NatWest shares gains as higher interest rates boost 2023 profit

NatWest shares rose on Friday after the bank beat profit expectations as higher interest rates helped boost income and provisions for bad loans remained stable.

There is a lot for NatWest investors to be pleased about in today’s report. Major profit and income metrics were better than expected as NatWest reaped the rewards of elevated interest rates. Total income rose to £14.3bn in 2023 from £13.2bn in 2022 and attributable net profit rose to £4.4bn from £3.3bn.

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Offsetting an otherwise bumper year for NatWest, customer deposits did fall slightly amid higher savings rates competition and net impairment charges were slightly higher than the last year – but much better than many would have feared at the beginning of last year.

The key profitability metric, Net Interest Margin, was 3.04% for 2023, 19 bps higher than 2022.

“NatWest is out with a big profit beat as Paul Thwaite gets confirmed as permanent CEO. Impairment charges were better than expected as customers continued to show remarkable resilience in the face of higher inflation and interest rates. Absent any major shock to unemployment, low default rates are expected to continue over 2024,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“Retail customers continue to go in search of better rates from longer-term savings accounts. But crucially for NatWest, the pace of deposit migration was significantly slower in the fourth quarter than in the prior. Perhaps a sign that the peak in migration has come and gone – good news for net interest margins.”

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The group said they expect income to be £13.0-13.5 billion in the year ahead reflecting anticipated declines in interest rates. This would be consistent with 2022’s income levels but lower than this year’s income.

Notably, NatWest omitted Net Interest Margin guidance from their outlook which may have perplexed investors given this had been the driver of higher profits over the past year.

NatWest shares were 5% higher at the time of writing.

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