United Kingdom bank NatWest slides into red on £2.0bln virus hit

Cornelia Mascio
Agosto 2, 2020

"We believe the full year 2020 impairment charge is likely to be in the range of £3.5-4.5 billion", it added.

Operating losses for the first half before impairment charges were £770 million, as the bank's net interest margin - the gap between the interest rate it collects on loans and the rate it pays out on deposits - shrank from just over 2% a year ago to 1.67% at the end of June.

NatWest posted a £770m pretax loss for the first half, compared to a £2.7 billion profit the previous year.

For some borrowers in the second half of the year, "servicing will become more hard", Katie Murray, chief financial officer, said in an interview with Bloomberg TV.

The newly-rebranded bank - which ditched its Royal Bank of Scotland group name earlier this month - follows rivals Barclays and Lloyds this week in setting aside hefty provisions for potential loan losses.

Impairment charges in the second half would be driven, in part, by the developing economic outlook for the United Kingdom and Ireland, along with the effectiveness of government support schemes to reducing economic distress experienced by customers, the bank said.

The bank, which remains 62pc state owned after a £46bn bailout during the financial crisis, took a £2.9bn hit due to impairments as the economic crisis affects customers' ability to repay loans. NatWest made a profit of £2bn before impairment charges. Analysts had been expecting second quarter income of £2.4bn and a loss of £318m.

Analyst Joseph Dickerson at Jefferies was sanguine on the results: 'Fortunately the core equity tier one (CET1) ratio is strong at 17.2%, 1.1% ahead of the consensus.

Alison Rose, NatWest's chief executive said the bank had a robust capital position, "underpinned by a resilient, capital generative and well-diversified business".

Nicholas Hyett, an equity analyst at Hargreaves Lansdown said: "The longer-term challenge faced by all United Kingdom banks is how to make money when super low-interest rates increasingly look like they're here to stay". We're not sure NatWest has an answer to that, especially since it's shrinking investment bank means interest income is getting ever more important for the business. Even before impairment charges NatWest's operating profits were down 60%.

As expected, NatWest did not declare a final dividend.

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