Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

WITH NatWest's operating profit for the first nine months of 2021 having come in at £3.6 billion, the banking group should be on track to record one of its few annual profits since 2008 when NatWest Group (NWG) posts full-year results on Friday 18 February.

The impact of the pandemic on ‘normal’ business, which threw the usual lending and borrowing levels off course and saw customer balances rise, means that all the UK banks are cash-heavy right now; and none more so than NatWest with some £80 billion of excess capital.

The Bank of England ban on dividends in 2020 put paid to pay outs, but with NatWest committed to paying 3.27% of its current market capitalisation, about £1 billion a year will be returned to shareholders in ordinary and special dividends for the next three years. That should lift both investor income and the NatWest share price higher.

NatWest’s shares have already more than doubled to 254p since March 2020, when the impact of Covid on Britain’s biggest lender to companies, hit home, but analysts at broker Berenberg have just lifted their target higher still, from 250p to 300p - near where NatWest’s shares were four years ago They believe NatWest is the banking sector’s “greatest near-term beneficiary” of rising UK interest rates. Please remember past performance is not a reliable indicator of future returns.

On Friday you can expect a lot of attention on NatWest’s net interest margin; the difference between the interest it pays on deposits and what it charges on loans and the like. At the end of September it lagged the rest of the sector on a 1.54% margin.

However, with a prospective economic pick-up on the cards and the prospect of a fair few more interest rate rises to come, NatWest will be in line to attract even more savings, and with it the reverse offering - loans at rates far exceeding any potential interest rate rises by the Bank of England - adding to its profit potential. And potentially a return to the net interest margin of 2.06% it was on a year ago.

Broker Deutsche Bank describes NatWest as the most rate-sensitive UK bank, on the back of its £80 billion of excess capital, and offers the highest potential return. It says its 12.45 price-to-earnings ratio is at the top end, but so is its 2.4% dividend yield.

Throw in the fact too that the government is about to cut its stake in the bank to 50%, loosening the grip it’s had on the bank since the 2008 financial crisis, and the dampening effect that the steady trickle of NatWest shares from the Treasury has had on NatWest’s share price, may be counteracted by an air of renewed optimism in future.

More on NatWest Group

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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