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.