By Elena Vardon


NatWest's income and profit fell by less than expected in its first quarter, reflecting an improvement in customer confidence and activity and pushing shares to their highest price in more than a year.

The British lender reported total income of 3.475 billion pounds ($4.35 billion) for the three months ended March 31, driven by an increase in lending and deposits and still-low impairments over the period. This beat a GBP3.43 billion estimate taken from the latest company-compiled consensus but represented a 10% fall from the same quarter the year prior, which had been boosted by rising interest rates. Management noted that it is seeing growth in lending to businesses and institutions as well as signs of improving demand for mortgages.

"We think the pressure is easing for retail consumers ... that's primarily driven by expectations around reducing inflation" Chief Executive Paul Thwaite said in a call with journalists.

Customer deposits excluding central items rose 0.2% on quarter to GBP420.0 billion, which Thwaite described as encouraging and pleasing, and were driven by retail banking, which offset a fall in its commercial and institutional business. Net loans were up 0.4% to GBP357.0 billion.

The improved trend was reflected in the high-street bank's net interest margin--or NIM, the difference between what lenders earn on loans and what they pay out on customer deposits--which improved to 2.05% from 1.99% in the previous quarter. "The hedge that we put on is offsetting any drag from any of the deposit costs that we have within that space" Finance Chief Katie Murray said, adding that mortgage margin squeeze over the last year and a half to two years has more or less stabilized.

This marks a reversal after three quarters of declines and puts the metric on track to resume an upward path for the rest of the year. "From here we would expect the NIM to rise on increasing structural hedge benefit, easing mortgage margin pressure and more favourable deposit margin trends," Citi analysts wrote in a research note to clients.

The bank said Friday that it still expects total income excluding notable items for the year to be between GBP13.0 billion and GBP13.5 billion. Analysts see the outlook as conservative, given that estimates taken from the latest company-compiled consensus already have the figure above the top end of the range at GBP13.58 billion. "[This] approach provides scope for NatWest to deliver a positive surprise down the road," AJ Bell said in a market comment.

Pretax profit for the period dropped to GBP1.33 billion from GBP1.82 billion a year prior but surpassed expectations of a GBP1.26 billion result.

At 1248 GMT, shares in the London-listed group climbed 5.7% at 306.3 pence, their highest price since February 2023. Shares have risen around 40% since the start of the year, against a 5% increase for the blue-chip FTSE 100 index.

Meanwhile, the U.K. government--whose partial ownership of the bank resulted from its bailout in 2008--trimmed its stake further to 27.93% from its previous position of 28.90% disclosed in early April, regulatory filings showed on Friday after the publication of the results. It no longer holds a controlling stake as of last month but remains the largest shareholder and is considering selling shares to the public via a retail offer as early as this summer as it moves closer to exiting its stake.

"Returning NatWest Group to private ownership is a shared ambition and we believe it is in the best interests of both the bank and all our shareholders," Thwaite said.


Write to Elena Vardon at elena.vardon@wsj.com


(END) Dow Jones Newswires

04-26-24 0905ET