Natwest shares jump after first quarter results as government continues to reduce stake

Natwest’s profit slumped in the first quarter of the year but stayed ahead of market expectations as it shrugged off the worst of the mortgage downturn and expanded its lending book.

The Big Four bank posted an operating profit of £1.3bn in the first three months of 2024, down 27 per cent from £1.82bn in the same period last year but little changed from £1.26bn in the previous quarter. Analysts had expected a first-quarter profit of £1.25bn.

Interest rate hikes from the Bank of England pushed Natwest’s profit to its highest level since 2007 last year as it was able to charge more on loans. However, banks’ margins have narrowed into 2024 as intense competition and the prospect of interest rate cuts has forced them to offer better deals. Meanwhile, demand for borrowing has fallen as higher rates have put households under pressure.

While the bank marginally grew its lending book, total gross new mortgage lending was £5.2bn in the quarter, compared with £9.9bn in the first quarter of 2023 and £5.6bn in the final three months of the year.

“Though macro-uncertainty continues, customer confidence and activity is improving, with both lending and deposits up in the quarter and impairments remaining low, reflecting our well-diversified business,” said chief Paul Thwaite in a statement.

Natwest’s net interest income – the difference between what it earns from interest on loans and pays out to savers – rose to £2.65bn in the first quarter from £2,63bn in the final three months of the year and down from the £2.9bn reported in the same period last year.

Big banks have been pressured by customers and the government to raise their savings rates amid higher borrowing costs from the central bank, further squeezing their margins. 

Following a turbulent 2023 marked by a “debanking” row with former Ukip leader Nigel Farage, Natwest’s stock price has outperformed all of its high street peers so far this year with a new management team and improving economic picture.

Investor sentiment has been buoyed by the government’s plan to offer part of its remaining 29 per cent stake in the bank to retail investors as early as this summer.

Separately, a filing revealed this morning announcing the government’s shareholding in Natwest has fallen below 28 per cent to 27.93 per cent. The shareholding was 45.9% at the end of 2022.

After today’s gains, shares in the lender have jumped 37.8 per cent year-to-date.