NatWest shares slid despite a surge in profits as tumbling customer deposits disappointed investors and analysts.
Pre-tax operating profit rose 49 per cent year on year to £1.8bn, beating forecasts of £1.6bn. Revenue increased by 29 per cent to £3.9bn, just above analysts’ estimates of £3.8bn, as interest rates increased.
Despite inflationary pressures, the bank’s provisions for bad loans of £70mn were significantly below analyst estimates of £238mn and compared with a release of £36mn in the same period in 2022.
“We always said seasonality would affect deposits in the first quarter,” said chief executive Alison Rose, referring to higher customer tax payments. “We’ve also seen a little bit more increased competition.”
Shares fell by 6 per cent to 255.96p by mid-morning on Thursday in London, though they were 7 per cent higher than a year ago.
Analysts were disappointed that the outlook for the year, with revenue of £14.8bn, had remained unchanged despite interest rates rising to 4.25 per cent in March, 0.25 percentage points above expectations at the bank’s annual results.
“The drag is most likely coming from customer deposits that were down another £11bn or 2.6 per cent in the quarter, excluding repos and Ireland,” wrote Jonathan Pierce at Numis. NatWest also revised its guidance on deposits from “stable” to “stable to modestly down” for the full-year results.
The bank’s net interest margin (Nim) — a measure of the difference between the interest received on loans and the rate paid for deposits — was 3.27 per cent, 0.82 percentage points higher year on year but below estimates of 3.38 per cent, which the bank said reflected higher competition in the mortgage market.
“The 1Q23 Nim may disappoint, but we always argued that consensus had the quarter-to-quarter timing wrong, as mortgage margin compression is heavily weighted to the first half,” said analysts at Citi. “We still believe the FY23 guidance could be surpassed.”
NatWest and the other high street lenders have been criticised by MPs on the House of Commons Treasury select committee over how quickly they passed on the benefits of higher rates to customers.
Chief executive Rose originally refused to attend a parliamentary hearing with the committee but U-turned following public pressure.
In a letter to the Treasury select committee this month, the Financial Conduct Authority warned that the harm to loyal customers of high street lenders who receive low savings rates is likely to have increased as interest rates have risen.