* 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 shares, investor reaction, quote)
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 possible bad
debts, painting a gloomier picture of the economic outlook than
peers in most other European countries.
"With the UK banking season nearly complete, NatWest's
statement adds to the downbeat tone heard this week," said
Donald Brown, senior investment manager at Brewin Dolphin.
NatWest's quarterly provision came in above analysts'
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 business fell by 9%.
NatWest's shares were up nearly 3%, slightly ahead of a
broader rally in the STOXX European banks index, as
investors took comfort in a jump in the bank's core capital
buffer to 17.2% - a key indicator of financial strength.
ESTIMATING THE DAMAGE
While banks have been hit hard by bad loan provisioning so
far, much of the charges reflect their 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.
"The speed of the recovery of the economy... and the
underlying scarring we don't know yet, so what we're doing is
taking a very prudent view of what the outlook is," NatWest
Chief Executive Alison Rose told reporters.
The worst-case scenario reflected the risks of both further
lockdowns to control the spread of the virus and a "disruptive"
Brexit if Britain leaves the European Union without a deal at
the end of the year, finance director Katie Murray said.
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.
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 chairman Howard Davies said: "We are not holding
our breath in expectation of an early share sale."
($1 = 0.7618 pounds)
(Reporting by Iain Withers and Lawrence White; Editing by
Rachel Armstrong and Jan Harvey)