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NatWest confirmed the permanent appointment of Paul Thwaite as chief executive on Friday as it reported better than expected results boosted by higher interest rates.
The UK bank’s pre-tax operating profit in the three months to December fell 12 per cent year on year to £1.3bn, broadly in line with analyst expectations. Revenues, meanwhile, dropped 5 per cent year on year to £3.5bn but surpassed market expectations of £3.4bn.
For its full year, the lender reported a 20 per cent jump in profits to £6.2bn, beating forecasts of just under £6bn. Shares rose 2 per cent in morning trading on Friday.
NatWest said that its net interest margin — the difference between the interest it receives on loans and the rate it pays for deposits — fell 8 basis points in the fourth quarter to 2.86 per cent, as customers moved into higher-returns savings products. However, its annual net interest margin improved from 2.85 per cent to 3.04 per cent year on year.
NatWest did not provide guidance on its net interest margin for the next year, a closely watched measure at a time of expected interest rate cuts. The bank also lowered its outlook for return on tangible equity (Rote), a key measure of bank profitability to a target of about 12 per cent next year and more than 13 per cent by 2026.
“This used to be a bank that was expected to return a 14 to 16 per cent Rote in the medium term,” said Benjamin Toms, an analyst at RBC Capital Markets. “Now it’s a bank that is expected to deliver a 13 per cent Rote in 2026,” he said, adding there were “likely to be earnings downgrades”.
The high-street lender said customer deposits at its retail bank decreased by £400mn throughout the year due to lower current account balances, partially offset by growth in its higher-yielding fixed-term products as customers moved to take advantage of better rates. NatWest said 16 per cent of all customer deposits were held in fixed-term accounts at the end of the year, up from 6 per cent a year earlier.
However, chief financial officer Katie Murray said the trend had “slowed through the end of the year” and should stabilise further this year. The bank grew its deposit base by 1.9 per cent in the final quarter, thanks to £5.4bn worth of inflows into its fixed term and instant access saving products, helping to offset a £1.9bn fall in current account balances.
NatWest and its rivals have been under pressure to pass on higher interest rates to savers after the Financial Conduct Authority in July warned high-street lenders they had been too slow to share the benefits of the changed macro economic environment with their customers.
Thwaite stepped in after the resignation of former chief Dame Alison Rose at the height of the Nigel Farage “debanking” scandal last July.
His appointment was led by incoming chair Rick Haythornthwaite and concludes a period of uncertainty about the bank’s leadership. The confirmation will clear the way for the government — which owns a stake of about 35 per cent in the lender — to press on with a retail share sale of its stake before the end of the summer.
Haythornthwaite insisted there had been “absolutely no pressure from government” to rush the search process, which he kicked off with a metaphorical “bake-off” between four executive search firms when he joined the board in early January, leading to a “very intense six-week process”.
Despite rising living costs, the lender set aside £126mn in provisions for bad loans, compared with market expectations of £242mn, thanks to “low and stable” levels of defaults across its loan book.
The group said it would reward shareholders with a final dividend of 11.5 pence per share and said it intended to buy up to £300mn of its own shares in 2024.
The state-backed bank said it would pay out £356mn in staff bonuses, slightly below the £367mn it gave out last year. NatWest said in November that Rose was due to forfeit £7.6mn in outstanding pay and bonuses she could have been due from the bank.
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