Shares of NatWest — the banking group formerly known as RBS — briefly touched their highest level in 14 years on Friday after the group beat estimates for its financial performance in the first quarter and flagged improving earnings for 2025.
NatWest reported quarterly pretax income of £1.81 billion, up 38% from a year ago and beating estimates of £1.53 billion.
Net loans to customers excluding central items increased by £3.4 billion, or 0.9%, in the quarter to £371.9 billion largely driven by mortgages and growth in Corporate & Institutions.
Customer deposits excluding central items increased by £2.1 billion, or 0.5%, in the quarter to £433.4 billion “due to growth in Commercial & Institutional and Retail Banking, partially offset by a reduction in Private Banking due to seasonal tax payments.”
For 2025, NatWest said it now expects to achieve income excluding notable items to be at the upper end of its previously guided range of £15.2 billion to £15.7 billion.
NatWest CEO Paul Thwaite said: “Our strong first quarter performance demonstrates the positive momentum in our business as we deliver against clear strategic priorities, and we now expect to be at the upper end of our income and returns guidance for 2025.
“This performance is underpinned by continued growth across our three businesses and the support we provide to over 19 million customers, whether that is buying a home, growing a business or investing their money.
“In the face of increased global economic uncertainty, our customers remain resilient and we saw good levels of activity through Q1 2025.
“The strength of our balance sheet means we are well placed to help our customers navigate any challenges, whilst also investing in our business and delivering returns to shareholders.
“At a time when there is a clear intent to deliver economic growth, NatWest Group is able to play an important role, shaping our future as a vital and trusted partner to our customers and to the UK itself.”
REACTION:
Richard Hunter, Head of Markets at interactive investor: “The stars are aligning for NatWest and this latest quarter has added to the growing momentum, prompting another upgrade to its guidance for the full year.
“The imminent removal of the last vestiges of the government stake, which is now less than 2%, will in reality be more of a symbolic move than a turning point. Nonetheless the technical overhang of the stake had been a heavy weight on the share price and the group can at last move on.
“While the shares will likely never recover to the heady levels of almost £64 per share in 2007, that was of course a time when a bloated and overstretched Royal Bank of Scotland very nearly met its end. This NatWest is an entirely different beast with definite prospects and as the sector has been rerated, it has been the best performing UK bank in terms of share price appreciation over the last year.
“Indeed, it remains to be seen whether this new-found freedom will enable a more aggressive acquisition policy and NatWest has already recently made what it describes as two significant purchases in the form of Metro Bank and Sainsbury’s Bank.
“Its significant cash generation will provide an interesting dilemma on whether to continue to bolster shareholder returns, make further acquisitions, invest heavily in the business particularly in regard to growing digitalisation, or perhaps a combination of all of these options.
“In the meantime, the numbers provide a comforting backdrop ahead of what could be a challenging time to come, both in terms of the embattled UK consumer as well as the wider shockwaves which may well accompany the current tariff traumas.
“The group has made a net impairment provision of £189 million, which is precautionary given that the current levels of default are stable and is certainly containable within the context of the group’s overall strength. NatWest has 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, which is not currently in evidence.
“As such, the operating numbers are strong across the board. Total income of £3.98 billion was 14.5% higher than the year previous, and ahead of the expected £3.89 billion, helped along by a Net Interest Income figure of £3.03 billion which was 14.1% higher than the corresponding period and by the so-called structural hedge, which lessens the group’s susceptibility to changes in interest rates and which many consider will be of particular benefit to NatWest.
“Operating pre-tax profit breezed past the estimated £1.57 billion to land at £1.81 billion, an increase of 36.2% on the previous year and of 21.4% on the preceding quarter.
“While it may be over simplistic to describe banks as basically providing loans and taking deposits, these are of course crucial planks and both are currently growing. The latter had been the source of some concern for the high street banks as customers sought higher savings rates elsewhere but this exodus has ceased and deposits grew by 0.5%, while mortgage strength helped lift overall loans by 0.9% in the period.
“Its Commercial & Institutional business, which accounts for 54% of overall income, was bolstered by strong trading revenues and showed a Return on Tangible Equity (ROTE) of 19.3%. Retail Banking (39% of group revenue) saw the benefit of higher mortgage balances and had a ROTE of 24.5%, leading to an overall group number of 18.5%. This has prompted an upgrade to full-year guidance to the upper end of the previously estimated 15% to 16% range, while at the same time, total income was also updated to be skewed towards being at the top end of the £15.2 billion to £15.7 billion range.
“Elsewhere, the capital cushion or CET1 ratio remained comfortable at 13.8% versus a previous 13.5%, and the cost/income ratio improved further to 48.6% from 58.4%, helped by a decline of 3.6% in operating expenditure. A further update on shareholder returns is likely at the half-year numbers and in the meantime a dividend yield of 4.5% is an additional benefit to total returns along with the share price strength.
“In all, this reassuring update comes against some heightened expectations since NatWest became the focus of strong investment attention. The share price has risen by 56% over the last year, as compared to a gain of 4% for the wider FTSE100, and is ahead by 18% in this calendar year alone. While Barclays has a marginal edge as the preferred play in the sector at present, the market consensus of NatWest as a comfortable buy echoes continuing optimism from investors on prospects for a revitalised bank.”