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(Alliance News) - NatWest Group PLC reported a jump in quarterly profit on Thursday but total income suffered from a poor performance in its investment banking unit, seeing a slowdown in transactional activity.
Shares in the UK state-backed bank were down 3.8% in London on Thursday morning at 195.95 pence each - making NatWest one of the worst performers in the blue-chip FTSE 100.
"NatWest group's profit in the first quarter of 2021 is a result of a good operating performance in our core franchises as well as modest impairment releases that reflect the better than expected performance of our loan book across the first three months of the year," Chief Executive Alison Rose said.
NatWest - rebranded from Royal Bank of Scotland last year - saw operating pretax profit surge to GBP946 million for the first quarter of 2021 from GBP519 million a year ago.
Attributable profit jumped to GBP620 million from GBP288 million.
Natwest recorded a net impairment release of GBP102 million in the first quarter, compared to a charge of GBP802 million a year ago.
"Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of GBP102 million in the quarter reflects releases in non-default portfolios, principally in Commercial Banking, as support schemes continue to mitigate realised levels of default," NatWest said.
More worryingly for the bank, total income fell 16% to GBP2.66 billion from GBP3.16 billion the year before. Net interest income was slightly lower at GBP1.93 billion compared to GBP1.94 billion, but non-interest income dropped to GBP728 million from GBP1.07 billion.
The steepest income drop came from NatWest's investment bank, NatWest Markets, as it continues to consolidate its operational footprint in Asia and saw more normalised levels of customer activity compared to the heightened volatility seen a year before.
Rose said: "We continue to make progress against our strategic targets; growing in key areas, simplifying the bank and accelerating our digital transformation to meet the rapidly evolving needs of our customers. We are also pleased that we were able to use some of our excess capital to buy back shares from the UK government."
NatWest also blamed the income drop on the lower yield curve and reduced consumer spending.
Bank net interest margin worsened to 1.64% in the quarter from 1.89% the year before.
Operating expenses fell to GBP1.82 billion from GBP1.84 billion, but the cost-to-income ratio worsened to 67.8% from 57.7%.
NatWest's CET1 ratio at March 31 stood at 18.2% compared to 16.6% the year before.
The customer loan book ended the first quarter at GBP358.7 billion, up from GBP351.3 billion at the same point a year before but down from GBP360.5 billion at the end of 2020.
Despite the slip over the previous three months, NatWest pointed out Retail Banking gross new mortgage lending was GBP9.6 billion in the quarter, with mortgage growth of GBP3.0 billion.
Customer deposits grew year on year to GBP453.3 billion from GBP384.8 billion.
"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. Our capital strength and well-diversified balance sheet means NatWest Group is well positioned to help people, families and businesses to rebuild and thrive," Rose added.
NatWest retained its outlook guidance offered in February at the time of its 2020 result. At the time, the bank said it expects to incur "strategic costs" of around GBP800 million amid its "continued refocussing of NatWest Markets and resizing of the group's cost base".
Looking further ahead, the bank expects a CET1 capital ratio of between 13% and 14% by 2023.
NatWest is facing a court case next month after the UK Financial Conduct Authority launched criminal proceedings in March against the bank for alleged failures under money-laundering rules.
The City watchdog claims that NatWest's systems and controls failed to properly monitor and scrutinise suspicious activity, which took place between November 11, 2011 and October 19, 2016.
The case is due to be heard at Westminster Magistrates' Court on May 26.
By Paul McGowan; paulmcgowan@alliancenews.com
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