Third-quarter underlying income rose 10% to £4.6bn (£4.6bn expected). Net interest margin rose from 2.37% to 2.50% (2.51% expected).
Operating profit rose 2% to £2.2bn (£2.2bn expected). Strong income growth and lower-than-expected costs offset a higher-than-expected impairment charge. Credit performance across the loan book remains resilient.
The group's CET1 ratio, a key measure of financial strength, improved to 13.5% (13.4% expected), comfortably above its target of about 13%.
2026 guidance was reaffirmed, including total underlying income of around £17.9bn and returns of more than 19%.
The shares fell 3.2% in early trading.
Our view
NatWest's third quarter was light on surprises, but the more important story sits beneath the headline numbers. Loan growth picked up pace, costs came in better than expected, and the outlook for capital improved meaningfully. Income guidance was left unchanged, but as usual, we think that looks on the conservative side.
Lending remains a standout. Commercial lending grew 4% during the quarter, building on strong mortgage growth earlier in the year, and deposits rose, too. That breadth suggests growth isn't reliant on a single pocket of the market. Net interest income was a touch lighter than hoped, but that was largely down to a one-off accounting adjustment rather than any weakness in the underlying business.
Because NatWest is a traditional lender, loan defaults remain an important risk to watch. Impairments rose and came in above expectations, partly reflecting faster loan growth and the absence of one-off releases seen last quarter. Management says that credit quality remains resilient, but a weaker UK economy would put that to the test. Competition for savings is also a drag, with customers continuing to favour fixed-term accounts and ISAs.
The structural hedge remains an important source of future income. In simple terms, this is a bond portfolio that gradually reinvests at better rates, helping offset pressure from maturing mortgages being replaced at lower margins. Income is also growing faster than costs, though the integration of Evelyn Partners means that execution needs to stay sharp.
Capital is where the most interesting developments sit. New regulatory rules due next year look set to inflate risk-weighted assets by less than feared, and a lower minimum capital requirement from January gives NatWest more breathing room. With the CET1 ratio comfortably above target, we think that there's scope to run the bank with less capital over time, opening the door for investment or returns – though there’s no guarantee.
The surcharge rise in the Budget was better than feared. It's a 15-month increase that, on our numbers, is a low single-digit hit to 2027 profit. As one of the most UK-focused lenders, NatWest feels the full effect, but the shares had already priced in much of the risk. The real test is whether temporary really means temporary.
All in, we continue to see NatWest as one of the better-placed UK banks. Strong capital generation, healthy lending growth and improving efficiency support growing shareholder returns. But a slowdown in the UK economy remains the key risk and would hit both loan growth and credit quality at the same time.
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 that yields are variable and not a reliable indicator of future income. Keep in mind that 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.