UPDATE 3-NatWest to exit Ireland, tumbles to 2020 loss

* NatWest to exit Ireland, sell 4 bln euros of loans to AIB

* Bank makes 351 mln stg loss on bad loan charges

* Bank resumes dividend payouts, targets 800 mln stg per
year

By Iain Withers and Lawrence White

LONDON, Feb 19 (Reuters) - NatWest said it would
wind down its Irish arm Ulster Bank, as Chief Executive Alison
Rose continues to slash away at the state-owned lender's
underperforming parts after it swung to a loss in 2020.

The bank will exit Ireland following a strategic review,
sell 4 billion euros ($4.8 billion) worth of loans to Allied
Irish Banks, and discuss selling some retail assets to mortgage
lender Permanent TSB, NatWest said on Friday.

NatWest reported a pre-tax loss of 351 million pounds for
the year, better than an average of analyst forecasts of a 418
million pound loss as bad loans came in below expectations.

The move to sell Ulster Bank is the latest by NatWest CEO
Alison Rose to strip out costs and simplify the lender since
taking the helm in late 2019, after cutting back trading unit
NatWest Markets and axing digital venture Bó just months after
its launch.

Ulster Bank has served customers in Ireland for more than
160 years and is the country's third largest lender with a 20
billion euro loan book and 2,800 staff.

The decision follows a months-long review and sparked
immediate criticism in Ireland, where the government and
regulators have expressed concerns over shrinking banking
competition.

Irish Finance Minister Paschal Donohoe said on Friday the
banking landscape would be poorer as a result of NatWest's
decision.

NatWest's review did not cover its Northern Irish unit,
which also uses the Ulster Bank brand.

"Alison Rose is making a name for herself as a no nonsense
leader, keeping the core business healthy by adding to its core
business and chopping off the gangrenous limbs," said Freetrade
senior analyst Dan Lane.

"That ruthless streak will serve her well in a year that's
likely to be even harder than the last."

NatWest shares fell 1.7% by 0830 GMT, after initially rising
as much as 2.5% in early trading.

PROFIT SQUEEZE

Despite posting a loss, NatWest announced it would pay a
dividend of 3 pence per share, after the Bank of England gave
lenders the green light to resume investor payouts.

The bank remains 62% taxpayer-owned as a legacy of its state
bailout in the 2007-09 financial crisis, meaning the government
will receive 225 million pounds of the overall 364 million pound
pot.

It pledged to increase shareholder returns in future years
by distributing at least 800 million pounds per year from next
year up until 2023.

Rose said the bank could not be certain of the long-term
economic impact of the pandemic.

British banks' profits have all been squeezed by near-zero
central bank interest rates and a spike in expected loan
defaults due to the pandemic.

But unlike rival Barclays, which reported robust
profits on Thursday, NatWest could not count on a surge in
revenues at its own much smaller investment bank NatWest Markets
to prop up its earnings.

Overall, NatWest's impairment charges for expected bad loans
came in at 3.2 billion pounds for 2020, below the bank's
guidance of a minimum 3.5 billion pounds.

The bank maintained one of the strongest capital ratios
among its peers, up to 18.3%.

Among other targets, the lender said it would aim to hit a
return on tangible equity of 9-10% and reduce its other expenses
by 4% a year, both by 2023.

Rose's pay was 1.8 million pounds, as she voluntarily gave
up a quarter of her fixed share allowance, and the bank said she
had also decided not to take a long-term incentive award in
2021.
($1 = 0.7156 pounds)
($1 = 0.8271 euros)
(Reporting by Iain Withers and Lawrence White;
Editing by Rachel Armstrong and Emelia Sithole-Matarise)