Profits at NatWest Group (NWG.L), formerly Royal Bank of Scotland, were wiped out in the first half of 2020 as the banks set aside an extra £2bn ($2.6bn) to cover an expected rise in losses in the coming months.
NatWest said on Friday it made a pre-tax loss of £770m in the first half of 2020, compared to a profit of £2.6bn last year. Losses attributable to shareholders were £705m.
It came as the bank set aside a further £2bn to cover loans, credit cards, and mortgages going bad as a result of the COVID-19 crisis — far higher than the City predicted. Analysts had expected NatWest to set aside around £940m for additional loan provisions in the second quarter, although estimates varied widely.
The credit impairments take NatWest’s loss-absorbing buffers to £2.8bn. The bank initially set aside £802m to deal with the COVID-19 crisis in May. NatWest said loss provisions would likely rise to between £3.5bn and £4.5bn by the end of the year.
“Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of COVID-19,” chief executive Alison Rose said in a statement.
“However, NatWest Group has a robust capital position, underpinned by a resilient, capital generative and well diversified business.”
Income at the bank fell 3.75% to £3.8bn in the first half of the year of 2020 and NatWest made a profit of £2bn before impairment charges.
Shares in NatWest were trading down around 0.5% shortly after the open in London, following a slump of over 4% seen on Thursday.
The worse-than-expected performance completes a trio of disappointing results from British banks this week. Barclays delivered lower than expected profits and Lloyds fell to an unexpected loss. Both were weighed down by huge provisions to cover the impact of COVID-19. Both also warned the outlook for the UK economy had worsened in recent months.
“The economic outlook has worsened” since May, Rose said on a call with journalists.
“We know times are going to be tough and not all businesses will survive.”
NatWest said its updated economic modelling suggested UK GDP could fall by around 14% in 2020, unemployment could climb above 9%, and house prices could tumble by 9%.
However, the bank said there was “increased uncertainty as a result of COVID-19” and so gave a wider range of potential forecasts that normal.
Like other banks, NatWest has in recent months focused on helping its customers weather the economic blow of lockdown through payment holidays and loans.
The bank has lent £10.1bn to businesses under government-backed support schemes and approved 71,000 repayment holidays for corporate customers. The bank has also approved 240,000 mortgage repayment holidays.
“Through our strong balance sheet and prudent approach to risk, we are well placed not only to withstand COVID-19 related impacts but also to provide the right support to those who will need it most in the tough times to come,” Rose said in a statement.
The loss of income from payment holidays and rock-bottom interest rates squeezed performance at the bank. Income across NatWest’s retail and commercial business fell 9% compared to last year.
However, in line with other banks, NatWest saw surging activity in its markets division. Income at its trading business jumped by 44% in the first half of the year as market volatility and a surge in companies seeking to raise cash created a boom in business.
In the second quarter, income across the bank was flat at £1.9bn and the bank made a pre-tax loss of £1.2bn. Analysts had been expecting second quarter income of £2.4bn and a loss of £318m for the three month period.
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