UPDATE 3-NatWest swings to profit as pandemic loan charges fall

(Adds CEO and analyst quotes, share price reaction)

By Iain Withers and Lawrence White

LONDON, Oct 30 (Reuters) - NatWest reported better
than expected third-quarter profit as COVID-19-linked provisions
for bad loans dwindled, but it warned tougher times lie ahead as
fresh social and economic restrictions to curb the pandemic
begin to bite.

The British bank booked a further 254 million pound ($331
million) provision for soured debts, less than half what
analysts had expected, and said provisions for the year would be
at the lower end of a 3.5-4.5 billion pound range previously
given.

NatWest shares jumped 6% as investors cheered the bank's
improved core capital ratio of 18.2%, which analysts said gave
it scope to resume dividends if regulators lift a ban on
shareholder payouts introduced earlier in the pandemic.

Chief Executive Alison Rose told reporters she planned to
resume paying dividends "as soon as possible".

Despite the better than expected profits and lower bad loan
charges however, NatWest, in common with its peers, warned that
its third-quarter results did not capture the expected impact of
the latest government measures to curb the pandemic.

NatWest struck a more cautious tone than rival banks
including Lloyds, which on Thursday hailed a boom in
demand for mortgages.

"The outlook does remain very uncertain as we continue to
deal with the impacts of the pandemic on the economy, and it is
a very stressful time for businesses and consumers," Rose said.

NatWest posted pretax profit of 355 million pounds for the
July-September period, compared to a 75 million pound loss
forecast by analysts.

The bank remains 62% owned by taxpayers following its
bailout in the 2008-09 financial crisis.

Before the pandemic the bank had been stockpiling capital to
give it the firepower to buy back government-owned shares, but a
fall in bank stocks since the coronavirus crisis has delayed
this plan.

"Given the scale of capital surplus, subject to regulatory
approval, there is little doubt that NWG has capacity for some
form of capital return during 2021," said Ian Gordon, banking
analyst at Investec.

He cautioned however that he did not expect a full-year
dividend as NatWest may still make a loss over the whole of
2020.

PROFITS PRESSURE

Competitors Lloyds, HSBC and Barclays also
set aside smaller provisions in their earnings compared to
earlier in the year, as government financial support measures
delay some economic pain to next year.

Lloyds' and NatWest's market values have roughly halved this
year due to the tough outlook.

NatWest plunged into the red in the first half of the year
on a 2.9 billion pound provision against potential loan losses.

"With concerns rising that the spike in Covid cases could
lead to a double-dip recession, the bad debt monster could be
back to bite next year," said Susannah Streeter, analyst at
Britain's biggest online fund platform Hargreaves Lansdown.
($1 = 0.7673 pounds)
(Reporting by Iain Withers and Lawrence White; Editing by
Rachel Armstrong, Jon Boyle and Jan Harvey)