Second-quarter underlying income rose 11% to £4.4bn (£4.4bn expected). Net interest margin rose from 2.28% to 2.49% (2.51% expected).
Operating profit rose 29% to £2.3bn (£2.0bn expected), supported by strong income growth, good cost discipline and lower-than-expected impairments. Default levels remain low, and the loan book continues to perform well.
The group’s CET1 ratio, a key measure of financial strength, was 13.2% at the period end, broadly in line with its target of around 13%.
2026 guidance now points to total underlying income of around £17.9bn, including around £275mn from the recently completed Evelyn Partners acquisition. NatWest also raised its return target to more than 19% (19% expected) and plans to consider its next share buyback alongside full-year results, six months earlier than expected.
The shares rose 1.9% in early trading.
Our view
NatWest’s second quarter showed a bank with momentum in the right places. Lending and deposits grew, income rose faster than costs, and returns remained strong, while management brought forward the next potential share buyback to the full-year results. The main wrinkle was income guidance, which, while improved, was raised to roughly where the market was already sitting, so no real upgrade to expectations. But we think it’s a conservative guide as usual.
As a traditional lender, loan defaults remain an important risk to watch. Impairments were higher again (though better than expected), but management said there were no new signs of stress across its businesses. Borrowers continue to hold up well, and the loan book remains resilient, although a weaker UK economy would put that strength under pressure.
Loan growth was a standout feature. Mortgages grew strongly, helping NatWest increase its market share, while lending to larger companies and institutions also advanced. Demand from mid-sized businesses was healthy too, particularly in manufacturing and social housing. This breadth matters because it suggests growth is not reliant on a single pocket of the market.
The mortgage margin story is also developing broadly as expected. Older, higher-margin lending continues to roll off, but new business is being written at more attractive levels. That should make the remaining headwind easier to absorb and points to a more stable margin picture as we move towards 2027.
Deposits grew during the quarter, led by business customers, while retail balances were stable. Customers are still moving money into fixed-term accounts and tax-efficient ISAs, so competition for savings remains a drag. Even so, NatWest’s ability to retain customer balances supports both lending growth and funding stability.
The structural hedge remains an important source of future income. In simple terms, this is a bond portfolio that gradually reinvests at better rates. As that benefit builds, it should help offset some pressure from lower interest rates (if they arrive) and maturing mortgage loans.
Costs remain a key focus. Income again grew faster than expenses, improving efficiency, but continued investment and the integration of Evelyn Partners mean execution still has to stay sharp. The acquisition adds useful scale in wealth management, though it has also used some capital.
All in, we continue to see NatWest as one of the better-placed UK banks. Strong capital generation supports growth and shareholder returns, while healthy lending, resilient credit quality and improving efficiency provide a solid base. The main risks are a slower UK economy, tougher savings competition and any deterioration in borrower health.
Environmental, social and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, NatWest’s management of material ESG issues is strong.
NatWest is resolving some longstanding issues but still faces legal challenges and subpar money laundering policies. Its product management lacks detail and oversight, posing risks under new consumer protection laws. Although there are gaps in data privacy and security, NatWest effectively mitigates cyber threats.
NatWest key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.