NatWest Group (NWG.L) smashed profit forecasts on Thursday thanks to a surge in mortgage lending and a release of £100m ($140m) from its loss provisions.
The UK bank on Wednesday said it made a £946m profit before tax in the first quarter of the year. Revenue was up almost 5% quarter-on-quarter to £2.65bn, but down 14% on the same quarter a year earlier.
The profit performance beat expectations. City analysts had expected the bank to report a pre-tax profit of £536m on net income of £2.6bn.
The bank was boosted by the release of £102m from its multi-billion dollar reserve built up to absorb what management feared could have been a wave of defaults caused by the COVID-19 crisis. The lender was forecast to set aside another £251m to cover expected credit losses, rather than unlock capital.
NatWest said it was releasing cash due to the "low level of defaults" so far and the limited number of loans in the early stages of trouble.
"NatWest Group’s profit in the first quarter of 2021 is a result of a good operating performance in our core franchises as well as modest impairment releases that reflect the better than expected performance of our loan book across the first three months of the year," chief executive Alison Rose said.
"Defaults remain low as a result of the UK Government support schemes and there are reasons for optimism with the vaccine programmes progressing at pace and restrictions being eased. However, there is continuing uncertainty for our economy and for many of our customers as a result of COVID-19."
NatWest left its outlook and forecasts unchanged, although Rose admitted there were early "positive signs" as the UK exits lockdown.
NatWest — formerly known as Royal Bank of Scotland — reported solid growth in the number of customers banking with it online, via smartphones, and over video chat.
"We continue to make progress against our strategic targets, growing in key areas, simplifying the bank and accelerating our digital transformation to meet the rapidly evolving needs of our customers," Rose said.
As with other UK lenders, NatWest is reaping the rewards of a surging property market in the UK. The lender reported almost £10bn of gross mortgage lending activity in the quarter, up 8% on the prior period.
NatWest is the third major UK bank to report first quarter results. Lloyds Bank (LLOY.L) and HSBC (HSBA.L) both delivered better-than-expected numbers thanks to a buoyant UK mortgage market. NatWest shares had rallied strongly on the back of those numbers. Both Lloyds and HSBC had also released some cash from their loss buffers.
Shares fell 3% in early trading in London.
"These are not bad results per se, they just don’t contain much to get excited about," said Nicholas Hyett, an equity analyst at stockbroker Hargreaves Lansdown.
The UK's Financial Conduct Authority started criminal proceedings against NatWest in March for alleged historic anti-money laundering failings. The bank warned in its quarterly report that the case, which is due to start in May, could lead to "adverse collateral consequences, in addition to further substantial costs and the recognition of provisions."
Rose said she was "very disappointed" with the situation but said it would be inappropriate to speculate on the scale of potential costs or provisions at this point. She stressed that NatWest has 4,000 people working on anti-money laundering across the bank.