* Bank sets aside 2.1 bln pounds in bad loan provisions in
Q2
* Charges push lender into first-half loss of 770 mln pounds
* Bank forecasts worst-case GDP drop of 17%
(Adds details, context)
By Iain Withers and Lawrence White
LONDON, July 31 (Reuters) - NatWest Group plunged
into the red in the first half of the year after setting aside a
fresh 2.1 billion pound ($2.8 billion) provision against a
potential surge in loan losses due to the COVID-19 pandemic.
The state-backed bank follows British rivals Barclays and
Lloyds this week in booking hefty charges for potential bad
debts, painting a gloomier picture of the economic outlook than
peers in most other European countries.
NatWest's quarterly provision came in above analyst
expectations of 1.7 billion pounds, pushing the total taken over
the half year to 2.9 billion pounds and dragging it to a 770
million pound pretax loss.
The newly rebranded bank - which ditched its Royal Bank of
Scotland group name earlier this month - remains 62% owned by
taxpayers following its bailout in the 2008-09 financial crisis.
The lender said it was still aiming to shrink its minnow
investment bank NatWest Markets this year, despite a 44% rise in
income over the period amid market volatility due to the
pandemic. Income in its main retail unit fell by 9%.
While banks have been hit hard by bad loan provisioning so
far, much of the charges reflect banks' estimates of likely
defaults as the economy deteriorates, under forward-looking
accounting rules known as IFRS9.
NatWest forecast the UK economy could contract by between 9%
and nearly 17% this year under best-to-worst case scenarios.
Analysts have said the true extent of the damage to bank
balance sheets will not become clear until later in the year,
when state support schemes such as furlough job retention
payments taper off.
NatWest said it had lent more than 10 billion pounds of
state-backed emergency relief funding to businesses and granted
payment holidays to almost a quarter of a million consumers
struggling to repay debts.
Chief Executive Alison Rose said the bank was
well-capitalised to weather further economic damage.
"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."
The bank's core capital buffer - a key measure of financial
strength - went up to 17.2% compared to 16.6% at the end of
March, mainly due to softening of capital rules by regulators.
Prior to the pandemic the bank had hoped to use its excess
capital to help buy back government-owned shares and accelerate
its return to private hands, but a dive in bank stocks since the
crisis has put this back.
NatWest's market value has more than halved this year.
The bank's pretax loss compared to a 2.7 billion pound
profit the previous year.
($1 = 0.7618 pounds)
(Reporting by Iain Withers and Lawrence White; Editing by
Rachel Armstrong and Jan Harvey)