Natwest shares sink: Vital profitability indicator slips but interim boss hails ‘strong bank’
Natwest’s share price has plummeted almost 10 per cent at the open, after a vital profitability indicator slipped, and the lender announced the outcome of an internal review into the so-called debanking row.
The bank’s net interest margin – the gap between lending rates and the interest it pays – slipped below 3 per cent in the last quarter as the bank responded to the end of central banks’ global rate hikes.
Net interest margin, a vital indicator of profitability and one looked closely at by analysts, sits 19 basis points lower this quarter than it did in the three month preceeding.
The bank said it was “largely due to changes in deposit mix as customers shifted balances from non-interest bearing current accounts to interest bearing savings accounts, particularly term, as well as the continued impact on mortgage margins as the higher margin Covid-era book rolls off and is replaced at lower margins.”
However profitability across the group remains higher than in the year before, with profit for the first nine months of the year sitting at £3.3bn compared to £2.3bn in the same period last year.
The bank separately announced the conclusions of the first phase of the Travers Smith review into. Dame Alison Rose’s conduct as CEO.
The law firm concluded she made an “honest mistake” in leaking Nigel Farage’s confidential information to the press.
Mortgage lending remained broadly flat. year on year, a notable difference from other lenders including Santander who have cut lending by around £10bn.
Interim boss Paul Thwaite said the results show that “Natwest is a strong bank which is performing well, generating sustainable profits and returns.
“This performance is built on the foundations of strong customer franchises and a robust balance sheet with high levels of liquidity and a well-diversified loan book. As a result, credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty,” he said in an update to markets this morning.
Matt Britzman, an equity analyst at Hargreaves Lansdown, said the results were “largely disappointing.”
“Deposit levels did grow, which is a positive sign that NatWest is pricing itself at the right levels to attract customers searching for higher rates. That trend’s plain to see, with longer-term cash balances jumping to 15% of the book – compared to 11% last quarter. But it’s less profitable business than non/low-interest current accounts. Add in mortgage headwinds as highly profitable business written over the pandemic rolls off, and that’s caused the hit to net interest margin.”