NatWest swings into profit after lower-than-expected impairments

NatWest Group became the latest bank to beat gloomy expectations as it reported a profit when analysts had predicted a loss.

The company, which owns the Royal Bank of Scotland, said on Friday that pre-tax profit had hit £355 million in its most recent quarter, against the £75 million forecast loss.

Last year the bank lost £8 million over the same three-month period.

Chief executive Alison Rose said: “These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty.

“Our sector-leading capital position, strong levels of liquidity and consistent approach to risk mean we can continue to provide our customers and communities with the support they need.”

Earlier this week, HSBC indicated that it could start charging customers for providing current accounts, as interest rates remain at record lows and could go negative.

Ms Rose said on Friday that NatWest has “no current plans to change our pricing structure”.

Asked if she would rule out ever charging for a current account, she said there are “no plans to do so at the moment”.

Quizzed on when dividends could return, she said it is her intention to start paying them again as soon as possible.

Early in the coronavirus crisis, the Bank of England’s Prudential Regulation Authority asked banks to stop paying dividends to their shareholders, ensuring that billions of pounds were available to instead support the economy.

“The PRA has indicated they will update their guidance in the fourth quarter and we will wait for that and then we will set it in the normal course,” Ms Rose said.

The bank was helped into the black by lower-than-expected impairment charges of £254 million.

Banks take impairment charges to account for money they have lent but do not expect to get back. Impairments are a part of everyday banking, but often rise during economic downturns, such as that caused by Covid-19.

NatWest had been predicted to report impairments worth £628 million.

The new report means that impairments will come in at the lower end of NatWest’s own predictions of £3.5 billion to £4.5 billion.

Ms Rose added: “Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear.

“Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.”

The bank reported that it had paid £90 million in redundancy costs, £223 million in strategic costs, a £21 million property charge, and £34 million on technology.

Dan Lane, an analyst at Freetrade, said a struggling economy could end up hitting the banks.

On Thursday, the International Monetary Fund (IMF) downgraded its UK economic forecast, expecting it to shrink by 10.4% this year, and only regain 5.7% in 2021.

Mr Lane said: “There have been much lower provisions set aside for bad loans generally in the sector but if unemployment does spike after the Government’s extended support schemes finish, those loans could sour considerably – and take a chunk of the balance sheet with them.

“It could get a lot worse before it gets better.”