NatWest profits beat expectations on loan, deposit growth

(Sharecast News) - Annual profit at UK bank NatWest just beat expectations as it grew its loan book and pulled in more deposits, boosted by an increase in customers.

Pre-tax operating profit rose 0.3% to £6.2bn in the 12 months to December 31 compared with estimates of £6.1bn. Net interest margin - the difference between loan and savings rates - was 1 basis point higher at 2.13%.

The bank reported a return on tangible equity of 17.5%, beating its own upgraded guidance. Total income for the year, excluding one-off items, grew by 2.2% to £14.6bn, reflecting growth in deposit margins and lending.

NatWest said it expected to achieve a return on tangible equity in the range of 15-16% this year and more than 15% by 2027. It expects to generate income of £15.2bn - £15.7bn this year.

Net loans to customers excluding central items increased by £13bn to £368.5bn reflecting a £3.2bn increase in retail banking, of which £2.2 billion relates to the Metro Bank mortgage portfolio, and a £10bn rise in commercial & institutional operations.

Customer deposits excluding central items rose 2.9% to £12.2bn to £431.3 billion as savings growth was partially offset by lower current account balances within retail and private banking.

NatWest, which was previously Royal Bank of Scotland, added that it could see the UK government sell its remaining stake - currently just under 7% - by June this year, after an attempt in 2024 fell through. The UK taxpayer spent almost £46bn to bail out RBS as a result of the global banking industry malfeasance that sparked the 2008 financial crisis, leaving them with 84% of the lender.

"There's been a seismic sentiment shift over 2024, as the NatWest has moved on from its troubles at the helm and the UK banking environment has played out much better than some had feared," said Hargreaves Lansdown senior equity analyst Matt Britzman.

"The setup for 2025 is one of cautious optimism, with borrowers remaining resilient, inflation in a more manageable place, and a UK economy that's trying its hardest to squeeze out some growth," he said.

"As we saw with Barclays yesterday, NatWest's 2025 guidance is in line with expectations, which may cause some weakness in early trading. The buzz around the sector and better-than-expected results in the final quarter mean investors will have been hoping to get a punchier outlook. For the longer-term investor, this was a decent set of results, setting up another positive year in 2025."

Reporting by Frank Prenesti for Sharecast.com