NatWest buoyed by dividends

There was a definite sense that NatWest (NWG) left something of its troubled recent history behind in these results. Having ditched its persona as the 'Scottish bank' – saying its old name is bad luck for some – the company looks set to take advantage of higher interest rates and a much more focused presence in the UK. The most tangible sign of a change in mood was the £1.75bn special dividend announced on the day, as NatWest took advantage of its high liquidity ratios to return excess capital to shareholders.

But it is the actions of the central banks that are having the biggest impact on the operational line. For example, NatWest reported a net interest margin that was 26 basis points higher on the quarter, at 2.72 per cent, as interest rates start to widen the gap between the cost of capital and its return. Of NatWest’s four operating divisions, the retail banking division recorded a strong first half with income 18 per cent higher at £404mn, with net loans up by £6.5bn, driven primarily by new mortgages. The impact of interest rate rises had a noticeable effect on business banking, with the bank earning higher rates on large business deposits. Operating profits here were £1.17bn, but without the capital releases that flattered last year’s figures.

NatWest has justified the faith in our buy tip and is still the best-performing bank share in the UK over the past 12 months. Broker Berenberg forecasts reported EPS for this year of 31p, giving a price/income ratio of just eight. Buy.

Last IC View: Buy, 237p, 24 Feb 2022