NatWest has delivered one of its strongest quarterly results since the financial crisis, posting a 30.4 per cent rise in pre-tax profits to £2.2 billion in the three months to the end of September – far exceeding the City’s expectations.
The FTSE 100 lender said revenue rose almost 16 percent to £4.3 billion, driven by expansion in deposit margins and a slight calendar increase from an extra trading day in the quarter. The net interest margin – the main measure of profitability between loans and deposits – rose to 2.37 percent from 2.18 percent a year ago.
Shares in the group rose 3 percent to 563 pence, their highest since the tax rescue in 2008, as investors welcomed the improved outlook.
Chief executive Paul Thwaite said the performance was “underpinned by a healthy level of customer activity”, adding that the group’s balance sheet remained robust despite a difficult macroeconomic environment.
NatWest now expects full-year profits (excluding one-off items) to reach around £16.3bn, an increase on its previous forecast of “more than £16bn”. In addition, the target return on tangible equity was increased from the previous forecast of 16.5 percent to over 18 percent.
The results underline how longer-term higher interest rates have bolstered British lenders’ earnings. The Bank of England’s base rate, which peaked at 5.25 percent between 2023 and 2024, has since fallen to 4 percent – but is still well above historical norms, allowing banks to maintain healthy lending margins.
NatWest’s results follow similarly robust performances across the banking sector. Barclays this week reported pre-tax profits of £2.1bn and announced a £500m share buyback, while Lloyds Banking Group booked £1.2bn despite making an £800m provision related to mis-selling in the motor finance sector.
Banks have also benefited from “structural hedging strategies,” using derivatives to manage the risk of interest rate volatility – an important factor in earnings stability in the current climate.
But record profits could attract unwanted attention from the Treasury ahead of the Chancellor’s autumn budget on November 26. As Rachel Reeves tries to close a multibillion-pound budget gap, analysts warn that banks’ high returns could make them an attractive target for a new tax measure or a surprise levy.
Lenders insist they already face a higher tax burden than their global rivals and argue further increases could harm the competitiveness of the UK financial sector as international institutions reassess their involvement in the UK.
