(Alliance News) - NatWest Group PLC shares dropped on Friday, as its net interest margin growth, which undershot loftier expectations, overshadowed an earnings rise.
NatWest was the worst performer in the FTSE 100 in early morning trade, with shares down 5.8% to 256.45 pence each.
The Edinburgh, Scotland-based lender reported a profit before impairment losses or releases of GBP1.89 billion, up 59% from GBP1.19 billion a year prior. Pretax operating profit totalled GBP1.82 billion, up 49% from GBP1.22 billion.
Impairment losses amounted to GBP70 million in the first quarter, down from GBP144 million in the fourth quarter, but swinging from a release of GBP36 million a year earlier.
Total income climbed 29% year-on-year to GBP3.88 billion from GBP3.01 billion.
Its return on tangible equity was 19.8%, compared to 11.3% a year prior. The CET1 ratio, a key measure of a bank's financial strength, fell annually to 14.4% from 15.2%. It was up from 14.2% at the end of December, however.
NatWest's first-quarter net interest margin improved year-on-year to 2.25% from 1.51%. It was up from the 2.11% achieved in the fourth quarter. However, NatWest had been expected to achieve a net interest margin of 2.34% for the first quarter, according to company-compiled consensus.
Looking ahead, NatWest reiterated its full-year guidance. It expects to achieve a return on tangible equity of 14% to 16%, up from 12.3% in 2022. It anticipates income excluding notable items of around GBP14.8 billion, up 13% from GBP13.06 billion in 2022, and a net interest margin of 3.20%, higher than 2.85% in 2022, based on a Bank of England base rate of 4.00% for the rest of 2023.
Chief Executive Alison Rose said: "NatWest Group's strong performance in Q1 2023 is underpinned by our robust balance sheet, our high levels of capital and liquidity and our well-diversified loan book. Through a period of significant macro disruption and uncertainty, we continue to stand alongside the people, families and businesses we serve, providing targeted support and growing our lending responsibly.
"As we continue to make progress against our strategic priorities, NatWest Group is well positioned to navigate this challenging operating environment and to deliver sustainable growth and returns by responding to new and emerging trends that are shaping the lives of our customers."
On Tuesday at the company's annual general meeting, NatWest warned of a "challenging" environment ahead and said it will begin a search for a new chair as Howard Davies approaches a nine-year tenure.
Davies noted some grounds for "cautious optimism", but warned that the environment will remain challenging for some time to come.
This is due to pressure on household budgets as consumer spending and real income tighten, Davies explained.
He added that the economy is unlikely to grow significantly.
Additionally, Davies gave an update on his own position as chair. He said NatWest says will begin the search for a new chair in the coming months, with handover expected to take place in July next year.
By Sophie Rose, Alliance News reporter
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Natwest (NWG)