ii view: progress rewarded at banking giant NatWest

Second-quarter results to 30 June 

• Total income down 5% to £3.66 billion
• Operating pre-tax profit up 28% to £1.7 billion
• Interim dividend of 6p per share, up from 5.5p a year ago
• Capital cushion, or CET1 ratio of 13.6%, up from 13.5% in Q1 

Chief executive Paul Thwaite said:

"As the UK's leading business bank, and one of the largest retail banks, NatWest Group's strong performance is grounded in the vital role we play in the UK economy.

“We have made good progress against our strategic priorities, taking decisive action to grow and simplify our business and to manage our capital and costs more efficiently.

“We are well positioned to help unlock growth across the UK through our unrivalled regional network. Fundamentally, if we succeed with our customers, we will succeed for our shareholders and the wider economy."

• Invest with ii: Top UK Shares | Share Tips & Ideas | What is a Managed ISA?

ii round-up:

NatWest Group (LSE:NWG) serves around 19 million customers across the UK.

Employing over 60,000 people, the group operates the arenas of Retail and Private Banking, as well as Commercial & Institutional banking. 

Group brands include NatWest, Royal Bank of Scotland, Ulster Bank, Coutts and Lombard. 

For a round-up of these latest results, please click here. 

ii view:

With a history dating back to 1692 for its Coutts Private banking business, NatWest Group today competes against rivals including Lloyds Banking Group (LSE:LLOY), Barclays (LSE:BARC) and HSBC Holdings (LSE:HSBA). A constituent of the FTSE 100 index, commercial banking generated its biggest slug of profit in this latest period at 56%, followed by consumer banking at 36%, private banking 4%, and head office the balance.  

For investors, an uncertain economic outlook continues to offer potential for bad debt provisions to be raised. A subdued UK housing market and intense sector competition continue to leave overall NatWest mortgage balances drifting lower. Despite a vast reduction since the financial crisis bailout, the UK government still owns just under 20%, while the bank’s business and geographical diversity is not what it once was given sales of businesses since 2008.  

• Why the UK rally has legs - and what we’re buying
• Sector Screener: rate cuts a catalyst for two FTSE 100 stocks
• Watch our video: why City of London has boosted banks to 20-year high

More favourably, management flagged stable levels of loan defaults across the business. Growth of over 200,000 new customers has been seen. Acquisitions such as that for Metro Bank Holdings (LSE:MTRO) mortgage loans and Sainsbury (J) (LSE:SBRY) retail banking are boosting performance. A high focus on costs persists, the UK government’s share stake continues to reduce, while the balance sheet remains robust with a solid capital cushion of 13.6%.  

In all, and despite continuing risks, investors are likely to remain happy with exposure to the UK’s corporate sector and a forecast dividend yield of over 5%.

Positives  

• Focused on costs
• Attractive dividend (not guaranteed)

Negatives

• Uncertain economic outlook
• Lacks the diversity of some rivals

The average rating of stock market analysts:

Buy