31st Jul 2020 09:54
(Alliance News) - NatWest Group PLC on Friday continued a common theme among the big UK banks, reporting a loss for the first half of 2020 following a sharp rise in impairment losses.
In the six months to June 30, NatWest - which recently changed its name from Royal Bank of Scotland Group - sunk to an operating pretax loss of GBP770 million compared to a GBP2.69 billion profit a year before.
NatWest recorded a loss attributable to shareholders of GBP705 million from a GBP2.04 billion profit a year before.
Impairment losses totalled GBP2.86 billion in the first half, versus GBP323 million a year prior.
The FTSE 100-listed lender upped its impairment provisions at the end of the first half to GBP6.1 billion from GBP4.2 billion at the end of March and GBP3.7 billion at the end of 2019.
Profit before impairment losses was GBP2.09 billion, down from GBP3.02 billion the year before.
NatWest's banking net interest margin slipped to 1.78% from 2.04%, with the lender blaming the contraction of the yield curve, the impact from a change in the mix of lending, and excess levels of central liquidity.
On a brighter note, NatWest reported a slight rise in its customer loan book to GBP352.3 billion from GBP351.3 billion at March 31 and GBP326.9 billion at the end of 2019. The growth was attributed to UK government-backed lending initiatives.
"Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19. However, NatWest Group has a robust capital position, underpinned by a resilient, capital generative and well diversified business," Chief Executive Alison Rose said.
Net interest income slipped 3.7% year on year to GBP3.85 billion from GBP4.00 billion. Total income plunged 18% to GBP5.84 billion.
"Income across the retail and commercial businesses decreased by 9.0% reflecting the contraction of the yield curve, mortgage margin dilution, lower business activity and lower consumer spending, resulting from government measures in response to Covid-19," NatWest said.
The lender added: "Partially offsetting, we have seen strong gross new mortgage lending in UK Personal Banking with drawdowns against UK government lending initiatives and increased utilisation of revolving credit facilities in Commercial Banking, whilst maintaining a disciplined approach to risk."
NatWest Markets income dropped 13%, but the investment banking unit saw income excluding asset disposals/strategic risk reduction jump 44%, reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, partially offset by the impact of credit market write-downs.
Group CET1 ratio ended the first half at 17.2%, up from 16.6% at March 31 and 16.2% at the end of 2019.
The lender's cost-to-income ratio worsened to 63.8% from 57.2%, but NatWest was able to lower its operating expenses to GBP3.75 billion from GBP4.10 billion.
Rose added: "Through our strong balance sheet and prudent approach to risk, we are well placed not only to withstand Covid-19 related impacts but also to provide the right support to those who will need it most in the tough times to come."
Looking ahead, NatWest said it is committed to GBP250 million cost reduction in 2020. The lender also guided for its 2020 impairment charges to be between GBP3.5 billion to GBP4.5 billion.
The lender guided for risk-weighted assets to end 2020 between GBP185 billion and GBP195 billion. RWAs ended the first half at GBP181.5 billion.
Despite this, NatWest is still targeting a GBP32 billion reduction in risk-weighted assets in its NatWest Markets unit over the medium term, with the majority of the reduction expected by the end of 2021.
Separately, Non-Executive Director Sheila Noakes has stepped down from the bank's board, effective Friday.
Shares in NatWest Group were 2.4% higher in London on Friday morning at 108.52 pence each.
By Paul McGowan; [email protected]
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