NatWest’s earnings surge on back of thriving mortgage market and the release of Covid credit provisions
- NatWest’s earnings quintupled to £744m in the three months to 30 September
- Higher mortgage lending in the UK helped drive total income up 14% to £2.8bn
- Barclays and Lloyds Banking Group also reported strong third-quarter results
NatWest Group saw its profits jump last quarter after releasing another large amount of cash it had set aside for bad loans during the pandemic.
The banking giant’s earnings quintupled to £744million in the three months to 30 September, compared to the same period last year as the ongoing economic recovery allowed it to discharge £242million in impairments.
Its overall income was also up by 14 per cent to £2.77billion, driven partly by higher mortgage lending in the UK, where the stamp duty holiday and looser coronavirus restrictions buoyed the housing market.
Rebound: NatWest Group saw it earnings quintuple to £744million in the three months to September 30, compared to the same period last year
There was also strong growth in customer deposits, and, ahead of the upcoming COP26 summit in Glasgow, it managed to lend £2billion in sustainable and climate-related finance (CSFF).
The banking corporation promised earlier this month to provide £100billion of CSFF by 2025 through measures such as giving mortgages with lower interest rates to consumers buying more energy-efficient homes.
NatWest’s third-quarter results bear a strong similarity to those published in recent days by Barclays and Lloyds Banking Group, who both attributed their booming profits to releasing millions in credit impairments and steep demand for mortgages.
Before then, major Wall Street financial institutions, such as J.P. Morgan and Goldman Sachs, also revealed strikingly impressive results due to bumper fees deriving from a market hot with takeovers, mergers and initial public offerings.
Chief executive Alison Rose said: ‘Although we are seeing challenges in the economy and for our customers – especially around supply chains and the cost of living – a number of key indicators remain positive; growth is good, unemployment is low, and there are limited signs of default across our book.
‘We have a vital role to play in helping the 19 million people, families and businesses we serve in communities throughout the UK to thrive. Because when they thrive, so do we.’
Green ambition: NatWest Group promised earlier this month to provide £100billion of sustainable and climate-related finance (CSFF) by 2025
Yet despite the upbeat results, NatWest’s share price was down 4.9 per cent to 220.1p just before midday on Friday, making it the biggest faller among FTSE 350 firm’s except for Warhammer maker Games Workshop.
The bank reported its net interest margin – the difference between its interest income on loans and the interest paid on savings deposits – declined to 1.54 per cent against 1.61 per cent in the previous quarter.
Profits were also impacted to the tune of almost £300million as a consequence of the company pleading guilty to three counts of breaching anti-money laundering rules in a legal case brought by the Financial Conduct Authority (FCA).
NatWest Group admitted it had failed to prevent £365million of money laundering by a customer between 2012 and 2016. A judge is set to decide what fine to levy on the bank, but the FCA suggests it could be £340million.
Legal action: The Financial Conduct Authority brought a case against NatWest Group over the lender’s failure to sufficiently combat money laundering by a customer
The case is the first time that criminal action had been taken against a major lender under money laundering laws passed back in 2007 and also marked a milestone for the FCA, which has been criticised for a long time of being too weak to deal with financial crimes.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: ‘A lot of attention’s being given to the money put aside to pay for money laundering regulation breaches.
‘Clearly, this kind of issue is unsavoury, and with the PPI scandal only just disappearing in the rear-view mirror, it’s uncomfortably common.
‘However, a longer-term problem is lower-yielding loans which have hurt the all-important net-interest margin. NatWest was keen to point out it’s increasing mortgage rates, but the full effect of this won’t show up until full-year results.
‘In the meantime, any updates on interest rate hikes would go down particularly well where Natwest is concerned, which is more exposed to the rate environment than some other banks.’