Summary

• NatWest reported a pre-tax profit of £355 million for Q3 2020 and a profit attributable to shareholders of £61 million
• The net interest margin of 1.65 per cent was 2 basis points lower than the previous quarter
• The impairments were relatively low for the period, said the CEO, Alison Rose

The UK based financial service company, Natwest Group PLC (LON:NWG), on 30 October 2020, has shown strong rebound in retail banking segment for Q3 2020 in with debit and credit card spend levels 30 per cent and 43 per cent higher respectively and 91 per cent increase in mortgage applications. The retail banking has served 250,000 customers with an initial mortgage repayment holiday in the nine months ended 30 September 2020 and had 37,000 active mortgage repayment holidays at Q3 2020.

The Chief Executive Officer of NatWest Group Plc, Alison Rose said that though the impairments were relatively low for the period, the Group has witnessed upward-trends across its customer base. Factors like sector-leading capital position, strong levels of liquidity and an intelligent and consistent approach to risk, have contributed towards the strong performance of the business.

The FTSE 100 listed bank revealed in its report that it made a pre-tax profit of £355 million ($458 million) on the income of £1,926 million in the third quarter of FY2020. The bank also recorded a profit attributable to shareholders of £61 million, including a £324 million loss on redemption of own debt. However, Rose was of the view that the challenging times lie ahead as the full impact of Covid-19 remains very unclear, especially with the introduction of new Covid-19 related restrictions.

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Let’s dive deep into the report released and look at how the bank has performed:

1. Income- The income across retail and commercial businesses decreased by 12.1 per cent in comparison to Q3 2019.
2. Net Interest Margin (NIM)- The Bank’s net interest margin of 1.65 per cent was 2 basis points lower than Q2 2020, resulting from the reduced structural hedge income.
3. Strategic Costs- Strategic costs incurred by the bank was £223 million in Q3 2020, which comprised of £90 million redundancy costs, a £34 million charge related to technology spend and a £21 million property charge.
4. Other Expenses- The Group’s other expenses were £152 million lower than Q3 2019, excluding operating lease depreciation (OLD). The year to date cost reduction achieved was £193 million, remaining on track to achieve £250 million target for full year 2020.
5. Net Impairment Losses- Net impairment losses of £254 million was incurred in Q3 2020, or 28 basis points of gross customer loans.
6. Expected Credit Loss (ECL) The company recorded an expected coverage ratio of 1.72 per cent.
7. CET1 Ratio- CET1 ratio of 18.2 per cent was reported, 100 basis points higher than the previous. It reflected a £7.6 billion reduction in RWAs, principally in NatWest Markets.
8. Liquidity Coverage Ratio (LCR)- The liquidity coverage ratio (LCR) remains strong at 157 per cent, representing £61.8 billion headroom above 100 per cent.
9. Net Lending- Net lending increased by £0.4 billion during Q3 2020 across the retail and commercial businesses.
10. Customer Deposits- An increase of £10.1 billion in customer deposits to £418.4 billion was recorded during Q3 2020.

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Stock Performance

With the announcement of the Q3 2020 results, the shares of NatWest rose by more than 5 per cent. In a period of nine months, the stock has delivered a price return of (49.4) per cent.

At the time of writing the report, on 30 October 2020 at 12:30 PM, NatWest Group Plc shares were trading on the London Stock Exchange at GBX 123.55. The total market capitalisation of the company was £14,207.02 million.

Road Ahead

The management expects the impairment charge to be at the lower end of the £3.5-4.5 billion range for the full year, following the limited level of defaults across lending portfolios and associated ECL stage migration within Q3 2020. NatWest Group’s RWAs is also estimated to be below the previously guided range of £185-195 billion at the end of 2020 following the relatively low level of procyclical inflation experienced to date.