THE Edinburgh-based owner of Royal Bank of Scotland has flagged the potential for the UK economy to experience a “more rapid recovery” from the pandemic.
NatWest Group, which employs more than 10,000 people in Scotland, said the brightening economic outlook had allowed it to release a further £600 million of provisions it previously made in anticipation of loans turning bad because of the fall-out from the pandemic.
Peers Lloyds Banking Group, Barclays and Virgin Money made similar moves earlier in the week.
The move by NatWest came after it released £102m of provisions in April, and was stated in first-half results for the state-backed bank. Those revealed an operating profit before tax of £2.5 billion for the six months ended June 30 – eclipsing analysts’ expectations.
It followed a loss of £770m for the first half of last year.
Nat West reported that net lending had increased by £2.2bn to £362.7bn during the first half, with customer deposits growing by £35.5bn to £467.2bn.
In light of its performance, capital strength and optimism over the outlook, the bank announced the resumption of dividend payments. The board revealed an interim dividend of 3p per share, alongside a share buy-back of up to £750m, and committed to increasing its minimum annual distribution to shareholders to £1bn for the next three years. This year it will return a minimum of £2.9bn to investors.
Speaking to reporters, Ms Rose declared that the bank had turned in a “strong and resilient” performance in the first half. She noted that credit conditions were “benign” with defaults remaining low, but emphasised that the bank would continue to be “cautious” to protect its balance sheet and customers as government support measures are withdrawn.
Ms Rose said: “What we can see on the ground [is that] default levels remain incredibly low. UK business in particular has been very resilient during this period.
“Obviously, there is a lot of support still in place… but credit quality continues to remain good, defaults remain low. We are seeing consumer spending, particularly in credit card and debit card spending, coming back to pre-Covid-19 levels, as we come out of the lockdown. What you are seeing is still a very benign environment.”
But, while the bank was more optimistic about the outlook, she added: “Until all of those support measures taper off, we remain cautious.”
Ms Rose was asked if the bank had suffered staff shortages because of the “pingdemic” and replied that it has been able to keep 95 per cent of its branches open throughout the pandemic. She said it was a matter of “personal choice” whether people decide to be vaccinated.
Asked if the bank was open to making acquisitions, in the wake of Lloyds’ purchase this week of the Embark savings and retirement planning platform for £390m, she replied that NatWest is capital generative and its preference is to return cash to investors.
But she said its acquisition of a mortgage book from Metro Bank last year showed it was open to other ways of creating value for shareholders. This could include taking part in any future share sell-down by the UK Government.
John Moore, senior investment manager at Brewin Dolphin, said: “Results this week from the major UK banks have been like a scratched record – but for long-suffering shareholders the music has, at least, been worth listening to. NatWest has reported a solid capital position, strong profits, a large impairment release, and a hike to shareholder distributions.
“The bank has largely navigated the pandemic well and managed to continue on its transformation programme, which saw it make a deliberate break with the past. The newsflow from NatWest looks like it will get progressively better as the Government aims to sell down its stake over the next year or so – notwithstanding the uncertainties of the UK economy emerging from the pandemic.”
Shares closed down 3.8p, or 1.9%, at 201.06p, having climbed during the week.