NatWest warns of hard times, in spite of the return to profit

NatWest Group has swung back to profit after a sharp fall in bad debt provisions but its chief executive cautioned that renewed Covid-19 restrictions meant there were “challenging times” ahead.

NatWest – formerly known as Royal Bank of Scotland – put aside another £254m to cover a potential surge in defaults linked to the coronavirus crisis in the third quarter, 60% lower than the £628m that analysts expected. The bank said it reflected a “limited level of defaults” in the three months to September.

It brings the bank’s total impairment charge for 2020 to £3.1bn, after reporting provisions of £802m and £2.1bn in the first and second quarters respectively. The bank now expects loan loss provisions for the whole of 2020 to be at the lower end of £3.5bn-£4.5bn.

The lower charge helped NatWest swing back into the black with an operating profit of £355m. It was a marked improvement on the £8m loss logged last year when NatWest was forced to put aside £900m to cover payment protection insurance mis-selling claims.

Analysts had expected RBS to report a second consecutive quarterly loss of £75m, having also been stung by Covid loan loss charges earlier this year.

NatWest said its retail customer activity “improved significantly” compared with the second quarter, with debit and credit card spending up 30% and 43% respectively, while mortgage applications shot up 91%. It helped make up for a slowdown in market activity, which impacted the performance of its investment bank.

However, NatWest’s chief executive, Alison Rose, warned that there were more difficult times ahead, as the UK battles a second wave of Covid-19 cases.

“Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear,” Rose said.

“Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.”