NatWest Group plc (NWG) ORD GBP1.0769
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(1.40%)
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HL comment (13 February 2026)
No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
NatWest reported fourth-quarter income of £4.3bn (£4.2bn expected), up 13% year-on-year. Net interest margin rose from 2.19% to 2.45%.
Operating profit rose 30% to £1.9bn (£1.7bn expected), supported by strong top-line growth and slightly lower costs. Impairments were better than expected, and default levels remain low.
The group’s CET1 ratio, a key measure of financial strength, was 14.0% at the period end (13-14% target range).
2026 guidance points to total income of £17.2-17.6bn (£17.5bn expected). The group is now targeting a CET1 ratio of around 13.0%.
Earlier in the week, NatWest announced the £2.7bn acquisition of wealth management group Evelyn Partners, alongside a £750mn buyback.
The shares were broadly flat in early trading.
Our view
NatWest delivered a reassuring set of results that beat expectations across the board. Management’s 2026 outlook looks cautious rather than ambitious, but that’s typical for NatWest, and we think that leaves room for upgrades as we move through the year.
As a traditional lender, loan default rates are an important risk to watch for. The good news for investors is that borrowers are remaining resilient, with default rates staying at low levels and expected to stay on that trend.
Mortgage growth was strong over the year, and we see scope for continued good demand if rates come down as expected. There’s no longer a material margin headwind on mortgages either, which should be positive for interest income.
Deposits make up the other side of the equation, and the trend of savers looking for longer-term accounts has eased in the past 12-18 months. Still, competition on rates is causing a small ongoing headwind. We also expect rate cuts to add a further income headwind of around £500mn in 2026.
Costs are a key focus, and we've been pleased to see continued progress on this front - medium-term targets now point to a sub-45 % cost-income ratio (previously sub-50 %). This is a key area that NatWest needs to continue to execute on.
There's also the benefit of the structural hedge - think of this as a bond portfolio that's set to roll on to better rates over the coming years. This effect should continue for the coming years, even if we see further rate cuts, assuming there are no major surprises.
We had previously called for NatWest to flex its balance sheet a little more. Now shed of the government's stake, that’s exactly what we’re seeing with the £2.7bn Evelyn acquisition. There are question marks around the price, at a premium to most of its peers, but we see the strategic rationale.
It still leaves NatWest well capitalised and able to support buybacks (at a slightly reduced level in the short term). We were also pleased to see capital targets move down from 13-14% to around 13%, which provides more wiggle room and a sign that management is confident in the financial position.
All in, we see NatWest as one of the best-placed UK banks to benefit from several sector tailwinds. Sentiment has rightly improved in recent years after a lengthy period at depressed levels. We think that’s justified and see scope for continued growth, but there’s more pressure to deliver and executing well on the Evelyn integration is the next big challenge.
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
Forward price/book ratio (next 12 months): 1.20
Ten year average forward price/book ratio: 0.67
Prospective dividend yield (next 12 months): 5.9%
Ten year average prospective dividend yield: 5.1%
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.
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