The UK government is in line for a £1billion payout of its nearly 50% stake in NatWest Group, despite a drop in the bank’s second quarter profits and ‘uncertainty’ over the Kingdom’s economic outlook -United.
NatWest revealed on Friday it was set to issue dividends worth 20.3 pa, after reporting ‘strong growth’ in loans and deposits across the business, in part thanks to rising interest rates, which meant he could charge borrowers more for loans and mortgages.
Almost half of the dividends – around £1billion – will go to the Treasury, which still owns 48% of the bank’s shares after its £46billion bailout at the height of the 2008 banking crisis.
The bank has also increased its bonus pool by 37% to £195million, a figure that is expected to rise further before payments are made to bankers in the spring.
But as shareholders and bankers line up for payments, chief executive Alison Rose said some of the bank’s most vulnerable customers were struggling amid a 9.4% rise in inflation .
While most customers had to spend around 20-30% more on “essentials” such as utilities and fuel, those on the lowest incomes fell into fuel poverty, defined as spending more than 10% of their income in energy bills.
However, Rose said this did not lead to defaults on loans or mortgages, which were affected by interest rate hikes intended to curb inflation, as nine out of 10 customers were fixed rate. . She said the bank “currently sees no immediate signs of distress”.
“What we are seeing is a squeeze on disposable income. We don’t see a credit event. We are seeing a potentially lower growth event as people have to manage lower disposable income and different challenges.”
However, Rose said the executive is aware “that the biggest challenges are yet to come”.
But the uncertain economic outlook has not translated into an increase in provisions linked to possible defaults. Instead, the bank released £18m which had originally been set aside to deal with possible defaults. And this despite “uncertainty” about economic forecasts, including the path of inflation. The lender was to set aside £145million in impairment charges, according to consensus estimates.
While the bank reported a 13% increase in first-half profits, in part due to a strong first-quarter performance, NatWest revealed a drop in profits between April and June, which fell 5% to 1 £.4 billion, up from £1.5 billion a year earlier. However, it was better than the £940million analysts had expected, according to consensus estimates.
The figures exclude the financial impact of Ulster Bank in Ireland, which is selling off its loan portfolios as NatWest winds down operations.
Legal costs – the origin of which has not been specified – partly offset the bank’s income from loans and mortgages. Its net interest margin, which measures the difference between what it earns on loans and paying deposits, rose to 2.72% from 2.35% a year earlier.
Shares of NatWest rose 8% in morning trading.