Royal Bank of Scotland owner results raise windfall tax fears in Reeves’ Budget

NatWest generated an operating pre-tax profit of £1.7 billion between July and September, nearly a third higher than the £1.3bn banked this time last year. That beat forecasts, with analysts anticipating a profit of about £1.5bn for the latest period.

The group joins Bank of Scotland owner Lloyds and Barclays in unveiling better-than-expected earnings this week, as the banking sector continues to strengthen as interest rates start to fall.

NatWest said it grew its lending by more than £8bn over the third quarter, with the acquisition of Metro Bank helping bolster its mortgage book. It also said the amount of money customers held with the bank increased by £2.2bn, driven by more cash being put into savings.

Richard Hunter, head of markets at investment platform Interactive Investor, said the “stars have been aligning for NatWest” though he pointed to “some minor potential blots on the landscape”.

He noted: “Speculation around a banking windfall tax in next week’s Budget remains rife, while an uptick in impairments within the commercial and institutional division needs to be kept an eye on.

“The recent UK election put paid to the likelihood of a potential retail offer for the government’s remaining stake in NatWest, which will cost the group over £20 million in costs associated with the potential float. More positively, the government continues to reduce its stake in the bank, where its holding now stands at fractionally under 17 per cent from the initial peak some years ago of around 84 per cent, chiming with the shared ambition of returning NatWest to private ownership.”

AJ Bell investment director Russ Mould added: “NatWest is keeping the lid on the longer-term outlook for returns, which looks like good expectations management and potentially an eye to the fact that targeting returns which are too high might draw the ire of politicians and regulators.”

Paul Thwaite, NatWest’s chief executive, said: “Throughout the third quarter, we have grown our lending, helping customers to buy or remortgage their homes or to start and grow their businesses. With customer activity increasing, defaults remaining low and optimism amongst businesses and consumers, we are well placed to succeed with our customers and for our shareholders in the months and years ahead.”

Meanwhile, the group said its business expenses were nearly £150m lower than the previous three-month period, with Thwaite continuing to oversee a simplification of the bank’s structure.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “NatWest marks the third major UK bank to report better-than-expected results this week, but this time it’s not driven by impairments. Better income and costs drove the beat, offset by higher impairments than expected, which does buck the trend we saw from Lloyds and Barclays. That said, default levels remain low at NatWest and that bodes well for performance over the medium term.”

Earlier this week, Lloyds Banking Group reported a pre-tax profit of £1.8bn between July and September, about 2 per cent lower than the £1.9bn generated a year earlier. It nevertheless came in ahead of the expectations of analysts.