- Operating profit well above estimates
- Operating cost ratio tumbles vs 2024
- Full-year income forecast increased
As the last of the Big Four UK banks to report earnings each quarter, NatWest (NWG) turned out to be the best with profit beating expectations and the board raising its full-year top-line forecast to the top of the range of estimates.
The shares jumped as much as 22p or 4.6% at the open to a new 14-year high of 497p before settling back at 486p for a 2% gain on the day.
STRONG QUARTER AND RAISED FULL-YEAR OUTLOOK
Operating profit for the first three months of 2025 was £1.81 billion, 38% higher than last year and 18% ahead of the £1.53 billion consensus according to Bloomberg, representing a return on tangible equity (ROTE) of 18.5%.
Net interest income of £3.03 billion was slightly ahead of the consensus thanks to increased demand for mortgages and margin expansion, while non-interest income of £954 million from trading and other operations was more than 10% above expectations.
Operating costs were significantly lower than last year, so the cost-to-income ratio fell from 58.4% to 48.6% which is a major improvement, although the firm kept its forecast for full-year costs, limiting the scope for earnings upgrades.
However, it did raise its total income forecast to the top end of its forecast range of £15.2 billion to £15.7 billion, as well as raising its guidance for return on tangible equity to the top of its 15% to 16% range.
‘Our strong first quarter performance demonstrates the positive momentum in our business as we deliver against clear strategic priorities, and we now expect to be at the upper end of our income and returns guidance for 2025,’ confirmed chief executive Paul Thwaite.
One disappointing element of the report was a bigger-than-expected provision for bad loans, although unlike at Barclays (BARC) there was no top-up for US tariff-related losses, and on the analysts’ call Thwaite said the bank didn’t have any ‘significant’ concerns about credit quality, although it was ‘very vigilant and alert’ for signs of trouble.
