Natwest breezed past profit expectations in the first quarter of 2026 and is predicting a greater bump to its bottom line on the back of higher-than-expected interest rates.
Strong Quarterly Performance
The FTSE 100 giant booked a £2bn pre-tax profit in the first three months of the year, up from £1.8bn in the same period last year and beating analyst consensus of flat growth. Total income swelled to £4.4bn, marking a near 10 per cent increase on the previous year.
A key driver of this was a 20 basis point annual gain to the bank’s net interest margin, which serves as a crucial indicator of its profitability from lending. The margin ballooned to 2.47 per cent in the quarter. Retail banking also grew, with the bank adding another £3.3bn in mortgage balances, whilst commercial and institutional balances increased £3.8bn, including a 25 per cent surge in start-up customers on the prior year.
Higher Rates Boost Outlook
Natwest is also tipped for a boost as interest rates look to stay higher for longer. On Thursday, the Bank of England held rates at 3.75 per cent but signalled hikes could be on the horizon as the outbreak of war in the Middle East continues to fan the flames of inflation. As a result, Natwest increased its income target for the year, expecting to pocket the top end of its £17.2bn to £17.6bn range.
On Tuesday, the bank’s annual general meeting was interrupted by a gaggle of climate protesters rallying against the group’s green policy.
Wealth Division Accelerates
The group’s wealth division – which includes the prestigious private bank Coutts – performed as one of the highest-returning segments in the quarter. Return on equity – a sign of profitability – jumped to 21.1 per cent, a climb from 17.1 per cent the previous year. Meanwhile, total income hit £291m, up nearly 10 per cent year-on-year after higher income from deposits and growth in investment fees.
The wealth division continues to be one of the bank’s highest-returning segments. In February, Natwest snapped up Evelyn Partners in a £2.7bn deal, which CEO Thwaite said would create the banking group’s “third growth engine”. The move is set to shift Evelyn’s £69bn assets under management under the Natwest umbrella, meaning the bank will boast a total of around £127bn assets, making it the largest of the bank-owned wealth managers.
But the lender’s share price sank in the trading session following the announcement, after it paid a 9.7x multiple on Evelyn’s latest £179m in earnings. Natwest promised £100m in annual cost savings following the deal, though it will involve £150m of spending to achieve this – with the potential to climb if Evelyn’s integration doesn’t go smoothly.
