RBS owner NatWest banks bigger profits as economy weathers pandemic
Royal Bank of Scotland parent NatWest Group has become the latest big lender to report a surge in profits after cutting reserves for debts that may turn sour due to the pandemic.
Earnings across the sector are bouncing back as banks begin to trim their reserves for loan losses thanks to a brighter outlook for the UK economy due to the vaccination programme and easing of lockdown restrictions.
NatWest reported pre-tax operating profits of £946 million for the first three months of 2021 against £519m a year earlier – an increase of 82 per cent.
The taxpayer-backed group, which remains 59.8 per cent owned by the taxpayer, released £102m of cash put aside for loans that may not be repaid as a result of the coronavirus crisis.
A year earlier, it put by £802m for loan losses and took a mammoth impairment charge of £3.2 billion for these provisions over 2020 as a whole.
Despite the improved profits, NatWest – rebranded from Royal Bank of Scotland last year – has not changed its outlook for the full year as it remains cautious amid ongoing economic uncertainty and with Covid-19 business loans becoming due for repayment.
Chief executive Alison Rose said: “NatWest Group’s profit in the first quarter of 2021 is a result of a good operating performance in our core franchises as well as modest impairment releases that reflect the better-than-expected performance of our loan book across the first three months of the year.
“We continue to make progress against our strategic targets, growing in key areas, simplifying the bank and accelerating our digital transformation to meet the rapidly evolving needs of our customers.
“Defaults remain low as a result of the UK government support schemes and there are reasons for optimism with the vaccine programmes progressing at pace and restrictions being eased.
“However, there is continuing uncertainty for our economy and for many of our customers as a result of Covid-19. Our capital strength and well-diversified balance sheet means NatWest Group is well positioned to help people, families and businesses to rebuild and thrive.”
Richard Hunter, head of markets at investment platform Interactive Investor, said: “The emerging themes from the banks continue, with NatWest the latest to benefit from an impairments release which has turbocharged quarterly profit.
“From a strategic perspective, the bank has its work cut out with the ongoing shrinking of NatWest Markets and a slow withdrawal from the Ulster Bank business.
“In the meantime, the bank remains committed to growing its digital offering, which in due course should offer the opportunity for low-cost expansion as the roll-out of digital services is marginal compared to the costs of running a sprawling branch network.”
Freetrade senior analyst Dan Lane noted: “A lot of the cost-cutting has been factored in by now - jettisoning the bulk of its Adam & Co operations and the underperforming Ulster Bank ROI division should lighten the burden.
“But NatWest will want to see much more leniency from the regulator on quickly reducing its cash pile to deal with pandemic-induced impairment charges.”
HSBC said on Tuesday that it has released $435m (£313m) of loan loss reserves, with Bank of Scotland owner Lloyds Banking Group cutting its provisions by a net £323m.