Natwest has been in the news for all the wrong reasons over the past two weeks and they could have done without additional media scrutiny of their Q2 results.
That said, Natwest investors will be reasonably happy with Natwest’s first-half performance. Operating profit before tax surged to £3.6bn, up from £2.6bn in the same period a year ago, and beat analyst estimates.
Natwest enjoyed the higher interest rate environment and net interest margin – a key profitability metric – rose to 3.20% in H1 2023 compared with 2.58% a year ago.
However, Natwest said they now expect full-year net interest margin to be less than 3.20% at 3.15%, assuming the Bank of England base rate stays at 5.5% throughout the rest of the year. A similar step was taken by Barclays yesterday.
Natwest recorded a net impairment charge of £223m in the last quarter. Natwest said arrears are low and defaults are stable but were taking the measures due to increasing macroeconomic uncertainties. UK banks are facing the difficult task of modelling default rates in an increasingly uncertain environment which so far hasn’t shown any great signs of stress.
Natwest shares were 1.7% higher at the time of writing.
Matt Britzman, equity analyst at Hargreaves Lansdown, provided context to today’s results and highlights Natwest’s result are playing second fiddle to the Farage saga.
“It’s been a week to forget at NatWest as it’s had to lose two of its top execs because of the Nigel Farage account closure debacle. Today’s results probably don’t do the group any favours either, despite a slight beat on the bottom line. We know markets are laser-focused on net interest margin and at 3.13% for the second quarter that was below expectations, leading to a miss on net interest income,” Britzman said.
“But perhaps more importantly, full-year guidance has been dragged lower reflecting the ongoing deposit shift to accounts that offer better rates as consumers do all they can to make cash savings go further. NatWest should be a little more robust than peers in this regard, owing to the fact more of its deposits are held by small and medium-sized businesses which tend to keep more cash current accounts that are more profitable for banks.”