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(Alliance News) - NatWest Group PLC on Friday posted a swing to loss in 2020 and confirmed that it will withdraw from the Republic of Ireland, with the lender in talks with other banks to dispose of assets belonging to its Ulster Bank unit.
The Financial Times on Thursday had reported NatWest was gearing up to gradually withdraw from Ireland, following a review of its business which began last year.
For the year ended December 31, NatWest posted a swing to pretax loss of GBP351 million from a profit of GBP4.23 billion in 2019. In the fourth quarter alone, NatWest was managed a profit, but pretax profit came in 96% lower year-on-year at GBP64 million.
Total income - a measure which includes net interest income as well as non-interest income such as fees - was sharply lower in 2020. Total income fell 24% to GBP10.80 billion from GBP14.25 million. In the fourth quarter alone, it was down 43% to GBP2.42 billion.
For 2020, the lender posted impairment losses amounting to GBP3.24 billion, up sharply from GBP696 million in 2019.
"Despite reporting a loss for the year, NatWest Group delivered a resilient underlying performance in a challenging operating environment. The bank continued to grow in key areas such as mortgages and commercial lending and our balance sheet remains strong, with one of the highest capital ratios amongst our UK and European peers. We have today announced our intention to pay a final dividend whilst reaffirming our commitment to regular capital returns for shareholders in the future," Chief Executive Officer Alison Rose said.
NatWest declared a 3 pence per share dividend for 2020. UK lenders had cancelled final payouts for 2019 under orders from the Bank of England amid the Covid-19 pandemic.
NatWest had declared a final dividend of 3p and special distribution of 5p for 2019. This had followed a 12p special dividend at the interim stage in 2019, returning money from the sale of its stake in Saudi Alawwal Bank, and a 2p interim payout.
NatWest's common equity tier 1 ratio improved to 18.5% at December 31, from 18.2% at the end of September. A CET1 ratio is a key measure of a bank's financial strength.
Looking to 2021, the lender expects to incur "strategic costs" of around GBP800 million amid its "continued refocussing of NatWest Markets and resizing of the group's cost base".
"We expect NatWest Markets exit and disposal costs and the impact of Commercial Banking capital management actions to total a combined GBP300 million in 2021," NatWest added.
Looking further ahead, it expects a CET1 capital ratio of between 13% and 14% by 2023.
It may be without its Irish unit by then.
NatWest on Friday said it will "begin a phased withdrawal" from the Republic of Ireland, a "multi-year process", while remaining in Northern Ireland.
"Following careful and comprehensive deliberation by the NWG board, NWG has concluded that, despite the significant progress that has been made in recent years, Ulster Bank in the Republic of Ireland will not be in a position to achieve an acceptable level of sustainable returns over its planning horizon," NatWest added.
"As a result, NWG intends to begin a phased withdrawal from the Republic of Ireland over the coming years that will be managed in an orderly and considered manner. Ulster Bank Ltd's banking business in Northern Ireland is unaffected."
NatWest said it will aim to keep job losses and customer disruption at a minimum during the process.
It has agreed to sell a EUR4 billion portfolio of performing commercial loans to Dublin-based AIB Group PLC. The sale remains subject to due diligence.
NatWest is also in early talks with Permanent TSB Group Holdings PLC and others about their potential interest in buying other Ulster retail and small and medium enterprise assets.
"These discussions may or may not result in agreement. Our preference is to continue to focus our discussions with counterparties who can provide customers with full banking services in the Irish market," NatWest said.
Dublin-based Permanent TSB noted the announcement and commented on its aim to "grow its position in the retail and SME markets in Ireland and continue to be a force for competition". It confirmed it is in early talks with NatWest.
AIB itself on Friday confirmed the discussions with NatWest and also said it has agreed to sell a non-performing loan portfolio in long-term default to Mars Capital Finance Ireland DAC for EUR400 million.
"This is another important step in reducing our non-performing exposures," AIB added.
The loan book had a value of EUR600 billion and a fully loaded risk weighted assets position of EUR400 billion when measured back in September.
By Eric Cunha; ericcunha@alliancenews.com
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