Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NatWest Group PLC (NWG, Financial) upgraded its full-year income and returns guidance, reflecting strong financial performance and strategic progress.
- Customer lending grew by GBP8.1 billion, with significant contributions from commercial and institutional sectors, including social housing.
- The company achieved GBP23.5 billion in climate and sustainable funding, nearing its GBP100 billion target by 2025.
- Customer deposits increased by GBP8.3 billion, with growth across all business segments.
- Return on tangible equity improved to 17%, supported by strong earnings and active risk management.
Negative Points
- Operating expenses were 9% lower, but the company anticipates higher costs in Q4 due to severance and property costs.
- An impairment charge of GBP245 million was recorded, reflecting economic uncertainty and a single name charge.
- The CET1 ratio is expected to face RWA inflation of around GBP8 billion by January 2026 due to regulatory changes.
- Non-interest income growth may face seasonality and normalization in Q4, impacting overall income.
- The company expects further base rate cuts, which could affect net interest income and margins.
Q & A Highlights
Q: Can you provide more details on the impact of the base rate cut on margins and deposit spreads?
A: The base rate cut has impacted the customer rate, but we've also seen benefits from instant access preferences. The impact of the rate cut is not fully reflected in the quarter due to timing. Typically, it takes about a month for retail bank rate cuts to affect customers, and a bit longer for commercial. The funding and other line increased by 4 basis points, supported by treasury management and deposit growth.
Q: How should we think about the contribution from NatWest Markets, given its strong performance this quarter?
A: NatWest Markets is an important part of our commercial and institutional franchise. We've simplified the business over the years, focusing on FX, capital markets, and a smaller rates business. Market conditions have been supportive, and while performance depends on these conditions, we've aligned the business with opportunities in our core commercial base.
Q: Can you explain the expected decline in revenue for Q4 compared to Q3?
A: Q3 income was supported by balance sheet growth, margin expansion, and an extra day in the quarter. Non-interest income was strong due to market activity and treasury tailwinds. For Q4, we expect lower income due to seasonality, normalization of market activity, and a further base rate cut. However, we've upgraded our full-year guidance to reflect the strength seen in Q4.
Q: How does Basel 3.1 and your capital target affect your capital headroom and potential Pillar 2A reductions?
A: It's too early to provide guidance on Pillar 2A reductions. We're comfortable with our 13% to 14% capital headroom target. We'll update once we have more clarity on the mechanisms to achieve regulatory aims. Our current headroom is above UK peers, and we'll assess adjustments as we progress.
Q: What is the outlook for loan growth, particularly in the corporate institutions segment?
A: Lending growth has been broad-based, with strong performance in mortgages, credit cards, and commercial and institutional segments. The mid-market business has grown for three consecutive quarters, indicating positive economic sentiment. While large corporate growth can be lumpy, demand for energy transition and infrastructure projects supports continued growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
