THE owner of Royal Bank of Scotland saw its share price fall sharply this morning as it reported a near-£20 billion fall in customer deposits in the first quarter.
NatWest Group booked an operating profit before tax of £1.8bn for the quarter ended March 31, up 49 per cent on the corresponding period last year and ahead of market expectations.
Chief executive Alison Rose said the performance of the bank had been strong and “underpinned by our robust balance sheet, our high levels of capital and our well-diversified loan book”.
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But while the bank increased lending by £5.7bn, or 1.6%, to £352.4bn over the quarter, customer deposits fell to £430.5bn from £450.3bn at December 31. Excluding deposits linked to its exit from Ulster Bank in the Republic of Ireland, deposits fell by 2.6% or £11.1bn.
NatWest said the fall reflected around £8bn of customer tax payments, competition for deposits, and an overall market liquidity contraction.
Asked to elaborate on the fall in deposits a call with reporters this morning, Ms Rose said some people were using cash balances built up during Covid to pay down higher expensive debt such as mortgages, which she said reflected rational financial management. Ms Rose highlighted an increase in competition for deposits, which she said the bank was “comfortable” with, adding that there were also “signs of liquidity coming out of the system”, and a seasonal aspect to the drop in deposits.
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Ms Rose said the market volatility in March that followed the collapse of Silicon Valley Bank in the US and the emergency takeover of Credit Suisse by UBS “did not affect our deposits”.
She told reporters: “What you see with our deposits, we have always said that seasonality would affect them in Q1. We saw tax payments obviously coming out. Obviously, we continue our strategic withdrawal from Ulster [Bank], so that was a planned reduction, and [saw] a little bit more increased competition. Our loan to deposit ratio, 83%, is very robust and strong. But no issues from the market.”
Ms Rose said with regard to deposits that “you can see we have a very robust balance sheet, very well diversified and lots of liquidity.”
She noted: “We have seen customers behaving really rationally around their financial affairs, which is good. We have seen some pay-down of more expensive debt, people maybe looking to pre-pay mortgages a little bit as well. I think that is good financial management. Our free financial health checks we offer really do help people think about the budget on that side. Then there is a little bit more competition for deposits, which we are comfortable we are competing effectively for and have all the right products.
“Q1 is always a period where there is a lot of seasonality. But overall, we are comfortable we are not seeing anything idiosyntratic in that behaviour. [We are] very comfortable with that position.”
Shares were trading at 255.3p, down more than six per cernt, at around 9.25am.
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