The bank was able to release £102m of its bad loan provisions which helped to drive up NatWest’s year-on-year profits from £288m in March 2020 to £620m at the end of its quarter one trading period.
In 2020, the bank set aside an £802m impaired loan fund but after fewer borrowers defaulted on their loans during the pandemic than expected, the bank took back some of its provision.
Chief executive Alison Rose (pictured) said: “Defaults remain low as a result of the UK Government support schemes and there are reasons for optimism with the vaccine programmes progressing at pace and restrictions being eased. However, there is continuing uncertainty for our economy and for many of our customers as a result of COVID-19.”
NatWest used some of its spare capital to buy back 591 million shares from the government. It cancelled 391 million of the purchased shares and has retained the remaining 200 million shares. The transaction reduced the government’s stake in the bank to 59.8 per cent.
The share price fell 2.2 per cent in early trading.
At the end of the Q1 trading period, around 12,000 borrowers were still on mortgage payment holidays representing one per cent of the bank’s mortgage book by volume.
NatWest’s net interest margin increased by three basis points compared with Q4 2020 reflecting mortgage margin improvement.
Equity analyst at Hargreaves Lansdown Nicholas Hyett said: “NatWest is telling a bit of a different story to the rest of the UK banking sector.
“While many banks are struggling against low interest rates, NatWest’s net interest income is doing better than expected, despite customers paying down higher interest credit cards.
“That’s thanks to very strong mortgage lending, where the bank added some £9.6bn to the loan book.
“NatWest is awash with capital, and unlike other UK banks is already making use of it. £1.2bn of government shares have been bought back this quarter, and while that still leaves the government with a majority share it hopefully starts the clock on bringing one of the last legacies of the financial crisis to a close.”