- Third quarter earnings disappoint
- Bank sets aside £247 million provision
- Rose is ‘very conscious’ of customers’ ‘growing concerns’
Shares in NatWest (NWG) were the biggest FTSE 100 fallers, slumping more than 8% to 227.5p after the bank’s third quarter profits fell short of estimates with chunkier provisions for bad debts outweighing a boost from rising interest rates.
The high street lender took provisions of £247 million for the quarter ended 30 September 2022, north of analysts’ estimates of £173 million, and warned it is keeping a close on eye on any change in behaviour from its customers.
This downbeat assessment of the nation’s finances overshadowed news of robust income growth in the quarter supported by increased lending and rising interest rates.
CLOSELY MONITORING CUSTOMERS’ FINANCES
NatWest’s third quarter reported earnings per share fell 81% year-on-year to 1.9p, well below the 6.1p called for by consensus, with performance in the continuing business or ‘Go-forward group’ falling short of expectations.
Nevertheless, CEO Alison Rose insisted NatWest continues to deliver a ‘strong’ financial performance in a ‘challenging environment’.
She said: ‘At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing up and down the country. Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviours.’
Katie Murray, the FTSE 100 bank’s finance director, said NatWest continues to monitor ‘the evolving economic outlook, particularly any impacts on NatWest and our customers from higher interest rates and inflationary pressures and recent pressure on sterling, gilts and pension fund liabilities.’
THE EXPERT’S VIEW
AJ Bell head of investment analysis, Laith Khalaf, said the stock market ‘did not like what it heard from Natwest one little bit on Friday. In one sense this was a surprise, the company upgraded its income forecast and revealed it had grown its mortgage business substantially.’
While Rose says there are no signs yet of families facing added financial distress, Khalaf said ‘the material increase in provisions tells a rather different story.
‘Natwest’s larger mortgage book could be both a blessing and a curse as people move off fixed rate deals and find themselves needing to re-mortgage at rates they will struggle to afford.
‘Its quarterly profit was also marred by rising costs and the impact of the company’s exit from Ireland. It could ill-afford to disappoint on this front given how jumpy markets are right now.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) owns shares in AJ Bell.
