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Solid Half-Year Results and Strategic Acquisition
NatWest has announced the acquisition of part of Metro Bank’s residential mortgage portfolio, complementing its strong performance in the first half of the year. The FTSE 100 bank reported a pretax operating profit of £3 billion for the first six months, down from £3.6 billion last year but surpassing analysts’ expectations of £2.6 billion.
The decrease in profit was attributed to a 6% drop in net interest income, which fell to £5.4 billion from £5.7 billion the previous year. Net interest income represents the revenue banks generate from lending minus the cost of deposits. This decline was due to lower deposit balances and pressure on lending margins.
Impact of Interest Rates on Bank Performance
NatWest, like many banks, benefited from record profits last year due to the Bank of England’s interest rate hikes. However, with the Bank Rate holding steady at 5.25% throughout this year and expectations of a decrease in the near future, lending margins have been compressed. This trend was also reflected in Lloyds’ recent report of a significant profit drop, with a 10% reduction in interest income.
Despite these challenges, NatWest reported some positive developments. The net interest margin (NIM) – a key profitability measure – widened to 2.10%, up five basis points from the first quarter. Total income also rose by over 5% from the first quarter, driven by increased deposit income.
Increased Dividend and Updated Income Guidance
Following these results, NatWest declared an interim dividend of 6p per share, marking a 9% increase from the previous year. The bank also revised its income guidance upwards to £14 billion, from the earlier range of £13-13.5 billion. Shares rose approximately 7% in early trading.
Paul Thwaite, NatWest’s CEO, commented on the positive momentum: “The progress made in the first half reflects our ambition to deliver our full potential. Our customers are becoming more confident, with increasing activity and strong asset quality, positioning us well to foster growth across the UK through our extensive regional network.”
Strategic Expansion with Metro Bank Acquisition
In addition to its financial results, NatWest revealed its acquisition of part of Metro Bank’s residential mortgage book for £2.5 billion. This deal will bring approximately 10,000 customer accounts, which will continue to be serviced by Metro Bank.
Thwaite highlighted the strategic value of the acquisition: “This transaction accelerates the growth of our retail mortgage book within our existing risk appetite, offering attractive returns. It aligns with our strategic priorities and builds on our recent acquisition from Sainsbury’s Bank.”
John Moore, senior investment manager at RBC Brewin Dolphin, noted, “NatWest’s acquisition of Metro Bank’s residential mortgage portfolio, following its purchase of Sainsbury’s Bank’s core banking operations, further scales NatWest’s loan book.”
Metro Bank stated that the sale allows it to focus more on higher-yielding commercial, corporate, and SME loans, enhancing both its earnings and capital ratio.
