The banking giant reported an operating pre-tax profit of £4 billion for 2021, up from an operating pre-tax loss of £481 million a year earlier.
During the year it put £1.3bn back on to its balance sheet from the £3.2bn put aside during the height of the Covid crisis, including £341m in the final three months of the year.
Shareholders are to receive £3.8bn through a dividend of 7.5p a share, and a £750m share buyback scheme was announced, which removes stock from circulation in an attempt to boost its price. This includes £1.7bn to the taxpayer, with the UK government owning a stake of just over 50 per cent.
The bonus pool for NatWest's bankers increases from £200m to £298m.
Chief executive Alison Rose said it was a strong performance but sounded a note of caution for the year ahead for customers.
“We are acutely aware of the challenges that many people, families and businesses continue to face up and down the country and are working alongside our customers to provide the support they need - whether that is managing their money better, saving for a house or retirement or starting or growing a new business - as well as playing a leading role in the transition to net zero.
“As our economy recovers and the trend towards digital services accelerates, we are investing to deliver long-term value in the bank and drive sustainable growth. We will do this by building closer and deeper relationships with our customers and by supporting their evolving needs and expectations at every stage of their lives.”
Zoe Gillespie, investment manager at Brewin Dolphin, the wealth firm, said: “NatWest has beaten expectations again and looks set to continue on its positive trajectory. The net impairment release of nearly £1.3 billion, bumper profits, and strong capital reserves point to a bank in good health.”
Freetrade analyst Gemma Boothroyd noted: “NatWest’s got its confidence back, and it’s nearly ready to split from the hand that’s fed it for years. [These] results confirm its pockets are flush with cash as the bank continues to release its Covid loan reserves.
“It’s a nod to shareholders that the bank’s a bit healthier. It’s also a signal to the UK that it’s ready to shed its title as a taxpayer-owned bank.”
Richard Hunter, head of markets at investment platform Interactive Investor, said: “Another period of growth in the final quarter has sealed a successful year for NatWest, with the release of provisions for bad debts being a major driver.
“Further investment in the digital business will continue to allow a capital light method of expanding services, which in turn should positively impact the cost/income ratio.
“There are already around 60 per cent of current account customers using the digital route, and ongoing expansion should also enable a further trimming of costly branches where possible.”