NatWest shares drop to two-year low after Q3 profit miss

Shares in NatWest plunged nearly 10% on Friday after the UK bank missed expectations with its third-quarter profits and cut its full-year outlook for bank net interest margin (NIM).

The figures came as the company released a statement regarding the Nigel Farage 'debanking' scandal, admitting to "serious failings" in the decision to close down the politician's bank account earlier this year, and once again apologising for his treatment.

NatWest said the closure was lawful, but said it was making updates to its policies and procedures "to ensure that the lawfully protected beliefs or opinions of customers do not play any role in exit, retention or onboarding decisions".

The stock was down 9.3% at 186.7p by 0946 BST, after touching a low of 168p earlier on – the stock hasn't closed below the 200p level since early 2021.

The UK bank delivered an operating profit before tax of £1.33bn for the three months to 30 September, up from £1.09bn a year earlier, slightly under the consensus estimate of £1.4bn.

Total income increased 8% to £3.49bn, helped by "volume growth and favourable yield curve movements", the bank said.

However, the bank NIM – which compares the income generated from credit products with the interest it pays out to depositors – reduced to 2.94%, from 3.13% in the second quarter and 2.99% the year before. Analysts were expecting a figure closer to 3.07%.

This was due to changes in deposit mix as customers moved cash into savings accounts, as well as the "continued impact on mortgage margins as the higher-margin Covid-era book rolls off and is replaced at lower margins".

The bank said it expects net interest margin to be "greater than 3%" by the end of the year, compared with previous guidance of 3.15%.

Russ Mould, investment director at AJ Bell, said that higher interest rates "have not been the panacea for the sector that some might have hoped". He said: “Competition for savings and mortgage products, coupled with some regulatory pressure, means the banks are no longer seeing such a big gap between what they charge on borrowings compared with what they pay out for deposits.

“While bad debts remain under control for now, the market is clearly wary of a deterioration here as the pressures on households and businesses continue to mount."

Meanwhile, NatWest's closely watched common equity tier 1 (CET1) ratio – the amount of capital banks hold against their risk-weighted assets (RWA) – was in line with the second quarter at 13.5% but down from 14.2% a year earlier. RWAs increased by £4.1bn to £181.6bn as a result of increased market risk and lending growth in the Commercial and Institutional division.

"Today's Q3 2023 results show that NatWest is a strong bank which is performing well, generating sustainable profits and returns," said chief executive Paul Thwaite.

"This performance is built on the foundations of strong customer franchises and a robust balance sheet with high levels of liquidity and a well-diversified loan book. As a result, credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty."