Shares in Royal Bank owner sent soaring amid improved outlook on Covid charges

The bank, which is 62.4 per cent owned by UK taxpayers, also signalled demand for coronavirus support loans was tapering off, amid signs of commercial activity normalising and consumers spending more on credit and debit cards. However, chief executive Alison Rose emphasised the outlook for the economy continues to be “highly uncertain”. It made no further change to its provisioning for a no-deal Brexit.

The bank made a profit attributable to ordinary shareholders of £61 million for the three months ended September 30, after lower-than-expected net impairment losses of £254m. The update came after it reported a loss of £705m for the first half in July, when it booked an impairment charge of £2.9bn amid the deteriorating outlook sparked by the pandemic.

With the bank yesterday reporting a “limited level of defaults across lending portfolios” in the third quarter, it said is full-year impairment will now be at the lower end of its £3.5bn to £4.5bn range.The update mirrored the stance adopted by Lloyds Banking Group on Thursday, when the Bank of Scotland owner said it now expects its charges for the full-year to be at the lower end of its £4.5bn to £5.5bn range.

However, speaking to reporters yesterday morning, Ms Rose cautioned the outlook “clearly remains highly uncertain” when asked if the bank anticipated making further provisions for defaults next year.

Ms Rose said: “It is a very difficult time for businesses. We are very comfortable with the impairment charge, and the economic assumptions that we have made.

“But what you have seen is that the amount of support that has been put in place – the support from the Bank of England, the Government and the support we have put in place for our own customers, is really helping them bridge through this period. There are difficult times ahead, and we still see very low levels of delinquencies and challenges for customers.”

The bank has now lent £13bn under government coronavirus support schemes, after lending a further £2.91bn in the third quarter. But it said demand for such support, including bounce back loans, is slowing with “activity levels starting to normalise” in commercial banking.

In retail banking, customer deposits increased by £3.9bn in the third quarter, compared with £8.2n in quarter two. While deposits still rose, the bank said customer spending levels increased towards pre-Covid 19 levels. Debit and credit card spending were 30% and 43% higher in the third quarter compared with quarter two.

Demand for mortgage payment holidays has been decreasing, with the bank reporting a 91% increase in mortgage applications in the third quarter. Ms Rose said sentiment in the mortgage market has been boosted by the reduction in stamp duty, but added: “I would continue to say, though, that the outlook does remain very uncertain as we continue to deal with the impact of the pandemic on the economy.

“And it is a very stressful time for businesses and consumers. But we are seeing activity levels increase and we can see that in our Q3 results, particularly in the mortgage market.”

Ms Rose hailed the bank’s “sector leading” capital position, and said the institution was committed to resuming dividends “at the appropriate time”.

The Prudential Regulation Authority, which asked banks to suspend dividends at the onset of the pandemic, is next due to assess the issue in the fourth quarter, she said.

The bank is on track to meet its cost savings target of £250m this year.

Donald Brown, senior investment manager at Brewin Dolphin, said NatWest’s results struck a “similar tone” to the “encouraging signs” from Barclays and Lloyds earlier this week.

But he said “there is a great deal of uncertainty on the horizon for the bank... largely in the form of a second wave of Covid-19 and the small matter of Brexit.”

Shares in NatWest Group closed up 7.05p at 124.2p.