Natwest wrapped up a busy week for FTSE 100 banking earnings on Friday with an update that rocked Natwest shares and dragged the UK banking sector with it.
The headline comment from the NatWest Chief Executive set the tone for a cautionary update that signalled the bank was concerned about performance over the coming months.
“In a challenging environment, NatWest Group continues to deliver a strong financial performance; supporting our customers, responsibly growing our lending and making significant investments to transform the bank,” said Natwest Chief Executive, Alison Rose.
NatWest shares were hit not so much by what the company had reported in the third quarter, but more by what was to come. NatWest operating before tax for the nine months to 30 September was £3.7bn, up from £3.3bn in the same period a year prior.
“Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviours,” Alison Rose said.
Indeed, NatWest – like all banks reporting this week – enjoyed rising revenue due to higher interest banks.
However, just as Lloyds and Barclays set aside cash for potential bad debts, NatWest also saw pressure on operating profits after provisions.
“The market did not like what it heard from Natwest one little bit on Friday. In one sense this was a surprise, the company upgraded its income forecast and revealed it had grown its mortgage business substantially,” said AJ Bell head of investment analysis, Laith Khalaf.
“While chief executive Alison Rose says there are no signs yet of families facing added financial distress, the material increase in provisions tells a rather different story.”
House prices
Banks have been providing their forecasts on the UK housing market this week and NatWest followed Lloyds yesterday in predicting a drop in average house prices in 2023.
NatWest shares were down over 9% to 224p at the time of writing.