NatWest Group Maintains Momentum: Moody’s Stable Outlook Reflects Resilient Profitability and Strategic Gains

NatWest Group has secured a reaffirmation of its Baa2 long-term issuer rating with a stable outlook from Moody’s Investors Service, underscoring the bank’s robust financial performance and strategic positioning amid macroeconomic headwinds. This rating affirmation highlights NatWest’s ability to balance growth, capital strength, and risk management, while also signaling cautious optimism about its trajectory in 2025.

Key Financial Drivers of the Stable Outlook

NatWest’s Q1 2025 results demonstrate the resilience of its core businesses, with attributable profit rising to £1.25 billion, a 15.5 pence earnings per share (EPS), and a 18.5% return on tangible equity (RoTE). Total income excluding notable items reached £3.95 billion, a 2.1% quarterly increase driven by deposit margin expansion, balance growth, and higher trading income. These metrics align with Moody’s emphasis on strong profitability as a pillar of the bank’s creditworthiness.

The net interest margin (NIM) expanded to 2.27%, up 8 basis points from Q4 2024, reflecting improved deposit pricing strategies. Cost discipline also shone: operating expenses fell 8.5% sequentially to £1.87 billion, aided by reduced strategic costs and seasonal efficiencies. Year-on-year, expenses dropped 4.6%, reinforcing NatWest’s focus on operational optimization.

Capital and Liquidity: A Solid Foundation

NatWest’s capital metrics remain robust, with the Common Equity Tier 1 (CET1) ratio rising to 13.8%, a 20-basis-point improvement from year-end 2024. This exceeds the 13–14% target for 2025 and reflects strong capital generation. Liquidity is equally secure, with a liquidity coverage ratio (LCR) of 150%, providing £54.2 billion in headroom above regulatory requirements. Moody’s cites these metrics as critical to the bank’s ability to withstand potential economic shocks.

The bank’s shares have climbed 12% year-to-date as investors react positively to its earnings momentum and capital strength.

Credit Quality and Balance Sheet Resilience

NatWest’s net impairment charge of £189 million (19 basis points of gross loans) signals stable credit quality, with defaults remaining low despite UK economic uncertainty. The balance sheet expanded organically: net loans grew £3.4 billion in Q1, driven by mortgage demand and lending to Corporate & Institutions. Customer deposits rose £2.1 billion, bolstering funding stability.

Moody’s Concerns: CRE Risks and Macroeconomic Uncertainty

While the stable outlook acknowledges NatWest’s strengths, Moody’s also highlights risks. The bank’s commercial real estate (CRE) portfolio, which accounts for 14% of total loans, remains a vulnerability. Moody’s warns of potential stress in office sectors due to high vacancies and hybrid work trends, though NatWest’s focus on residential mortgages (a larger portion of its loan book) mitigates this exposure.

The UK’s prolonged economic stagnation—with subdued GDP growth and elevated inflation—poses a broader challenge. Moody’s notes that persistent profitability pressures, driven by competitive retail banking markets and rising operational costs, could strain margins if economic conditions worsen.

Outlook and Strategic Priorities

NatWest aims to maintain a RoTE of 15–16% in 2025, targeting the upper end of its guidance. Income growth is projected to reach £15.7 billion, supported by deposit margin expansion and disciplined cost management. The bank also plans to return capital to shareholders, with dividends at 50% of attributable profit from 2025 onward, alongside potential buybacks.

By 2027, management seeks to exceed a 15% RoTE and sustain a CET1 ratio of 13–14%, signaling confidence in its long-term strategy.

Conclusion: A Balanced View for Investors

Moody’s stable outlook reflects NatWest’s solid execution in profitability, capital management, and liquidity, which are critical in an uncertain environment. The bank’s UK dominance, strong retail franchise, and improving asset quality provide a favorable base for growth. However, investors must monitor CRE portfolio performance and the UK’s economic trajectory, which could test resilience.

With its CET1 ratio at 13.8% and LCR at 150%, NatWest is well-capitalized to navigate near-term risks. The Baa2 rating places it among mid-tier investment-grade banks, offering a reasonable risk-return profile for income-oriented investors. Should the UK economy stabilize and CRE risks remain contained, NatWest’s shares could continue to outperform, supported by its dividend yield of 5.2% and earnings momentum.

In summary, NatWest’s reaffirmed rating underscores its current strengths, but sustained success hinges on executing its strategy in an environment where macroeconomic tailwinds and structural risks remain in delicate balance.

Data as of Q1 2025. Past performance is not indicative of future results.