on net interest income finally get the upgrade investors had been hoping to see, and now supports the numbers analysts had been pencilling in. That’s positive news and helps underpin the stock price which has been on a heater this year.
“Unlike Lloyds yesterday, lower impairments weren’t the only reason for the profit beat, though that was a key factor with NatWest too. The UK economic outlook is improving, and borrowers are holding firm in the face of higher interest rates. NatWest is also seeing some improvement from margins on the deposit side and has managed to grow its net interest margin quarter-on-quarter.”
The announcement of the acquisition of £2.5 billion of Metro Bank mortgages following the acquisition of Sainsbury’s Bank finally demonstrates the group’s ambitions to grow at take on risk after years of treading water since the financial crisis and subsequent PPI litigation saga.
“We have made good progress against our strategic priorities, taking decisive action to grow and simplify our business and to manage our capital and costs more efficiently,” said NatWest Chief Executive, Paul Thwaite.
“There has been growth across all three of our businesses, we have attracted over 200,000 new customers and our acquisition from Sainsbury’s Bank is expected to add around one million customer accounts on completion. We have also agreed to acquire £2.5 billion of UK prime residential mortgages from Metro Bank plc, adding further scale to our Retail Banking business.