Natwest posts forecast-beating Q3 profit

UK taxpayer-owned bank NatWest on Friday reported better-than-expected third quarter profits and made lower bad debt provisions relating to the coronavirus pandemic.

The bank, formerly known as Royal Bank of Scotland, posted a £355m pre-tax profit for the three months to September 30, compared to estimates of £75m.

Bad loan provisions came in at £254m, compared to the £628m forecast. The bank said full-year impairments would be at the lower end of a £3.5bn - £4.5bn range previously given.

Total impairment charges for 2020 are now £3.1bn, after provisions of £802m and £2.1bn in the first and second quarters respectively.

“Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear,” said chief executive Alison Rose.

“Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced,” she said.

Natwest's net interest margin, the difference between the money banks make on loans and pay out on deposits, fell two basis points to 1.65% compared to the previous quarter. However, it strengthened its core capital ratio to 18.2%, up from 17.2% previously.

NatWest remains 62%-owned by the taxpayer after a government bailout in the 2008-09 financial crisis caused by the banking industry.

Interactive investor head of markets Richard Hunter said the second Covid-19 wave and the outcome of Brexit trade talks "could lead to a rather more testing final quarter".

"With interest rates remaining on the floor, pressure on margins will remain, as evidenced by the latest figure of 1.65%, down from 1.97% a year ago. The possible deterioration in the UK economy over the coming months, allied to the bank’s hefty exposure to the SME sector, could well overshadow the progress being made."

He said a share price decline of 47% over the last year compares with a drop of 24% for the wider FTSE 100. With prospects "remaining bleak for the wider economy, the market consensus has recently been trimmed, now coming in at a cautious buy".