Natwest warns over £4.5bn of toxic debt

NATWEST warned that £4.5bn of loans could turn sour as it racked up first half losses of £770m.

The state-owned bank – which changed its name to Natwest from Royal Bank of Scotland last month – said it was putting aside another £2.1bn in case customers defaulted on loans.

That took its provisions to a total of £2.9bn and pushed the lender into the red in the first six months of 2020. It made a profit of £2.7bn in the same period last year.

And in another ominous sign, Natwest warned it may have to set aside between £3.5bn and £4.5bn for bad loans across the whole of this year.

The gloomy prediction came after rivals including Barclays, Lloyds, Standard Chartered and Satander UK stashed £9bn away, with fears growing that an avalanche of loans will turn sour in the recession triggered by the pandemic. Natwest boss Alison Rose (pictured) said: ‘Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19.’

She stressed the lender – which was bailed out by the taxpayer in the wake of the 2008 financial crisis – was ‘well placed to withstand Covid-19 impacts’ and ‘support those who will need it most in the tough times to come’.

TSB added to the gloomy, setting aside £111m to cover toxic loans in the first six months of the year.

It pushed TSB to a loss of £65.5m for the half, a year after making a £21.1m profit.

The announcements from Natwest and TSB capped a bad week for the high Street banks.

The £2.1bn provision for bad loans at RBS was larger than analysts had expected, with most predicting it would come to £943m and even the most pessimistic saying it would only reach £1.5bn.

The bigger-than-expected hit will fuel fears that the UK’s economic recovery from the pandemic may not be V-shaped, as many have hoped.

Donald Brown, senior investment manager at Brewin Dolphin, said: ‘Natwest’s re-brand is a clear attempt to break with the past – and it almost seems apt that it should happen during another crisis. Banks are expected to bear a lot of the economic fallout from Covid-19 and their share prices are down significantly this year – in Natwest’s case more than 50pc.

‘It is likely to be a treacherous road ahead for Natwest and many of its peers.

‘With the UK banking season nearly complete, Natwest’s statement adds to the downbeat tone.’

Natwest shares climbed yesterday 2.4pc, or 3.3p, to 143.05p.