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FTSE 100: NatWest profits surge on the back of higher interest rates

A man walks past ATM machines at branch of the NatWest bank in Manchester, Britain September 21, 2017. Picture taken September 21, 2017.    REUTERS/Phil Noble
NatWest beats profit expectations with 50% hike on last year. Photo: Phil Noble/Reuters (Phil Noble / reuters)

NatWest’s (NWG.L) pre-tax operating profit rose 49% year on year to £1.8bn ($2.2bn) thanks to higher interest rates but tumbling customer deposits disappointed investors and analysts.

The group reported an operating profit before tax of £1.8bn for the first three months of the year.

NatWest Group, which includes Royal Bank of Scotland and Ulster Bank, also saw its total income surge by more than a third over the period, helped by higher interest rates which makes it more expensive to borrow.

Revenue increased by 29% to £3.9bn — just above analysts’ estimates of £3.8bn.

Natwest shares slid 5.8% on Friday.

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NatWest Group chief executive Alison Rose said: “Through a period of significant disruption and uncertainty, we continue to stand alongside the people, families and businesses we serve, providing targeted support and growing our lending responsibly.

Read more: Interest rates: Barclays income from consumers surge 47% as homeowners pay higher loans

“Our disciplined and consistent approach to risk management means that arrears and impairments remain low.

“By monitoring customer behaviour and looking closely for signs of financial distress, we are able to put in place proactive measures to help those who are struggling right now and those who are worried about the future.”

NatWest and the other high street lenders have been criticised over how slowly they passed on the benefits of higher rates to customers and earning disproportionate profits by increasing rates on mortgages quicker than rates on savings products.

Chief executive Rose originally refused to attend a parliamentary hearing with the Treasury select committee but U-turned following public pressure.

Richard Hunter, head of markets at Interactive Investor, said: “Set against the wider banking turmoil of recent months the solid and dependable, if a little unexciting, performance which NatWest has delivered is just what the doctor ordered for more risk-averse investors.”

Personal current account balances decreased by £2.6bn and personal savings decreased by £1.8bn in the first quarter.

AJ Bell investment director Russ Mould, said: “A drop in customer deposits, while nothing like on the scale seen at other crisis-ridden banks, has helped put the wind up investors in NatWest.

Read more: UK banks: Here’s what to expect from Q1 results

“The gap between the amount NatWest charges for loans compared to what it pays out for deposits, also known as the net interest margin, is also tighter than many had hoped.

“This runs counter to Barclays’ (BARC.L) own first quarter numbers which showed higher base interest rates were feeding into a strong net interest margin.

“The disappointing news elsewhere overshadowed NatWest’s better than expected earnings for the first quarter — driven by higher non-interest income and lower impairments on bad debts."

NatWest chair Howard Davies this week said that "poor risk management" was largely behind recent bank failures and that NatWest remains resilient.

Watch: NatWest CEO Rose says not seeing distress among customers

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