NatWest has reported bumper first-quarter profits on the back of a rise in UK interest rates but said persistently high prices were causing some customers to dip into their savings.
The banking group said it was largely unaffected by the banking turmoil that resulted in the collapse of Silicon Valley Bank and Credit Suisse last month, and despite uncertainty, managed to report a 50% jump in profits to £1.9bn in the first three months of the year. That was better than the £1.6bn forecast by analysts.
NatWest’s strong performance was driven by higher UK interest rates, which have soared to 4.25% over the past year and allowed UK lenders to charge more for loans and mortgages. NatWest said its net interest income – which accounts for the difference between what it pays savers and what it charges to borrowers – jumped 43% to £2.9bn in the first quarter.
However, investors, who remain jittery in the wake of the March banking crisis, sold off shares in the bank, which were down 5% on Friday, making NatWest the biggest faller on the FTSE 100. The fall appeared to be driven by disappointment over the bank’s outlook for the full year, which remained unchanged, and a near £20bn drop in deposits.
Shareholders have been worried about any signs of potential distress, after investors started to pull their money from small US banks and dump them with bigger national lenders including JP Morgan. However, NatWest’s chief executive, Alison Rose, said last month’s turmoil was not the driving force behind the drop in deposits.
Instead, the decrease was largely linked to its disposal of Ulster Bank in Ireland, as well as customers paying taxes at the end of the financial year. Competition with rival banks also played a role, with customers shopping around for higher savings rates, but Rose also revealed that NatWest was seeing customers start to dip into their savings to pay off costly debts and keep up with price inflation. Headline inflation in the UK is currently 10.1%, well above the Bank of England’s 2% target.
“What we are seeing is people are using their cash balances that they built up – and remember, there was a big buffer built up – during Covid,” she said.
“People are starting to use those deposits – in particular some of the more affluent households – to make decisions about their budgets. So we have seen paying down of debt. We are seeing businesses start to use the cash to … [cover] the impacts of inflation.”
NatWest’s earnings release noted that the drop in balances was also affected by “lower household liquidity”, suggesting customers have had less money to go around as a result of the cost of living crisis.
However, Rose said it was a sign that customers were being prudent about their finances. “We have seen customers behaving really rationally around their financial affairs … I think that’s good financial management.”
While NatWest – which is still 41.5% owned by the taxpayer after its 2008 state bailout – said it put aside £70m to cover the cost of potential customer defaults, that was half the amount it put aside in the last quarter.
“Our disciplined and consistent approach to risk management means that arrears and impairments remain low,” Rose said. 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,” she said.
Elsewhere, Deutsche Bank announced on Friday morning it was buying the London-based boutique investment bank Numis in a £410m deal.
The acquisition was seen as a vote of confidence in the City, with the German bank saying it was part of efforts to broaden operations in the UK.
“We have been evaluating how to accelerate the growth of our business in the UK and, as a leading UK franchise with a long history of successfully delivering superior client service and growth, Numis represents a compelling strategic fit,” Deutsche Bank said.
“The combination enables us to realise greater revenue opportunities across our shared client base and to deepen our engagement with UK corporates.”