British banking group NatWest reported flat third-quarter earnings on Friday. This is because the costs of exiting the Irish business have overshadowed earnings, which were boosted by higher interest rates.
The bank suffered a loss of €652 million in its Ulster Banking business in Ireland. This business is in the process of exiting. NatWest said the revaluation of Ulster Bank’s mortgages was partly to blame.
NatWest also set aside a further £247m (€286m), lowering its profit, reflecting a worsening economic outlook in the UK.
The UK economy is facing a recession, with the Bank of England raising interest rates to curb double-digit inflation, putting pressure on household and business finances.
The bank reported a profit before tax of £1.1bn from July to September, slightly below analyst expectations, unchanged from the previous year.
The stock is down 6.5% in early trading against the benchmark FTSE index, which is down 0.1%.
NatWest is the last of the UK’s ‘Big 4’ banks to report results this week. Lloyd’s, Barclays and HSBC all reported solid profits, but investors were reeling from higher bad debts.
The bank said the bad debt provisions reflected a more negative view of the existing economic scenario. Unlike rival Lloyd’s, it chose not to update its economic forecasts, opting to wait until its full-year results in February.
NatWest Chief Executive Alison Rose said the bank had yet to see any signs of growing financial difficulties from its customers, but said the bank was monitoring the situation closely.
Banks benefit from higher interest rates because they profit from the difference between what they charge on loans and what they pay on deposits. But rising interest rates are also a double-edged sword, putting pressure on borrowers and increasing the risk of loan default.
Rising interest rates boosted bank profits by a fifth to £3.2bn.
Ulster Bank’s coverage can only be reversed if…
NatWest said it expects to reach its return on equity target of 14-16%, a key measure of profitability, in 2023, citing higher incomes to offset rising costs from inflation. Stated.
British banks have also warned that Britain’s new prime minister, Rishi Sunak, may impose additional taxes on the sector as he seeks to close the country’s fiscal gap.
Snack has promised to restore investor confidence in the country after political turmoil under its predecessor Liz Truss caused market turmoil.
State-backed NatWest returned its majority to private ownership earlier this year, more than a decade after bailing out £45 billion of taxpayers during the global financial crisis.