NatWest share price, along with the rest of the banking sector has been hit in recent weeks from the turmoil in UK bond markets, as well as speculation of a further windfall tax on their profits.
Currently the banks pay corporation tax at the standard rate, with an increase to 25% kicking in next year, along with an 8% banking levy on top giving an effective tax rate of 33%.
The shares have seen a rebound from the October lows, as bond markets have settled down and so far, NatWest has had a very solid first half of the year.
In July NatWest offered up a fairly decent set of numbers, announcing an interim dividend of 3.5p, as well as a 16.8p special dividend, after reporting a solid set of H1 numbers. After ten years of legacy issues and underperformance this was a welcome tonic for their shareholders of which the UK government is one.
Today’s Q3 numbers are a reminder if any were needed of how vulnerable banks are to the economic winds blowing through the economy, after the bank posted a modest Q3 attributable profit of £187m, a sharp drop from the £1bn profit in Q2. While this is a sharp drop on Q2 as well as last year there are some notable factors at play.
The main reason for this profits slide was due to a loss of €652m on the discontinued Ulster Bank operations and the reclassification of the mortgage book so is very much a one-off.
It is notable that NatWest has taken more aggressive action with respect to impairments.
In H1 impairments were a modest £26m, however today’s numbers have seen that provision increased by £247m, while operating expenses also saw a sharp increase compared toQ2, to just shy of £1.9bn, although they are still lower from a year ago.
When all of this is stripped out the underlying performance was still slightly weaker than Q2 as operating profits came in at £1.09bn, slightly shy of expectations, and a £310m fall from Q2.
As far as the internals are concerned the higher interest rate environment has seen net interest margin increase in Q3 to 2.99%, bringing NIM year to date up to 2.73% from 2.59% in H1.
On the business side of things net loans have risen steadily throughout the year, rising to £192.8bn in Q3, and up from £188.7bn in Q2 and £184.7bn in Q1. This increase was mainly down to new mortgage lending of £3.9bn.
Customer deposits increased to £190.9bn, a rise of £400m.
On the outlook NatWest said they expect total income to be around £12.8bn with NIM expected to rise to 2.8% by year end.
The bank also said that despite concerns about the outlook and higher impairments that their customers weren’t showing any signs of loan distress.
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