Group income improved slightly in the second quarter despite a less buoyant time for its investment banking arm, but making a smaller bad loans provision led to an operating profit before tax of £355mln after the first half’s £770mln loss.
The former Royal Bank of Scotland took £254mln of new impairments to its loan book in anticipation of bad loans arising from the effects of the coronavirus pandemic, which was down from over £2bn in the second quarter and £802mln in the first.
For the full year, Rose and her board colleagues believe impairment charges are likely to be at the lower end of the £3.5-4.5bn guidance range provided previously, following what has been a limited level of defaults across lending portfolios in the third quarter.
At the top line, net interest income was up slightly compared to the second quarter at £1.9bn, although down over 12% year-on-year, while margins tightened, with net interest margin down to 1.65% from 1.63% over the quarter.
However, NatWest’s capital reserves remain the pride of the banking sector, with its CET1 ratio rising 100 basis points over the quarter to 18.2%, which was mainly said to reflect a £7.6bn reduction in risk-weighted assets.
“These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty,” said Rose.
But she added words of caution: “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 shares jumped 5% in early Friday trade to 123.15p where they are still around half their level from the start of the year.
It was was a much better set of results than forecast, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
"The bad debt scare hasn’t gone away completely but provisions for the full year will be at the lower end of forecasts. The banking group is following in the footsteps of rivals Lloyds, HSBC and Barclays in having to sink less into provisions for defaults, but with concerns rising that the spike in Covid cases could lead to a double dip recession the bad debt monster could be back to bite next year.
"The bank remains 62% owned by the taxpayer and hopes to raise enough capital to buy back government owned shares sooner rather than later. Ultra low rates will continue eating into margins, but with these results the bank is clearly heading in the right direction."
--Adds shares and broker comment--