NatWest Misses Forecasts as Economic Slowdown Drives Provisions Higher

By Geoffrey Smith 

Investing.com -- NatWest Group (LON:NWG) missed estimates for profit in the third quarter after booking a sharp rise in provisions against possible loan losses, but remained upbeat about the outlook for the next 15 months.

The U.K. lender said pretax profit in the three months through September was 1.09 billion pounds, down from 1.40 billion in the second quarter of the year. That was due in large measure to net impairments of 242 million pounds, a number that was around 50% higher than the Bloomberg consensus. However, the bank said that underlying profit in the operations that it intends to keep in the medium-term were up by more than a third to 923 million.

It also noted that the provisions were more a reflection of the broad macroeconomic outlook, rather than of the specific performance of its loan portfolio, which it said was performing well.

“While we expect impairments to increase, we remain comfortable with our through-the-cycle impairment loss rate guidance of 20-30 basis points, including in 2023,” NatWest said.

The group also upheld its guidance for next year, saying it still expects return on tangible equity to be between 14% and 16%. However, its income breakdown will look different, with net interest income and operating costs both being higher than previously guided – the first due to the Bank of England raising rates, and the second due to greater inflationary pressures.

NatWest follows rivals Barclays (LON:BARC) and Lloyds (LON:LLOY) this week in warning that the U.K.'s economic slowdown is likely to have an increasing impact on their numbers, with the sharp volatility in interest rates over the last month - caused by the mini-budget of the now-defunct government of Liz Truss - likely to hit mortgage lending in the current quarter in particular.

NatWest stock reacted negatively to the update, falling 6.7% at the open on Friday.