NatWest faces £250m bill to cover cost of bad loans
As cost of living crunch takes toll on customers . . .
NATWEST shares tanked after the banking giant set aside hundreds of millions of pounds to cover bad debts amid rising interest rates and the cost of living squeeze.
The FTSE 100 lender – whose biggest shareholder is the taxpayer after a £46bn bailout in 2008 – made provisions of £247m in the three months to the end of September amid fears a swathe of loans will not be repaid.
That was much higher than City forecasts of around £173m.
It dented NatWest profits, which came in at £1.1bn in the third quarter – up from £976m in the same period last year but lower than the £1.2bn expected.
The group also suffered a £560m hit from its Ulster Bank business in Ireland, which it is in the process of exiting. Shares fell 9.2pc, or 22.8p, to 224.9p. But business was boosted by rising interest rates.
The bank’s net interest margin – what it makes by charging borrowers more than it gives to savers – was nearly 3pc.
That was a rise of 0.27pc on the second quarter and followed interest rate hikes from the Bank of England.
NatWest chief executive Alison Rose said while the firm was ‘not yet seeing signs of heightened financial distress’ among customers, some were starting to manage finances differently – such as changing supermarkets.
The lack of financial distress among its account holders echoed comments earlier this week by rival Lloyds.
NatWest also predicted house prices would fall by just over 7pc next year amid rising mortgage costs.
Analysts warned it may be forced to set aside even more money next year as more loans turn sour. ‘While chief executive Alison Rose says there are no signs yet of families facing added financial distress, the material increase in provisions tells a rather different story,’ said Laith Khalaf, head of investment analysis at AJ Bell.
He added NatWest’s large mortgage book ‘could be both a blessing and a curse’ as more people moved off fixed-rate deals and remortgage at rates they would ‘struggle to afford’.
Richard Hunter, of Interactive Investor, said the Government’s remaining stake in the bank would remain ‘something of an overhang for the shares’. He added that the deterioration of the economy into recession would put more pressure on its customers.
But he said NatWest had ‘considerable strength’ which allowed it to weather the economic storm ‘more favourably’ than its peers. He said, in the longer term, the stock would be the ‘preferred play in the sector’ and the market consensus was still ‘a strong buy’.
Fears over NatWest’s growing bad debt provisions weighed on sector share prices.
Lloyds was down 3.5pc, or 1.5p, at 41.3p, Barclays dropped 2.5pc, or 3.8p, to 146.4 and HSBC slipped 1.8pc, or 8p, to 442.2p.