NatWest shares dip despite strong results

Shares in NatWest fell after the company posted a weaker-than-expected outlook statement, despite delivering strong full-year results. The bank expects income for 2023 to come in at around £14.8 billion – below the £15 billion previously forecast. Meanwhile, it also told investors that full-year net interest margins (NIM) – the difference between the interest rate the bank receives from loaning money and pays on savings deposits - would stay at around 3.2% for the remainder of 2023. Analysts had pencilled in a NIM of 3.38% based on interest rate increases. NatWest’s forecast is based on the Bank of England base rate remaining at a 15 year high of 4%.

Shares in the company fell 7% on Friday to 284.6p.

NatWest – strong 2022 performance

However, full-year results for 2022 were solid, with total income up by 26% to £13.2 billion, boosted by higher interest rates and volume growth. Full-year attributable profit was £3.3 billion, while the bank delivered a return on tangible equity of 12.3%. NatWest posted a net interest margin of 2.85% for 2023 - 55 basis points higher than that seen in 2021. Meanwhile, operating expenses fell by £71 million compared to the previous year, while the company says the underlying book performance is solid, with credit conditions “benign” and default levels “low”.

“NatWest Group delivered a strong performance in 2022, with pre-tax profit up more than a third to £5.1 billion,” chief executive Alison Rose told investors. “We made considerable progress against our strategic goals, maintained a well-balanced loan book and distributed significant capital to our shareholders, including the UK Government.”

NatWest is launching a £800 million share buyback scheme in the first half. Meanwhile, net lending increased by £7.3 billion to £366.3 billion during the year, due to £14.4 billion of growth at its retail banking side. The mortgage division delivered gross new mortgage lending of £41.4 billion, and a £5.7 billion increase in its commercial and institutional side. This was offset, however by a £14.6 billion fall in central items and other, including a £6.4 billion fall due to its exit from Ireland. Customer deposits also fell by £29.5 billion during 2022 to £450.3 billion.

NatWest chief: ‘people are struggling right now’

Meanwhile, the bank, which is still 44% owned by the UK government, warned that it is “acutely” aware macroeconomic conditions may deteriorate. “Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now and that many more are worried about what the future holds,” says Rose. However, she adds that the company’s “robust balance sheet” and focus on “responsible lending” leave it well positioned.

NatWest says it expects to deliver a return on tangible equity of 14% to 16% for 2023, while its cost: income ratio, excluding litigation and conduct, will be below 52% or around £7.6 billion of group operating costs. Meanwhile, it also plans to make further returns to investors, with dividends coming in at around 40% of attributable profits for 2023, while the CET1 ratio, which measures liquidity, will be in the range of 13-14% over the medium term.

Analysts at Berenberg Bank reiterated their buy recommendation and think the shares could reach 380p. However, they are trading close to their five-year highs and investors may wish to take some profits.

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