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NatWest confirmed the permanent appointment of Paul Thwaite as chief executive on Friday as it reported better-than-expected results, supported by higher interest rates.
The British bank’s pre-tax operating profit in the three months to December fell 12% year-on-year to 1.3 billion pounds, broadly in line with analysts’ expectations. Revenue, meanwhile, fell 5% year-on-year to £3.5 billion, but beat market expectations of £3.4 billion.
For the full year, the lender reported a 20% rise in profits to £6.2 billion, beating forecasts by just under £6 billion. Shares rose 2% in morning trading Friday.
NatWest said its net interest margin – the difference between the interest it receives on loans and the rate it pays for deposits – fell 8 basis points in the fourth quarter to 2.86%, as customers moved towards higher yield savings products. However, its annual net interest margin improved from 2.85% to 3.04% year-over-year.
NatWest gave no guidance on net interest margin for next year, a closely watched measure at a time of expected interest rate cuts. The bank also lowered its outlook for return on tangible capital (ROTE), a key measure of bank profitability, to a target of around 12% next year and more than 13% by 2026.
“This was a bank that was expected to return 14-16% Rote over the medium term,” said Benjamin Toms, an analyst at RBC Capital Markets. “It is now a bank that is expected to achieve a ROTE of 13% in 2026,” he said, adding that “there will probably be earnings downgrades.”
The lender said customer deposits at its retail bank fell by £400 million across the year due to lower current account balances, partially offset by growth in its fixed-term products at high yield as customers have moved to take advantage of better rates. NatWest said that at the end of the year 16% of all customer deposits were held in fixed-term accounts, up from 6% a year earlier.
However, chief financial officer Katie Murray said the trend had “slowed towards the end of the year” and was expected to stabilize further this year. The bank increased its deposit base by 1.9% in the latest quarter, thanks to £5.4 billion of inflows into its fixed-term and instant-access savings products, helping to offset a decline of 1 £.9 billion in current account balances.
NatWest and its rivals have been under pressure to pass on higher interest rates to savers after the Financial Conduct Authority warned lenders in July that they had been too slow to share the benefits of the changed macroeconomic environment with their customers.
Thwaite spoke out after former boss Dame Alison Rose resigned at the height of Nigel Farage’s “debanking” scandal last July.
His appointment was led by incoming president Rick Haythornthwaite and ends a period of uncertainty over the bank’s leadership. The confirmation will pave the way for the government – which owns a stake of around 35% in the lender – to proceed with the retail share sale of its stake before the end of the summer.
Haythornthwaite insisted there was “absolutely no pressure from government” to rush the search process, which he initiated with a metaphorical “bake-off” between four executive search firms when he joined the board in early January, leading to a “very intense six-week trial”.
Despite the rising cost of living, the lender set aside £126m in provisions for bad debt, compared to market expectations of £242m, thanks to “low and stable” levels of defaults in its portfolio loans.
The group said it will reward shareholders with a final dividend of 11.5p per share and said it plans to buy up to £300m of its own shares in 2024.
The state-backed bank said it will pay £356m in bonuses to staff, slightly below the £367m it paid out last year. NatWest said in November that Rose would have to forfeit £7.6m of outstanding pay and bonuses she may have been owed from the bank.