NATWEST Group said revenue is likely to drop this year as the firm’s businesses face pressure from falling interest rates.
The firm now expects total income for the year will be in a range of £13 billion (S$22.02 billion) to £13.5 billion, NatWest said on Friday (Feb 16) in a statement. That compares with the £14.7 billion it generated in 2023, and is a larger projected drop than analysts had anticipated.
While higher interest rates have provided a boon to interest income, they’ve also spurred competition for deposit customers. NatWest has said it’s seen more customers shifting into fixed-term accounts to take advantage of better rates, which crimped margins in the fourth quarter as the bank spent more on interest.
This year, the lender is assuming the Bank of England will cut benchmark interest rates five times beginning in May, chief financial officer Katie Murray said on a conference call with journalists. That will weigh on interest income going forward.
“This year we are focused on the things we can control: delivering profitable growth, becoming more efficient, more productive, and simpler to deal with, whilst managing our cost and capital efficiently,” Paul Thwaite, who was confirmed as the bank’s permanent chief executive officer on Friday, said in the statement.
Still, shares surged as much as 3.9 per cent after executives said the bank has no exposure to the Financial Conduct Authority’s ongoing review into historic auto lending practices, which analysts have said could land banks with a bill of as much as £10 billion.
Pre-tax profit for the fourth quarter was £1.26 billion, according to the statement. While that topped the £1.05 billion average of analyst estimates compiled by Bloomberg, it was a 12 per cent drop from the same period a year earlier.
The firm’s net interest margin – a key measure of profitability that shows the difference between what a bank pays for deposits and collects on loans – slipped 8 basis points to 2.86 per cent in the fourth quarter. The firm said results were impacted by “the change in deposit mix from non-interest bearing to interest bearing and lower deposit balances.”
NatWest intends to buy back as much as £300 million worth of its shares in 2024, according to the statement.
Thwaite will lead the bank through what is poised to be the country’s most high profile privatisation this year as the UK government prepares to sell some of its shares to retail investors.
UK Government Investments, the Treasury-owned company that holds the 35 per cent stake in NatWest, has already hired advisers including Goldman Sachs Group Inc. and Barclays for the work on the retail share sale it’s planning and could be ready to proceed with the offering as early as June.
The bank on Friday warned that the undertaking could ultimately cause turbulence in its share price.
“The precise timing, method and extent of further HM Treasury’s disposal of NatWest Group’s shares may be driven by economic as well as other considerations and is uncertain, which could result in a prolonged period of price volatility for NatWest Group Plc’s ordinary shares,” the company said in the statement. BLOOMBERG
