NatWest reports flat profit as economic outlook dims

Posted on October 28, 2022Comments Off on NatWest reports flat profit as economic outlook dims

© Reuters. FILE PHOTO: People maintain social distance while they queue outside a Natwest bank in Wimbledon, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 1, 2020. REUTERS/Hannah McKay

By Iain Withers

LONDON (Reuters) – British bank NatWest (LON:) reported flat quarterly profits on Friday, as bad loan charges from a worsening economic outlook took the shine off income boosted by rising interest rates.

NatWest posted pre-tax profit of 1.1 billion pounds ($1.27 billion) for July-September, slightly below the 1.2 billion pounds average of analyst forecasts compiled by the bank, and unchanged on the prior year.

The bank set aside an additional 247 million pounds in the quarter to reflect the deteriorating picture, denting its profits.

Britain’s economy is facing recession at a time when the Bank of England is hiking interest rates to curb double-digit inflation, squeezing the finances of households and businesses.

NatWest chief executive Alison Rose said the bank had not yet seen heightened signs of financial distress from customers, but said the lender was closely monitoring the situation.

Lenders benefit from higher rates as they profit from the difference in what they charge on lending and pay out on deposits, but they are a double-edged sword as they also squeeze borrowers and raise the risk of loan defaults.

NatWest said it still expects to reach its return on equity target – a key measure of profitability – of 14-16% in 2023, but said the route to achieving that would be different as both income and costs rise amid rising interest rates and inflation.

NatWest is the last of Britain’s ‘Big Four’ banks to report results this week. Lloyds (LON:), Barclays (LON:) and HSBC (LON:) earlier all reported solid profits but discomfited investors with higher bad loan charges.

NatWest said the bad loan charge had been taken due to it adopting a more negative view of its existing economic scenarios, but unlike Lloyds it did not update its forecasts, opting to wait to full-year results in February.

($1 = 0.8654 pounds)

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