NatWest is moving into profitability as pandemic borrowing costs drop

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LONDON (Reuters) – NatWest NWG.L reported better-than-expected third-quarter earnings as COVID-19-related provisions for bad loans declined, but warned that tougher times were ahead as new social and economic restraints began to take hold to contain the pandemic.

FILE PHOTO: People keep social distance after the coronavirus disease (COVID-19) outbreak, London, United Kingdom, May 1, 2020 as they queue outside a Natwest bank at Wimbledon. REUTERS / Hannah McKay / File Photo

The bank posted a pre-tax profit of £ 355 million for the July-September period, compared to an average loss of £ 75 million based on analyst forecast.

NatWest booked an additional £ 254 million in provisions for anticipated NPL – less than half of the forecast £ 628 million – and provisions for the year would be on the lower end of a previously stated range of £ 3.5 billion to £ 4.5 billion.

Rival Lloyds LLOY.L, HSBC HSBA.L and Barclays BARC.L In addition, they made lower provisions for the third quarter compared to last year as the government’s financial support measures delay some economic problems until next year.

Despite the improved picture, UK banks are still under tremendous pressure as the overall financial burden of the pandemic is still unclear and central bank rates are at rock bottom.

NatWest’s market value on the London Stock Exchange has halved this year due to the hot outlook, while rival Lloyds has slumped by a similar amount.

“There are challenging times ahead, especially as current government support programs are expiring and new COVID-19-related restrictions are introduced,” said NatWest Managing Director Alison Rose.

The quarterly profit for NatWest came despite a £ 324 million charge on buying back its own debt as some bonds were redeemed that would lose their regulatory capital advantages and therefore become too expensive, the bank said.

NatWest’s net interest margin – the difference between the money it makes on lending and money it pays out on deposits – continued to come under pressure during the quarter, down two basis points from the previous quarter to 1.65%.

The bank had slipped into the red in the first half of this year on a £ 2.9 billion provision for potential loan defaults.

NatWest retains 62% taxpayer ownership following its bailout in the 2008-09 financial crisis.

Despite the industry-wide profit pressure, NatWest has further increased its core capital ratio – an important measure of financial strength – to 18.2%, after 17.2% previously.

Before the pandemic, the bank had capital stockpiled to sustain the firepower to buy back government stocks, but a decline in bank stocks since the crisis has delayed that plan.

Reporting by Iain Withers and Lawrence White, editing by Rachel Armstrong and Jon Boyle

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