NatWest follows rivals with profit slump

NatWest Group is the latest bank to report much lower first-quarter profits, amid peaking interest rates and mortgage lending pressures.

The banking giant’s pre-tax profits slumped by 27 per cent to £1.33billion in the opening three months of 2024, although this was above analyst expectations of £1.26billion.

Total income fell by around £400million to £3.48billion following a drop in deposit balances and a shift by customers towards savings accounts offering higher returns.

Results: NatWest’s pre-tax profits slumped by 27 per cent to £1.33billion in the opening three months of 2024, although this was above analyst expectations of £1.26billion

Revenues were further hit by weaker mortgage margins, amid greater competition in the home lending market and expectations of looming interest rate cuts by the Bank of England.

Earlier this week, Lloyds Bank revealed its pre-tax profits plunged by 28 per cent to £1.63billion in the first quarter of 2024.

Over the same period, Barclays’ earnings shrunk by 12 per cent because of lower mortgage lending and deposits, and less activity at its investment banking division.

All these banks saw their profits soar after the BoE implemented 14 successive base rate hikes following the loosening of Covid-related restrictions.

However, as the UK’s inflation rate has tumbled significantly since peaking at a four-decade high of 11 per cent in 2022, lenders have begun offering more generous mortgage deals to customers.

Subsequently, NatWest’s net interest margin – the difference between what banks charge borrowers and pay savers – fell 20 basis points year-on-year to 2.05 per cent.

The FTSE 100 group’s profits were also dampened by higher operating expenses, which largely reflected increasing employee costs and the Bank of England levy.

Nonetheless, Paul Thwaite, chief executive of NatWest, said: ‘Customer confidence and activity is improving, with both lending and deposits up in the quarter and impairments remaining low, reflecting our well-diversified business.’

He added that he was ‘pleased’ with how the UK Government was reducing its stake in the bank, which now stands at under 30 per cent.

Thwaite formally became CEO in February after succeeding Dame Alison Rose on an interim basis last summer in the wake of the ‘debanking scandal’.

Rose, the first woman to run a major UK lender, resigned when she was found to have breached client confidentiality by telling a BBC journalist why ex-UKIP leader Nigel Farage’s accounts at Coutts – a NatWest subsidiary – were closed.

A review by legal firm Travers Smith later concluded that the bank had not broken the law by closing Farage’s accounts, although it criticised Rose for leaking customer information, saying it ‘probably’ broke data protection laws.

NatWest Group shares were 3.3 per cent up at 299.4p on Friday morning, meaning they have grown by around 36 per cent since the year started. 

Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘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.’

This post first appeared on Dailymail.co.uk