By Scott Wright
NATWEST Group has warned of a “very uncertain” outlook for the economy as it ramped up provisions for bad debts spiralling amid the fall-out from coronavirus, plunging it to a first-half loss.
The former Royal Bank of Scotland, still majority-owned by UK taxpayers following its £45.5 billion bailout in 2008, booked a net impairment charge of £2.9bn to reflect the risk posed by the deteriorating economic conditions.
The charge, which followed a £628m provision linked to Covid in the first quarter, dragged the bank to a loss of £705 million, against a profit of £2bn at the same stage last year. With uncertainty continuing to cloud the outlook, the bank said it expects impairments for the full year to be in the range of £3.5bn to £4.5bn.
Rival Lloyds reported a £602m loss on Thursday after setting aside a further £2.4bn to cover bad loans.
NatWest chief executive Alison Rose said: “The outlook is clearly very uncertain. The speed of the recovery of the economy is not yet known, and the underlying scarring… we do not know yet.
“What we’re doing is taking a very prudent view of what the outlook is. As businesses get back to work and start scaling up and moving forward, we will see more of an impact and what the real damage to the economy is.”
Despite the increased provisions, the bank said its capital position was strong and that, unlike during the financial crisis of around 2008 and 2009, was “open for business” and able to lend.
The bank said it has lent £10.1 billion to 190,000 customers through government schemes to support businesses through the crisis. Of that figure, it has issued £6bn in Bounce Back loans and around £3bn under the Coronavirus Business Interruption Loan Scheme.
Ms Rose said the bank was “comfortable” with the level of risk in the loan portfolio, noting: “Businesses are being very thoughtful about the support they are asking for.”
She added: “We know that times are going to be tough and not all businesses are going to survive.”
Asked to comment on the merit of government coordination in dealing with the “wave of debt” that has been pumped into UK businesses, Ms Rose said: “It is really for the government to decide on that. They have been very clear that these are loans that need to be repaid, and we are going to work very closely with our customers to help them with that.”
The bank has had 50,000 staff working at home during the pandemic, with 10,000 continuing to work in branches and offices. Asked if there were any plans to review its office footprint, Ms Rose said it would be “quite careful and thoughtful” as it brings people back, signalling that she envisages the bank developing a “hybrid working model”. She said the main focus is on protecting the health and safety of staff.
NatWest said customer deposits had increased by £39.1bn in the first half to £408.3bn, as customers reined in spending.
The bank reduced its headcount by around 500 staff in the first half, with the reduction linked to its review of its NatWest Markets investment bank operation as well as “natural attrition”. The review is expected to be concluded in 2021.
Chairman Sir Howard Davies said: “It is always disappointing to report a loss, but as you will see from the banks who have already reported, the first-half numbers show the impact the pandemic is having on our profitability. What is encouraging… is that even after absorbing a significant impairment charge in the first half, we have a robust and sector-leading capital position, and we are well positioned to support our customers.”
The bank’s common equity tier one ratio, a measure of capital strength, was17.2% , and is expected to be 13% to 14% over the medium to longer term. Ms Rose said this “gives us the ability to return capital to shareholders as soon as that is possible”.
Asked when NatWest will look to resume dividends, Sir Howard said banks had been asked by the regulator in March to not pay ordinary or special dividends. And he said they had been told this week that the regulator would not review its guidance until the fourth quarter. On the prospect of the UK Government selling down its 61.9% stake, he replied that the bank is “not holding our breath in expectation of an early share sale”.
Shares were broadly unchanged at 106p.
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