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NatWest Group PLC on Friday reported strong income growth in the third quarter, boosted by both increased lending and higher interest rates, but the bank warned it is keeping a close on eye on any change in behaviour from its customers.
Shares in the high-street lender opened down 6.7% in London on Friday morning at 231.20 pence each, underperforming fellow blue-chips. The wider FTSE 100 was down just 0.9%.
NatWest Group Chief Executive Alison Rose said the bank "continues to deliver a strong financial performance" despite the "challenging environment".
In the three months to September 30, operating profit before tax rose to £1.09 billion from £976 million a year before.
Putting a cap on the bank's profit, NatWest set aside £247 million in the quarter to cover an expected increase in bad loans, which is reversed from a £221 million gain the year prior.
"At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing up and down the country. Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviours," Rose added.
Total income increased to £3.21 billion from £2.69 billion. Net interest income was up to £2.64 billion from £1.87 billion, as its net interest margin improved to 2.72% from 2.28%. Non-interest income fell to £589 million from £817 million.
Operating expenses fell to £1.90 billion from £1.93 billion, resulting in an improved cost-to-income ratio of 56.7% versus 71.5% the year prior.
NatWest's loan book ended the quarter at £384.5 billion, rising from £369.8 billion at the start of 2022 and up from £376.4 billion three months prior.
Customer deposits hit £473.0 billion at September 30, falling from £479.8 billion at the start of 2022 and £492.1 billion at the end of the first half.
CEO Rose added: "In a challenging environment, NatWest Group continues to deliver a strong financial performance; supporting our customers, responsibly growing our lending and making significant investments to transform the bank."
NatWest's CET1 ratio stood at 14.3%, down heavily from 18.2% at the start of the year but steady from three months prior.
In the nine-month period, operating profit before tax rose to £3.71 billion from £3.30 billion, as total income increased to £9.45 billion from £7.83 billion.
Looking ahead, NatWest expects its NIM to be over 2.80% for 2022 as a whole - assuming a Bank of England base rate of 2.25% - while its income, excluding notable items, will be about £12.8 billion.
Looking further ahead, for 2023, NatWest continues to expect to achieve its planned return on tangible equity in the range of 14% to 16%. Its RoTE in the first nine months of 2022 was 10.0%.
Chief Financial Officer Katie Murray added: "We continue to monitor the evolving economic outlook, particularly any impacts on NatWest Group and our customers from higher interest rates and inflationary pressures and recent pressure on sterling, gilts and pension fund liabilities. NatWest Group's capital and liquidity position remains robust."
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