NatWest shares jump on solid Q1 update

NatWest wrapped up Q1 2024 earnings from the FTSE 100’s UK-focused banks with solid numbers across the board as profits and income fell, but beat analyst expectations.

Total income was better than expected at £3.5bn, and Net Interest Margins were flying high at 2.05% compared to 1.98% expected. In the context of last year’s performance, NatWest’s results were much lower than those of the comparable period, but this was to be expected.

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There were no real surprises in NatWest’s update, more a slightly better performance over the period than the doomsayers had predicted at the beginning of the year. The UK economy has slowed, and interest rates are set to drop, marking the end of a favourable period of income margins. The 3% tick higher in NatWest shares on Friday is a sign of investors’ approval of how NatWest is navigating the current environment.

Investors will have been watching closely for the impact of a slowdown at the end of last year and how it played into earnings. An impairment charge of roughly less than half of what was expected will help confidence in the bank as the UK economy exits recession. 

“NatWest is best of the bunch. Lloyds and Barclays led the way this week and NatWest certainly hasn’t disappointed with first-quarter results very nearly a clean sweep vs expectations. Impairments came in lower than expected, net interest margin ticked higher from the previous quarter and both customer loans and deposit levels grew,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“The UK banking sector looks strong. NatWest has followed its peers in calling out a slowing of some of the headwinds that have been impacting performance in recent quarters. Customers shifting to higher-rate accounts is slowing as expected, impairment rates on loans have stabilised at low levels, the economic outlook has improved, and balance sheets remain strong.”

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Lookng forward, Britzman was upbeat on the general environment for NatWest and how it will deal with interest rate expectations.

“Of the UK-listed banks, NatWest looks best placed to benefit from a higher rate environment as its structural hedge comes off some of the lowest rates in the sector. Think of this like a bond portfolio that’s rolling on to higher yields over the next few years. Management has kept guidance largely in place, which still looks on the conservative side given it factors in several rate cuts this year that really don’t look likely to come. That leaves NatWest not only with the potential for operational strength but also paves the way for positive income surprises later in the year.”

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