SHARES in Royal Bank of Scotland owner NatWest Group leapt more than 7% after annual profits beat City forecasts and interim boss Paul Thwaite was confirmed as its permanent chief executive.

The state-backed lender reported an operating pre-tax profit of £6.2 billion for 2023, up 20% on the year before and ahead of the £6bn expected. Profits for the fourth quarter dipped to £1.26bn from £1.43bn for the corresponding period in 2022, which was broadly in line with forecasts.

Profits for 2023 were helped by provisions for bad debts coming in lower than had been expected, with provisions anticipated to remain low in 2024, though the bank said the economic outlook remains uncertain.

The results again underlined the benefit major banks have been receiving from the rise in interest rates, with total income at NatWest rose by £1.3bn to £14.3bn last year.

Customer deposits, excluding one-off items, fell by £13.8 billion during the year, as more customers shopped around a better deal on their savings. But it also saw more people moving money into fixed-rate savings accounts. NatWest had been seeing customers move money to interest-bearing accounts, though the pace of migration slowed in the fourth quarter.

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The bank's net interest margin, broadly the difference between what a bank pays out for deposits and earns from loans, fell during the final three months of the year, compared with the previous quarter, as it paid out more to savers.

The results will likely be seen as a positive start for Mr Thwaite, who has been seeking to steady the ship following last year’s Nigel Farage “de-banking” scandal. Former chief executive Dame Alison Rose lost her job in July after she admitted to being the source of BBC stories concerning the financial affairs of the former UKIP leader.

Mr Thwaite’s appointment comes at a crucial time for NatWest, as the UK Government prepares to sell off the public’s stake in the lender. NatWest remains 37.97% owned by UK taxpayers, a legacy of its £45.5bn bail-out by the Government during the financial crisis of 2008 and 2009. A retail sale of the shares is expected this summer, after first being floated by Chancellor of the Exchequer Jeremy Hunt in the Autumn Statement in November.

Matt Bitzman, equity analyst at stockbroker Hargreaves Lansdown, said: “NatWest is out with a big profit beat as Paul Thwaite gets confirmed as permanent CEO. Impairment charges were better than expected as customers continued to show remarkable resilience in the face of higher inflation and interest rates. Absent any major shock to unemployment, low default rates are expected to continue over 2024.

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He added: “Retail customers continue to go in search of better rates from longer-term savings accounts. But crucially for NatWest, the pace of deposit migration was significantly slower in the fourth quarter than in the prior. Perhaps a sign that the peak in migration has come and gone – good news for net interest margins."

The bank this morning announced a final dividend of 11.5p per share, following an interim dividends of 5.5p per share. Taken with a buyback programme worth up to £300m in 2024, the bank said total distributions deducted from capital in the year will total £3.6bn.

NatWest’s annual report for 2023, which was also published yesterday, showed that Mr Thwaite was appointed on a salary of £1.05m, which will rise to £1.156m from April 1. He will be awarded a fixed share allowance worth 100% of his salary and can earn a maximum bonus of £1.42m in 2024.

As previously announced, Dame Alison will not receive any bonus for 2023.

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Mr Thwaite, who was formerly chief executive of NatWest’s commercial and institutional business, said: “As we look ahead, I am ambitious and confident for the future of NatWest Group. We should not underestimate the strength of our foundations or the opportunity to build deeper relationships with our 19 million customers.

“Our number one priority is to serve our customers well and provide them with the products, services, and expertise they need. This year we are focussed on the things we can control; delivering profitable growth, becoming more efficient, more productive, and simpler to deal with, whilst managing our cost and capital efficiently. Together, these actions will drive long-term, sustainable value for our customers, shareholders, and the wider UK economy.”

Shares closed up 7.09%, or 15.2p, at 229.5p.