- Q4 net interest margin 2.86% vs 2.83% consensus
- Q4 Impairment losses £126mn vs £242mn consensus
- Q4 profit before tax £1.3bn vs £1.0bn consensus
Matt Britzman, equity analyst, Hargreaves Lansdown:
“NatWest is out with a big profit beat as Paul Thwaite gets confirmed as permanent CEO. Impairment charges were better than expected as customers continued to show remarkable resilience in the face of higher inflation and interest rates. Absent any major shock to unemployment, low default rates are expected to continue over 2024.
Retail customers continue to go in search of better rates from longer-term savings accounts. But crucially for NatWest, the pace of deposit migration was significantly slower in the fourth quarter than in the prior. Perhaps a sign that the peak in migration has come and gone – good news for net interest margins.
Investors will be a little put off by NatWest giving no net interest margin guidance, especially considering income for 2024 is guided slightly lower than the consensus was looking for. This will likely be a key discussion point on today’s analyst call and the reason shares have opened down.
UK banks continue to suffer from a post-Brexit valuation slump. While it looks like net interest income has peaked, there are enough tailwinds on the horizon to make the sector worth attention at current valuations. NatWest’s scandal-filled end to 2023 means its valuation is even more attractive, especially considering it should be one of the biggest benefactors of its structural hedge rolling on to higher yields – an ongoing income tailwind.
Retail clients will be closely watching how things develop, given they may get a chance to snap up shares at a discounted price later this year if the government goes ahead with its plans to sell its stake. For existing investors, the ordeal will be a small blip and NatWest’s valuation should continue to trade based on its fundamentals.”
