Reaction: NatWest swings into profit with lower-than-expected impairments

Royal Bank of Scotland (RBS) owner NatWest Group has become the latest bank to beat gloomy expectations as it reported a profit in contrast to analysts’ expectations – although there are fears over the uncertain outlook.

RBS' site in Edinburgh's Gogarburn. Picture: Ian Georgeson.
RBS' site in Edinburgh's Gogarburn. Picture: Ian Georgeson.

The company has revealed that pre-tax profit reached £355 million in its most recent quarter, against the £75m forecast loss. Last year the bank lost £8m over the same three-month period.

Chief executive Alison Rose said: "These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty.

"Our sector-leading capital position, strong levels of liquidity, and consistent approach to risk mean we can continue to provide our customers and communities with the support they need."

CEO Alison Rose said the results 'demonstrate the resilience of our underlying business'. Picture: Domenico Pugliese.

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The bank was helped into the black by lower-than-expected impairment charges of £254m. NatWest had been predicted to report impairments of £628m. The new report means that impairments will come in at the lower end of NatWest's own predictions of £3.5 billion to £4.5bn.

Ms Rose added: "Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear.

"Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced."

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The bank reported that it had paid £90m in redundancy costs, £223m in strategic costs, a £21m property charge, and £34m on technology.

The results announcement came after the International Monetary Fund downgraded its UK economic forecast, expecting it to shrink by 10.4 per cent this year, and only regain 5.7 per cent in 2021.

Dan Lane, an analyst at Freetrade, said: "There have been much lower provisions set aside for bad loans generally in the sector, but if unemployment does spike after the government's extended support schemes finish, those loans could sour considerably – and take a chunk of the balance sheet with them."It could get a lot worse before it gets better."

Improvement

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Donald Brown, senior investment manager at Brewin Dolphin, said: “There were some encouraging signs in results from Barclays and Lloyds earlier this week, and NatWest’s update strikes a similar tone. The bank is well capitalised; delivered a profit before tax in the third quarter, comfortably ahead of analysts’ expectations; and expects impairment charges to be at the lower end of guidance, all of which marks an improvement on three months ago.

"However, there is a great deal of uncertainty on the horizon for the bank – as confirmed by the chief executive, who referred to ‘challenging times ahead’ – largely in the form of a second wave of Covid-19 and the small matter of Brexit. The market clearly remains pessimistic about NatWest’s immediate prospects, with the shares still around 50 per cent below where they started the year.”

It was announced earlier this month that NatWest has put the former RBS office building in Edinburgh’s South Gyle on the market, while residents in flats next to the major development proposed for the bank’s former site in the city’s New Town are calling for a rethink of the plans to protect their privacy.

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