NatWest profits surge to highest level since 2008 financial crisis

Natwest Bank

Rising interest rates have propelled annual profits at NatWest to their highest level since the bank’s government rescue during the 2008 financial crisis.

Pre-tax operating profits at the taxpayer-backed high street lender jumped to £5.1 billion last year from £3.8 billion in 2021, despite the turmoil in the wider economy.

NatWest has been boosted by the Bank of England decision to raise interest rates to contain soaring inflation, which has fueled expectations of a recession. Rising borrowing costs are enabling commercial lenders to lift their net interest margins, which represent the difference between what a bank pays to depositors and what it charges on loans. This is because they are not passing on in full the Bank’s base rate increases to savers. This has angered some customers and drawn criticism from MPs on the Commons treasury committee.

NatWest said its net interest margin in the final three months of last year climbed to 3.2 per cent from 2.99 per cent in the third quarter and 2.3 per cent in 2021. Its overall net interest income for 2022 jumped by about 31 per cent to £9.8 billion.

Rising rates pose something of a double-edged sword for banks because they also raise the pressure on borrowers. NatWest set aside £337 million for potential bad loans last year, which ate into its profits.

The FTSE 100-listed NatWest, which was previously called Royal Bank of Scotland Group, is one of Britain’s biggest banks. It almost collapsed during the last financial crisis but was rescued by the government through a £45.5 billion bailout and remains about 45 per cent owned by taxpayers. The group has been led by Dame Alison Rose, its chief executive, since November 2019.

“NatWest Group delivered a strong performance in 2022,” Rose said. “Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now and that many more are worried about what the future holds.”

Rose’s pay package jumped last year to £5.25 million, up from £3.59 million in 2021, the bank disclosed on Friday.

This included a £643,000 annual bonus split in cash and shares, the first time the bank has paid a bonus in cash to one of its top executives since 2007. NatWest overhauled its executive remuneration policy last year to make its pay more competitive.

The wider bonus pool for staff was also lifted to £367.5 million from £298 million a year earlier, an increase that NatWest said was “largely the result of strong performance”. Its pool in 2021 had also been reduced after the bank was fined £265 million for anti-money laundering failures.

The lender, which is no longer majority-owned by the state, said it handed back £2.6 billion to the UK government over 2022 as it moves closer to being private again.

NatWest said would pay a 10p a share final dividend, returning £967 million to investors, and would hand back a further £800 million by way of a share buyback.