NatWest Shows Strong Performance and Confirms Acquisition Deals
NatWest, the UK’s biggest lender to small and medium-sized businesses, has demonstrated a confident stance with its latest set of results. The bank reported stronger-than-expected earnings and raised its profit forecasts for the year. Additionally, it announced a notable acquisition, agreeing to pay up to £2.4bn in cash for a £2.5bn portfolio of 10,000 household mortgages from Metro Bank.
This news comes just a month after NatWest’s acquisition of most of Sainsbury’s Bank, which is estimated to bring in one million new accounts and a book of unsecured loans worth £2.5bn. These moves paint a picture of a bank that is actively expanding its operations.
In terms of financial performance, NatWest reported an operating profit before tax of £3bn for the first six months of 2024. While this was a decrease of 16% compared to the same period last year, it was expected due to intense competition in the mortgage and savings market. The bank’s net interest margin (NIM), which reflects the difference between what it pays depositors and charges borrowers, also fell from 2.23% to 2.07% compared to the previous year.
However, investors were pleased to see that the NIM for the second quarter of the year had improved to 2.1%, higher than the 2.05% achieved in the first quarter. NatWest also reported a decrease in impairments made against loans that are unlikely to be repaid in full, as well as a return on tangible equity (RoTE) of 16.4% for the first half of the year, exceeding expectations.
These results come exactly a year after Dame Alison Rose stepped down as chief executive following a disagreement with Reform UK leader Nigel Farage. Her successor, Paul Thwaite, inherited a bank in good shape, as shown by the full year results for 2023 published in February. This momentum has been maintained, with Thwaite reporting a rise in the bank’s share of the credit card market and an increase in customers and lending.
Thwaite also mentioned the bank’s efforts to increase productivity, including streamlining telephony channels and shutting down one of its strategic hubs. NatWest’s half year dividend has also been raised by 9%, leading to a 6% increase in shares and a market value of £28.2bn.
While the bank’s success can be attributed to its own efforts, it is important to remember that banks are ultimately impacted by the economies in which they operate. With a healthy bank reflecting a healthy economy, NatWest has raised its profit forecasts in anticipation of modest increases in GDP growth and unemployment, as well as stable inflation.
The bank’s planned sale of the government’s remaining stake, a legacy of the financial crisis, did result in a £24m hit. However, the stake has decreased significantly from a peak of 84.9% in 2009 to 19.97% currently. The planned sale was postponed due to an early general election, but it is now expected to be sold to institutional investors.
Concerns may arise over NatWest’s acquisitions potentially making it more dependent on net interest income, but Thwaite assures that the bank is focused on growing its fee income as well. As the Bank of England considers cutting interest rates, questions about organic growth may arise, but for now, NatWest is enjoying a successful period and shows no signs of slowing down.
