NatWest Group Delivers Strong Start to 2025 with Q1 Double Beat

NatWest Group (LSE: NWG) kicked off 2025 with a resounding performance, handily surpassing both earnings and revenue expectations in its first quarter. The UK’s third-largest retail bank reported a pre-tax profit of £1.25 billion for Q1 2025, a 36% year-on-year increase, while revenue surged to £3.79 billion—marking a 12% rise compared to Q1 2024. These results not only beat analyst forecasts but also underscored the bank’s resilience amid ongoing macroeconomic challenges.

The Numbers That Matter

NatWest’s earnings per share (EPS) jumped to £0.15, a 50% improvement from £0.10 in Q1 2024, easily outpacing the consensus estimate of £0.13. Revenue growth was equally impressive, exceeding analysts’ £3.65 billion projection by 3.8%. The bank’s trailing 12-month revenue now stands at £4.0 billion, reflecting strong momentum across its core businesses.

What Drives the Beat?

The outperformance stems from three key factors:
1. Net Interest Margin (NIM) Expansion: NIM rose to 2.27%, up 8 basis points quarter-on-quarter, driven by higher deposit margins and disciplined pricing.
2. Cost Discipline: Operating expenses fell 8.5% sequentially to £1.46 billion, aided by reduced strategic spending on property exits and transformation projects.
3. Strong Lending Activity: Net loans to customers grew by £3.4 billion to £371.9 billion, fueled by demand in mortgages and corporate lending.

Navigating Economic Uncertainty

While the UK economy faces headwinds—elevated inflation and sluggish business activity—NatWest’s results highlight its ability to capitalize on structural shifts. The bank’s focus on deposit growth (which now accounts for 64% of funding) has insulated its margins, even as the Bank of England’s rate hikes compress spreads. Additionally, its climate funding initiatives have advanced ahead of schedule, with £100 billion allocated to sustainable projects.

Analysts and the Market React

Investors rewarded the results, with shares rising 3.5% in early trading. However, the broader market remains cautious. Analysts have nudged full-year revenue estimates upward to £15.8 billion (from £15.6 billion) but left EPS projections largely unchanged at £0.56—a 5.6% dip from 2024’s full-year EPS of £0.59. This reflects lingering concerns about potential economic slowdowns and their impact on credit quality.

NatWest’s forward guidance reinforces this cautious optimism. Management aims for income at the upper end of its £15.2–15.7 billion range, with a CET1 ratio of 13–14% and dividends set at 50% of attributable profit. These targets align with peer benchmarks, suggesting the bank is prioritizing capital strength over aggressive growth.

Conclusion: A Strong Start, but Risks Remain

NatWest’s Q1 results are a clear win for shareholders, driven by margin expansion, cost control, and robust lending. The bank’s 18.5% return on tangible equity (RoTE) and 150% liquidity coverage ratio (LCR) further bolster its financial resilience. However, the path ahead is not without obstacles. A potential UK recession, rising credit costs, and slower loan growth could test these gains.

For investors, the key takeaway is this: NatWest has demonstrated operational discipline and strategic focus in a tough environment. While the stock’s consensus price target of £5.22 remains stable, its valuation—trading at 1.2x book value—offers room for upside if macro conditions stabilize. The bank’s Q1 performance is a reminder that even in uncertain times, prudent management and a diversified business model can deliver results.

In short, NatWest’s double beat sets a high bar for the rest of 2025. Whether it can sustain this momentum will depend on navigating the economic crosscurrents with the same precision it applied in Q1.