Michael Hewson MSTA CFTe
CMC Markets
NatWest Group has followed in the footsteps of Barclays and Lloyds earlier this week by reporting a decent set of H1 numbers, as the unlocking of the UK economy boosts confidence, and a lot of the worst-case scenarios failed to play out.
In Q1 the bank was able to release £102m back on to the balance sheet, which in turn boosted profits to £946m, above expectations of £539.5m.
Today the bank released another £605m from reserves helping to boost H1 profits by £707m, due to the low levels of loan defaults.
As a result, Q2 pre-tax profit came in at £946m, helping to push H1 profits to £1.84bn, with the bank taking the decision to resume the dividend, declaring an interim payment of 3p per share. The bank also said it plans to buy back £750m of its own shares in the second half, after the Bank of England removed restrictions on payouts a few weeks ago.
This also presents a nice windfall for the UK government as it looks to pare back further its now 54% stake in the lender over the course of the next 12 months, with the bank saying it expects to distribute a minimum of £1bn per annum to shareholders from 2021 to 2023 via a combination of ordinary and special dividends.
Like Lloyds yesterday the bank has seen customer deposits increase, with £5bn being added over the quarter, and £12.1bn over the first half, while also seeing loans increase due to higher levels of mortgage lending, which rose by £7bn in the first half.
Over the half year income from retail and commercial business was still lower, as a result of the lower yield curve, and lower business activity. Net Interest margin came in at 1.61% for Q2, down from 1.64% in Q1, which is disappointing when you consider Lloyds saw an increase. It is also one of the thinnest in the UK banking sector, and still well below last year’s 1.89%, which means NatWest has plenty of room to improve.
Initial share price reaction to today’s numbers is a little disappointing, with the shares down by over 1%, however that may have more to do with the fact that markets are down across the board this morning, and the fact that the shares are already 25% up year to date.
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