NatWest faces £140m hit from Iran war as UK growth slows and inflation rises | NatWest Group
Despite reporting profits above expectations, NatWest said the economic fallout from the conflict in the Middle East could cost it £140 million due to slowing growth and rising inflation.
Overall, the FTSE 100 lender booked an impairment charge of £283 million and said almost half of this was due to a reassessment of its economic forecast “to reflect increased geopolitical risk and weak equity markets”.
The bank said it expects the baseline scenario for UK gross domestic product growth to be just 0.4% this year; this was half the International Monetary Fund’s estimate earlier this month.
NatWest said operating profits rose 12% year on year to £2bn in the first three months of the year, up from £1.8bn in the same period last year. The average consensus among analysts was around £1.9bn.
But its shares fell as much as 4.2% in early trading due to the impact of the Iran war and worsening forecasts.
NatWest’s economic forecasts include the UK unemployment rate rising to 5.5% this year. Last week, the Office for National Statistics stated that the unemployment rate in February was announced as 4.9%, but this rate was expected to rise due to the conflict.
The impact of the Iran war would lead to inflation reaching 3.5% in the base case, the bank said.
NatWest chief executive Paul Thwaite said the base case scenario did not mean the UK economy was heading towards stagflation; This is the double whammy of slowing economic growth combined with rising inflation.
He said: “The events of the last six weeks have made the environment even more uncertain for customers and businesses.
“But we are seeing a lot of resilience. Customer activity is good, corporate leverage is relatively low and household savings are high. But there is definitely a sentiment and trust issue. The question is how long the conflict will last; a lot depends on the duration of the energy shock and supply issues.”
Thwaite said the bank’s base case forecasts assume the conflict will be resolved during this year.
NatWest said 23,000 new customers invested in the first quarter, compared to 50,000 in the whole of last year, while customer deposits rose by £3.1bn to £444.8bn.
The bank said gross loans rose by £7.3bn in the first quarter, up 1.9 per cent to £400bn, with a target of £10bn this year, including £4bn to first-time buyers.
“Households and businesses are being more proactive than ever about making adjustments,” he said. “The mortgage market was strong in the first quarter. There was a big acceleration in remortgage activity in March.”
The average two-year fixed mortgage rate on Thursday was 5.79%, up from 4.83% at the beginning of March, according to MoneyFacts.
NatWest believes the Bank of England will not take action to increase its base rate at 3.75% this year and will keep it at that level until at least 2030.
The market is counting on at least two interest rate hikes by the monetary policy committee by the end of this year.
Lloyds Banking Group, which earlier this week charged £151 million due to changing economic conditions, is forecasting GDP growth of 0.5% this year as a base case scenario.
The Bank of England on Thursday voted to leave the interest rate at 3.75% but warned of increases later this year, saying “inflation is inevitable to be higher” as a result of the war in the Middle East.
NatWest also said that while it expects house prices to increase by an average of 0.7 percent this year, it predicts a 1.8 percent contraction next year and a 0.5 percent decrease in 2028.
The banking sector has benefited from turbulence in markets due to conflict in the Middle East, and NatWest said it expected revenue for this year to be near the previous forecast of £17.2bn to peak at £17.6bn.
In February, NatWest struck a £2.7bn deal to buy Evelyn Partners, one of the UK’s largest asset managers; it was the bank’s biggest acquisition since it was bailed out by taxpayers in 2008.
The bank, which returned to full private ownership last year, currently owns the private bank Coutts.
On Friday, Santander said it had completed a multi-billion pound cash deal to buy TSB. The Spanish bank struck a £2.65bn deal to buy the British high street lender last year. But Santander said it had paid £2.86bn based on the change in the value of assets at TSB from when the deal was signed to its completion on Thursday.
Santander said the takeover would deliver cost savings of at least £400 million, raising fears of redundancies and branch closures. The deal means Santander will become the UK’s third largest bank in terms of current accounts and fourth largest in terms of home loans.
