NatWest profit soars to £6.2bn; deposits fall to £419bn

NatWest Group plc — formerly known as Royal Bank of Scotland — said its operating profit before tax rose 20% to £6.2 billion in 2023 and it is distributing £3.6 billion to shareholders.

The group’s share price rose about 7%.

NatWest said net loans to customers “excluding central items” increased by £8.9 billion, or 2.6%, to £355.6 billion during 2023 “reflecting a £7.6 billion increase in Retail Banking and £2.0 billion in Commercial & Institutional as term loan facilities and private financing increased.”

The banking group said customer deposits “excluding central items” reduced £13.8 billion, or 3.2%, during 2023 to £419.1 billion “principally reflecting the competitive environment for deposits and an overall market liquidity contraction.”

NatWest said total income “excluding notable items” of £14.3 billion increased by £1.3 billion, or 9.8%, compared with 2022 “principally reflecting the impact of favourable yield curve movements, higher income in our markets business and lending growth partially offset by reduced deposit balances and mix changes and lending margin pressure.”

The group is proposing a final dividend of 11.5p, bringing the total for 2023 to 17p, representing a 26% increase on 2022. NatWest intends to commence an on-market share buyback programme of up to £300 million in 2024, taking total distributions deducted from capital in the year to £3.6 billion, or around 40p per share.

The UK government still owns a 38.69% stake in NatWest. UK taxpayers paid £45.5 billion to bail out NatWest between 2008 and 2009, when it was called Royal Bank of Scotland.

NatWest’s new CEO Paul Thwaite said: “We have delivered a strong performance in an exceptional macro environment.

“Our operating profit was up 20% on the year before, with a return on tangible equity of 17.8% and £3.6 billion of distributions to shareholders.

“The strength of our balance sheet allows us to support our customers and our performance is grounded in the services we have provided to help them reach their financial goals and manage their money better.

“As we look ahead, I am ambitious and confident for the future of NatWest Group.

“We should not underestimate the strength of our foundations or the opportunity to build deeper relationships with our 19 million customers.

“Our number one priority is to serve our customers well and provide them with the products, services, and expertise they need.

“This year we are focussed on the things we can control; delivering profitable growth, becoming more efficient, more productive, and simpler to deal with, whilst managing our cost and capital efficiently.

“Together, these actions will drive long-term, sustainable value for our customers, shareholders, and the wider UK economy.”


Richard Hunter, Head of Markets at Interactive Investor: “The UK banks’ reporting season is off to a flying start, with NatWest displaying a pleasing mix of lending and income growth, a tight focus on costs and a reward to patient shareholders with a further increase to the dividend.

“In addition, and as trailed, the new Chief Executive has been confirmed, removing a plank of uncertainty and potentially opening the door to a retail share sale later this year. The government holding … has been an overhang on the shares for some considerable time and its sale would leave the bank free of these shackles.

“The results today should certainly strengthen the investment case and increase the appeal to retail investors, although the level of the discount to the prevailing share price will be critical in attracting new buying interest.

“The numbers themselves show few causes for concern. Overall profit of £4.6 billion represented an increase of 28% on the previous year, with pre-tax operating profit jumping by 20% to £6.2 billion.

“Total income of £14.3 billion was in line with estimates and 8.8% higher than the corresponding period. While mortgage lending inevitably fell given the economic backdrop from £41.4 billion to £29.8 billion, loans to retail banking customers increased by £7.6 billion.

“The increase in loans also gives a nod to potential customer defaults, with a further provision of £126 million taking the total for the year to £578 million.

“Even so, the number remains significantly lower than that of its peers and, for some, will be a reflection of the generally lower risk loan book which the bank runs.

“NatWest has itself stated that levels of default are stable and had previously described its own “intelligent approach to risk” as including a proactive attitude for those customers who may be approaching some level of financial strain, such that the new provision is a prudent move in the circumstances.

“Other key metrics are solid, with the Return on Tangible Equity (ROTE) possibly the largest beat, coming in at 17.8% against the previous year’s level of 12.3%. The bank is mindful that the likelihood of lower interest rates in the coming year will have an impact, and has cautiously guided for a level of nearer 12% to come as a result.

“Meanwhile, the capital cushion or CET1 ratio, stands at 13.4% which, while lower than the previous 14.2%, remains comfortably in excess of regulatory requirements. Net Interest Margin, which had been the source of some disappointment at the third quarter update, came in at 3.04% for the year, compared with a previous 2.85% and helped along by Net Interest Income of £11 billion, up by 12.3%.

“The cost/income ratio, excluding litigation and conduct, was in line with the group’s own estimates at 51.8% and showed an improvement from the previous year’s level of 55.5%.

“The increasing migration of customers to digital platforms and the subsequent reduction in branch footprint are clearly playing into reducing costs, with the bank reporting that 9.8 million customers are now using its mobile app. In addition, it estimates that 94% of its customers’ needs are now being met digitally, as compared to 53% in 2019.

“The stability and strength of the balance sheet has enabled further management signs of confidence in prospects, with the announcement of a £300 million share buyback scheme and a further increase to the dividend which propels the projected yield to a punchy 7.9%. Herein lies the minor causes of complaint from these numbers, with a higher buyback number expected.

“The more cautious guidance on income for the forthcoming year may also have played a part in a slightly weaker opening price, along with a drop of 3.2% in deposits as customers seek the ultimate returns on cash balances after some years in the doldrums. Even so, some of the estimate beating performances, particularly on ROTE and especially in the fourth quarter, are limiting any disappointment.

“In all, these are a robust set of results which underpin prudence, growth and financial largesse to shareholders.

“However, the share price has tended to be dogged by the general outlook for the UK economy, and despite a small bounce over the last three months, the shares remain down by 29% over the last year, which compares with a decline of 5.2% for the wider FTSE100.

“Bulls of the stock are for the most part looking through the limitations of the UK’s position in the current economic cycle and taking a longer view, such that the market consensus of the shares as a buy is most likely to remain intact.”

Matt Britzman, equity analyst, Hargreaves Lansdown: “NatWest is out with a big profit beat as Paul Thwaite gets confirmed as permanent CEO. Impairment charges were better than expected as customers continued to show remarkable resilience in the face of higher inflation and interest rates. Absent any major shock to unemployment, low default rates are expected to continue over 2024.

“Retail customers continue to go in search of better rates from longer-term savings accounts. But crucially for NatWest, the pace of deposit migration was significantly slower in the fourth quarter than in the prior. Perhaps a sign that the peak in migration has come and gone – good news for net interest margins.

“Investors will be a little put off by NatWest giving no net interest margin guidance, especially considering income for 2024 is guided slightly lower than the consensus was looking for. This will likely be a key discussion point on today’s analyst call and the reason shares have opened down.

“UK banks continue to suffer from a post-Brexit valuation slump. While it looks like net interest income has peaked, there are enough tailwinds on the horizon to make the sector worth attention at current valuations. NatWest’s scandal-filled end to 2023 means its valuation is even more attractive, especially considering it should be one of the biggest benefactors of its structural hedge rolling on to higher yields – an ongoing income tailwind.

“Retail clients will be closely watching how things develop, given they may get a chance to snap up shares at a discounted price later this year if the government goes ahead with its plans to sell its stake. For existing investors, the ordeal will be a small blip and NatWest’s valuation should continue to trade based on its fundamentals.”