NatWest begins reversal of bad loan provisions

NatWest became the last major British lender to reverse some of its provisions for potential bad loans at the height of the coronavirus crisis, as the government support and vaccination program led to a lower level of default than expected.

After the 2008 bailout, the predominantly UK government bank reported a net impairment loan of £ 102 million. This helped raise its pre-tax profit for the first quarter of the year to £ 946 million compared to £ 519 million in the same period last year.

Most major banks received a large amount of backlash last year in anticipation of a wave of customer defaults, but loan performance remained better than feared. NatWest’s statement on Thursday followed similar moves from local rivals HSBC and Lloyds this week, but was more cautious about the outlook and did not raise its economic forecasts.

“There are definitely reasons to be optimistic,” said NatWest CEO Alison Rose, but added that the bank “will continue to adopt an appropriate and conservative approach to disruptions.”

“We’re just coming out of lockdown too early,” he said, and until government support programs are lifted, it will be difficult to fully see the damage done to the real economy. However, he said the bank will update its economic models before its semi-annual results in the summer, which could lead to greater releases of last year’s provisions.

Besides the impairment feedback, the bank’s underlying performance was marginally better than average analyst estimates. Revenues fell 16 percent year on year to £ 2.7 billion, while operating costs were 1 percent lower.

Despite the positive results, stocks in NatWest dropped 4 percent in early trading Thursday. Goodbody analyst John Cronin said the bank was producing “a good set of numbers,” but suggested that most of the positive news was already priced by investors.

The improved economic outlook has led to a strong stock price surge in the banking sector, with NatWest’s shares rising almost 80 percent over the past six months in recent months. The stock was further strengthened with Lloyds and HSBC’s trade updates earlier this week, and even after the decline on Thursday, its shares have remained roughly stable from the end of last week.

Last month, NatWest announced that it has brought criminal proceedings against him for failing to comply with the Financial Conduct Authority’s anti-money laundering rules. The bank will face an initial hearing late next month.

NatWest warned on Thursday that the proceedings could lead to “significant costs” and “material, negative collateral results”. Rose said the bank took its money laundering responsibilities seriously and was “very disappointed” with the situation, but repeatedly refused to comment further on the case.

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