NatWest Group: A Compelling Case for Long-Term Shareholder Value in the Evolving Banking Sector

In the wake of a global financial landscape marked by volatility and uncertainty, NatWest Group (LON:NWG) has emerged as a standout performer, delivering an exceptional total shareholder return (TSR) that underscores its strategic resilience and operational discipline. Over the three years ending in 2024, the bank's shareholders reaped a TSR of 190%, a figure that dwarfs the 73% share price return alone. This divergence highlights the critical role of dividends in amplifying returns—a testament to the company's disciplined capital allocation and its ability to balance growth with shareholder rewards.

The Engine of Earnings: Sustained EPS Growth

At the heart of NatWest's success lies a consistent and robust earnings per share (EPS) trajectory. From 2023 to 2025, the bank's EPS surged from $1.19 to $1.36 annually, with a blistering 56.45% year-over-year jump in Q1 2025. Over the trailing twelve months ending March 2025, the EPS reached $1.02, reflecting a 22.5% annualized growth rate. These figures not only outpace the 27.1% average industry growth but also signal a company that has mastered the art of cost management, margin expansion, and prudent risk-taking.

The EPS growth is underpinned by a combination of net interest income (NII) expansion and improved credit quality. With a net interest margin (NIM) of 2.27% in Q1 2025, the bank has capitalized on the rising rate environment while maintaining a disciplined approach to loan provisioning. The net impairment charge of £189 million in Q1 2025—equivalent to 19 basis points of gross loans—indicates a portfolio that remains resilient despite macroeconomic headwinds. This operational efficiency is a cornerstone of NatWest's ability to convert revenue into sustainable earnings.

Strategic Capital Returns: Balancing Growth and Shareholder Rewards

NatWest's capital return strategy is a masterclass in balancing reinvestment and shareholder value. In 2024, the bank returned £2.2 billion to shareholders through buybacks, reducing its share count and enhancing earnings per share. This was complemented by a dividend policy targeting 50% of attributable profit starting in 2025—a commitment that aligns with its capital conservation framework.

The CET1 ratio of 13.8% as of Q1 2025, within the target range of 13-14%, demonstrates that NatWest is not sacrificing capital strength for short-term gains. A liquidity coverage ratio (LCR) of 150% further fortifies its ability to meet obligations, even in a stressed environment. This balance is critical in an industry where regulatory scrutiny and economic cycles demand both flexibility and resilience.

The bank's approach mirrors the best practices of global peers such as HSBC and Barclays but with a sharper focus on capital efficiency. While its P/E ratio of 4.57 appears undervalued compared to Asian counterparts like HDFC Bank (22.81), this discount may reflect the market's cautious stance on European banking stocks. Yet, for investors with a long-term horizon, NatWest's disciplined capital returns and strong balance sheet offer a compelling risk-reward profile.

Resilience in a Shifting Sector

The banking sector is undergoing a profound transformation, driven by technological disruption, regulatory shifts, and the transition to a low-carbon economy. NatWest's strategic investments in digital infrastructure and sustainable finance position it to navigate these changes. The bank's 18.5% return on tangible equity (RoTE) in Q1 2025, coupled with its commitment to achieving a RoTE of 15-16% in 2025, underscores its ability to generate returns in a competitive landscape.

Moreover, the UK's economic environment, with its anticipated rate cuts and improving inflation outlook, provides a tailwind for the bank's net interest income. The FTSE 250's outperformance against the FTSE 100 in 2024 and 2025 also highlights the growing appeal of UK-focused equities, which are less exposed to global volatility than their multinational counterparts.

Investment Thesis and Strategic Considerations

For investors seeking exposure to the banking sector, NatWest offers a rare trifecta: earnings growth, capital returns, and balance sheet strength. Its TSR of 190% over three years is a clear differentiator in an industry where many peers have struggled to deliver consistent returns. The bank's ability to maintain a CET1 ratio of 13.8% while returning £2.2 billion to shareholders demonstrates a maturity that is often absent in cyclical industries.

However, risks remain. The UK's economic recovery is not guaranteed, and regulatory changes—such as those related to climate risk and digital banking—could impact margins. Additionally, the bank's low P/E ratio suggests that the market is not fully pricing in its long-term potential. For patient investors, this presents an opportunity to acquire shares at a discount to intrinsic value.

Conclusion

NatWest Group's exceptional performance is a product of its strategic discipline, operational efficiency, and proactive capital management. In an era where many banks are retreating from shareholder returns to preserve capital, NatWest has struck a balance that benefits both growth and investors. Its 190% three-year TSR is not an outlier but a reflection of a company that understands its role as a steward of capital. For those willing to look beyond short-term volatility, NatWest represents a compelling long-term investment in the evolving banking sector.

The question for investors is not whether the bank can sustain its current trajectory but whether they are prepared to allocate capital to a company that has demonstrated both resilience and innovation in the face of adversity. The answer, for those who value consistency and strategic foresight, is clear.