NatWest Group Reports Strong H1 2023 Profits Amid Rising Economic Concerns

NatWest Group H1 23 – 28/07

after starting the year on a fairly solid base, UK banks have seen their share prices slide back to levels last seen in the aftermath of the Kwarteng budget in the past few weeks. The sharp rise in UK interest rates, along with an anticipation that rates could go even higher is fuelling concerns over rising defaults and higher loan loss provisions as fixed rate mortgages expire and get re-fixed at higher rates. When the bank reported its Q4 and full-year numbers the bank was cautious saying it expects to generate full-year income of £14.8bn, and a full-year NIM of 3.2%, based on a base rate of 4%.

They retained this caution in their Q1 guidance, despite many expecting the base rate to go much higher. The base rate is now at 5% and looks set to go higher, the concern isn't so much about income, but about economic conditions over the course of the rest of the year, along with demand for loans, pressure on margins, as well as higher costs. Profits in Q1 came in higher than expected at £1.28bn, comfortably above the same quarter last year of £841m, but net revenues have come in higher than expected at £3.87bn. The numbers were also above Q4's £1.26bn, while impairments came in lower at £70m, while net interest margin rose to 3.27% for Q1.

Operating expenses did come in sharply higher than the same quarter last year, rising 12.5%, with most of that attributable to higher staff costs due to a £60m cost of living payment to help staff with the high inflation environment. Customer deposits did see a fall of £11.1bn during the quarter to £421.8bn, due to tougher liquidity conditions and increased competition for deposits. Net loans saw an increase to £352.4bn.