NatWest (NWG Stock) share price falls on higher loan loss provisions, earnings miss


NatWest’s share price, along with the rest of the banking sector, has been hit in recent weeks by turmoil in UK bond markets, as well as speculation of a new windfall tax on their profits.

Currently, banks pay corporation tax at the normal rate, with an increase to 25% next year, plus an additional 8% bank levy, resulting in an effective tax rate of 33% .

Equities have rebounded from October lows as bond markets have stabilized and so far NatWest has had a very strong first half.

In July, NatWest came up with a pretty decent set of numbers, announcing an interim dividend of 3.5p, along with a special dividend of 16.8p, after announcing a strong set of numbers for the first half. After ten years of legacy problems and underperformance, it was a welcome boost for their shareholders, of which the UK government is one.

Today’s third quarter figures are a reminder of banks’ vulnerability to economic winds blowing through the economy, after the bank posted a modest third quarter profit of $187 million. pounds, down sharply from the £1 billion profit in the second quarter. Although this is a steep decline in the second quarter as well as last year, there are some notable factors at play.

The main reason for this drop in profits was due to a loss of 652 million euros on the discontinued operations of Ulster Bank and the reclassification of the mortgage portfolio, which is therefore very one-time.

It should be noted that NatWest has taken more aggressive measures regarding impairments.

In the first half of the year, impairments were just £26m, but today’s figures saw that provision rise by £247m, while operating expenses also saw a sharp rise compared to the second quarter, at just under £1.9 billion, although still lower than a year ago.

When all of that is stripped out, underlying performance was still slightly below Q2, with operating profit at £1.09bn, slightly below expectations, and a decline of £310m. pounds sterling compared to the second quarter.

Turning to internals, the higher interest rate environment saw the net interest margin increase in the third quarter to 2.99%, bringing the NIM year-to-date to 2.73% against 2.59% in the first half.

On the corporate side, net lending increased steadily throughout the year, reaching £192.8 billion in the third quarter, from £188.7 billion in the second quarter and £184.7 billion in the first trimester. This increase is mainly due to new mortgages of £3.9 billion.

Customer deposits increased to £190.9 billion, an increase of £400 million.

On the outlook, NatWest said it expects total revenue of around £12.8bn, with the NIM expected to rise to 2.8% by the end of the year.


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