Shares of NatWest Group, parent of Royal Bank of Scotland (NYSE:RBS_old_old) and Ulster Bank in Northern Ireland, have dropped to a 30-month low following the bank's downward revision of its forecasted net interest margin (NIM). The revision comes as a result of cost-of-living pressures and increasing interest rates, which have led customers to shift their funds into high-interest savings accounts.
The bank's finance chief, Katie Murray, revealed that 15% of deposits are now in fixed-term accounts with higher rates, a figure she expects will reach 17% by the end of the year. This shift has contributed to a drop in net interest margins to roughly 2.94%. Consequently, the bank has further reduced its projected NIM for the year from 3.2% to 3.15%.
The decrease in NIM is also attributed to the replacement of higher-margin loans issued during the COVID era with current lower margin loans. Additionally, an independent review into NatWest's conduct over the Nigel Farage debanking case and the departure of CEO Alison Rose have compounded the challenges faced by the bank.
Despite these headwinds, NatWest reported a nearly 23% profit increase for the latest quarter at £1.33 billion ($1.73 billion), up from £1.09 billion ($1.42 billion) a year ago. This was achieved despite issuing £7.5bn ($9.77 billion) in new mortgages during the quarter, down from £11bn ($14.33 billion) last year. The bank also witnessed increased lending and income from its market division.
In response to surging interest rates and intense deposit competition under current market conditions, NatWest, UK's leading lender, has adjusted its margin guidance. The bank reported a Q3 operating pretax profit of £1.3 billion ($1.6 billion), slightly below analyst predictions.
Interim CEO Paul Thwaite affirmed NatWest's readiness to navigate these challenges. Other banks, including Barclays Plc and Lloyds Banking Group Plc (LON:LLOY), have made similar adjustments. Inflation data from September supports the Bank of England's strategy of maintaining high rates, which has increased pressure on the mortgage market as banks pass higher costs onto borrowers.
Increased earnings from central bank deposits have led to demands for these customer benefits to be shared. The Financial Conduct Authority is currently evaluating NatWest's policy changes following an investigation into the closure of Farage's account.
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