NatWest Group scores £4bn profit on back of mortgage lending surge

NatWest Group has announced a large share buyback scheme after roaring back to profit last year, following a boom in lending as the UK economy rebounded.

The banking giant said it would purchase up to £750million of its own shares in the first half of this year and hand investors £3.8billion through a 7.5 pence dividend per share payment.

This includes £1.7billion to the UK Government, which holds a slight majority stake, but has been cutting down its holdings since last March under plans to return the bank to wholly private ownership.

Bankers at the firm are also set to receive £298million in bonuses between them, compared to £200million the previous year, but a slightly lower figure than in the year before the pandemic.

This follows NatWest bouncing back from a £481million pre-tax loss in 2020 to a £4billion pre-tax profit last year as the group released over £1.3billion that it had set aside for potential loan defaults during the early stages of the Covid-19 pandemic.

It further benefited from a UK housing market boom propelled by the stamp duty holiday, historically low interest rates and an increasing desire among Britons for more spacious places to live.

A £7.8billion increase in mortgage loans helped boost income at the group’s retail and private banking divisions, with the latter receiving an additional uplift from the sale of its Adam & Company investment management business.

At the same time, customer deposits increased by nearly £50billion as lockdown restrictions on shops incentivised customers to put more money away for a rainy day.

But while profits and deposits climbed, the firm’s total income remained flat due to its investment banking arm being affected by a significant restructuring and weaker volumes of customer activity.

Housing boom: NatWest Group saw mortgage lending surge thanks to the stamp duty holiday, low interest rates and a growing desire among Britons for more spacious places to live

Profits were also hit by a £265million fine over its failure to prevent money laundering by a Bradford-based jeweller that deposited massive sums of cash – some in black-bin liners – at a NatWest branch in Walsall over three years.

‘We deeply regret that we failed to adequately monitor one of our customers between 2012 and 2016 to prevent money laundering,’ said chief executive Alison Rose.

‘And while the case has now come to an end, we continue to invest significant resources in the ongoing fight against financial crime and fraud.’

Amidst an intense cost-of-living crisis, Rose also admitted that the bank was ‘acutely aware of the challenges that many people, families and businesses continue to face up and down the country’.

Cost of living: CEO Alison Rose said that the bank was ‘acutely aware of the challenges that many people, families and businesses continue to face up and down the country’

While the bank said the economic outlook was uncertain, it forecasts income will exceed £11billion this year and intends to keep dividend payouts at around 40 per cent of attributable profit.

Interest rates hikes by the Bank of England to combat a three-decade high inflation rate should provide another uplift for the FTSE 100 group, on top of the two recent increases since December.

Mark Crouch, an analyst at trading platform eToro, said: ‘The best is yet to come for the bank, which only really had a hint of the interest rate rises in its results.

‘NatWest is a business never far from some controversy, but the tailwind it will feel in 2022 thanks to the Bank of England will make a more compelling case than usual for investors.

‘That being said, the company still has headaches to deal with in the form of potential loan losses as the economy begins to struggle this year and costly digital upgrades desperately needed to drag the bank towards something resembling competitive technology in the face of a FinTech banking boom.’

The positive results did not prevent shares in the company from being 3.9 per cent down at 230.9p just after 11am on Friday.

Today also saw financial services firm TBC Bank reported record levels of annual profit thanks to an exceptionally robust rebound in the Georgian economy boosting lending levels.

Pre-tax profits for the year almost tripled to 921million Georgian lari (£226million) as both net interest and non-interest income expanded and is loan book and customer deposits grew by 18 per cent and 25 per cent, respectively.