NatWest is to return £2.1 billion to shareholders and has revealed a surprise rise in profits despite concerns about Britain’s inflation-driven cost of living crisis.
The high street bank said it had been supported by rising interest rates in the first six months of the year, helping its revenue rise to £6.2 billion from £5.1 billion in 2021.
Pre-tax operating profit in the period rose to £2.6 billion, up from £2.3 billion a year earlier and beating City analysts’ expectations of a fall to £2.2 billion.
In a further fillip for investors, the lender also announced a cash return. It will return £364m through a 3.5pa share ordinary interim dividend, and then a further £1.75bn in the form of a special payment of 16.8p per share and a share consolidation.
Much of that cash will go to the government, which still owns 48 per cent of the bank following the government bailout at the height of the 2007-08 financial crisis, when the lender, then called Royal Bank of Scotland, received a £45.5 billion taxpayer bailout for to avert a collapse.
The figures follow better-than-expected results and an increased dividend from rival Lloyds Banking Group on Wednesday. Lloyds had also benefited from rising borrowing costs.
The Bank of England and other central banks around the world are scrambling to raise interest rates as they try to rein in soaring inflation, which in Britain is at a 40-year high of 9.4 percent, putting increasing pressure on households.
But this rapid tightening of monetary policy is strengthening commercial lenders, which have struggled for years with record low borrowing costs. NatWest’s net interest margin, a closely watched measure that reflects the difference between what it charges for loans and what it pays to depositors, was 2.72 per cent in the second quarter, up from 2.35 per cent a year earlier.
Still, rising interest rates are potentially a double-edged sword for banks because they increase the pressure on borrowers at the same time that living standards are hit hard by inflation.
Alison Rose, NatWest chief executive, said: “We know that continued rises in the cost of living are affecting people, families and businesses across the UK and we have put in place a range of targeted measures to support those who are likely to need it most. . Our strong levels of profitability and capital generation mean we are well positioned to provide this support.”
NatWest is one of Britain’s biggest high street banks and has been led by Rose for almost three years.
Joseph Dickerson, analyst at Jefferies, said NatWest had enjoyed a “very strong” second quarter. Shares in the bank rose 16p, or 7 per cent, to 246p in early trade.
