NatWest Group Plc beat estimates as higher interest rates lifted profit margins and the firm set aside less than expected for bad loans, while costs rose in the face of stubborn UK inflation.
(Bloomberg) — NatWest Group Plc beat estimates as higher interest rates lifted profit margins and the firm set aside less than expected for bad loans, while costs rose in the face of stubborn UK inflation.
The UK’s biggest corporate lender reported operating profit before tax for the first quarter of £1.8 billion ($2.2 billion), above analyst estimates compiled by Bloomberg of £1.55 billion. The result was 49% higher than a year ago.
“The outlook remains a little bit uncertain, we’re still in challenging macro-economic times with rising interest rates,” Alison Rose, chief executive officer, said on Bloomberg TV. “We clearly benefit from those but inflation remains high but starting to come down. It’s still pretty tough, I think, but we’re starting to see good signs.”
NatWest’s costs increased 9% to almost £2 billion, including onetime items such as a £60 million cost of living payment for staff, but the bank said it’s still on track to meet guidance for the year.
Shares fell 5% in early trading in London.
NatWest set aside £70 million for potential bad loans in the quarter, compared with estimates of £270 million, and Rose said customers were “proving to be very resilient.” British lenders have begun to brace for a rise in borrowers struggling with cost-of-living pressures, yet rate rises have helped to improve banks’ margins after a decade of rock-bottom returns.
Net interest margins at NatWest rose to 3.27% in the quarter. The results come a day after rival Barclays Plc reported a rise in its margins thanks to the increases in central bank rates.
Rose said the mortgage market is set to be slower this year, with borrowing costs elevated compared to a year ago. “We are seeing predictions on house prices being affected, lower mortgage demand and it is expensive,” she said.
Once one of the world’s largest banks, NatWest has been transformed into a largely domestic retail lender. The government continues to sell down its stake after a bailout during the financial crisis over a decade ago.
–With assistance from Mark Cudmore and Anna Edwards.
(Adds CEO quote, share price, earnings details from first paragraph.)
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