NatWest has reported a 40% jump in first-quarter profits but warned about the UK’s “uncertain” economy amid the cost of living crisis, saying it had referred more than 2,000 customers to debt experts at Citizens Advice.
The banking group – formerly known as Royal Bank of Scotland – beat expectations after reporting a jump in pre-tax profits to £1.2bn compared with £885m a year earlier. That was compared with analyst forecasts of a 15% drop in profits to £755m.
Its strong first-quarter results – the first reported since the UK government stake in the group fell below 50% last month – were supported by mortgage borrowing, higher interest rates and a rebound in consumer spending as Covid restrictions were eased.
NatWest was also able to release £38m of the cash it originally put aside for potential defaults on loans during the pandemic, despite what it said was “significant uncertainty in the economic outlook”.
That contrasts with action taken by banking peers such as Lloyds and Barclays, which were forced to take higher provisions for defaults in light of the cost of living crisis in the first quarter, amid fears that customers could fall behind on loan payments after inflation hit 7% last month.
“The world has changed considerably during the last three months,” said NatWest’s chief executive, Alison Rose, noting the impact the Russian invasion of Ukraine was having on the UK economy.
“We are also very aware of the challenges and concerns the cost of living crisis is causing for many of our customers up and down the country. NatWest Group is focused on providing practical help and support for the people, families and businesses we serve.”
NatWest said it had identified vulnerable customers and had referred 2,100 people to Citizens Advice in the past year.
The banking group serves about 19 million customers across the UK and Ireland.
Rose said that while default rates were still “very low”, the bank was aware of the potential risks ahead: “We’re not seeing signs of distress at the moment but we know, for example, the next round of energy costs will be coming through later in the year. That’s going to affect people’s balance sheets.”
She added that most mortgage borrowers were on fixed rates and would be protected from rising interest rates in the short-term. “But it’s important we get ahead of it and we are helping customers through this period.”
The bank’s results come a day after NatWest executives avoided a shareholder rebellion over a pay policy that could net the chief executive as much as £5.2m a year.
NatWest defended the proposals, saying that while the bank was aware the policy could court controversy, the changes would bring executive pay closer to levels offered by rival UK banks.
The resolution passed with almost 93% voting in favour of the policy on Thursday.
NatWest was the last of the big four UK banks to release their first-quarter earnings this week. While all of the major lenders warned over the impact of inflation and the war in Ukraine, results were mixed, with profits at HSBC falling 30% in the first three months of the year, while Lloyds’ profits fell 14% as it put aside more cash for potential defaults. Barclays said customers were already facing harder conditions, but still reported a 7% increase in pre-tax profits, beating analyst estimates.
Richard Hunter, the head of markets at Interactive Investor, said NatWest had “brought the curtain down on the banks’ reporting season in some style.”
He said: “The bank is also the first during this quarter to announce a credit impairment release, as opposed to the return to provisions for each of its UK peers. While the release of £38m is not significant and compares with a number of £98m in the previous year, it nonetheless marks NatWest out as a group which is comfortable with its projections, notwithstanding the economic pressures to come.”