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NatWest Group Q1 2025: Unraveling Key Contradictions in Deposit Margins, Capital Strategy, and Cost Management
Generated by AI AgentEarnings Decrypt
Monday, May 5, 2025 2:27 am ET1min read
Deposit margin sustainability, capital management strategy, cost management and guidance, capital allocation and strategy, structural hedge and deposit margin support are the key contradictions discussed in NatWest Group's latest 2025Q1 earnings call.
Strong Financial Performance:
- reported a strong start to the year with customer lending growing 0.9% to GBP 375 billion and customer deposits increasing 0.5% to GBP 433 billion.
- Income increased by 15.8% year-on-year to GBP 4 billion, and operating profit was GBP 1.8 billion.
- The company exceeded its GBP 100 billion target for climate and sustainable funding and financing.
Deposit Margin Expansion:
- NatWest Group's net interest margin increased by 8 basis points to 227 basis points, with a significant contribution from deposit margin expansion.
- The structural hedge and repositioning of the liquidity portfolio supported margin enhancement.
- The base rate cuts were offset by structural hedge tailwinds and non-repeat of previous mortgage EIR charges.
Mortgage and Lending Growth:
- Mortgage balances grew by GBP 2.1 billion, with strong gross new lending reflecting some pull-forward of second quarter completions ahead of stamp duty changes.
- Gross customer loans in Commercial & Institutional increased by GBP 1.6 billion, driven by infrastructure and project finance.
- The completion of the Sainsbury's Bank transaction added approximately GBP 2.5 billion of unsecured lending and GBP 2.7 billion of savings.
Cost Management and Capital Generation:
- Costs were down by 8.5% in the first quarter compared to the fourth quarter, with an annual wage award and higher national insurance contributions impacting future costs.
- Capital generation before distributions included 49 basis points from earnings and 10 basis points from CET1 capital improvements.
- The CET1 ratio remained strong at 13.8%, with guidance for returns at the upper end of the 15% to 16% range for 2025.
Strong Financial Performance:
- reported a strong start to the year with customer lending growing 0.9% to GBP 375 billion and customer deposits increasing 0.5% to GBP 433 billion.
- Income increased by 15.8% year-on-year to GBP 4 billion, and operating profit was GBP 1.8 billion.
- The company exceeded its GBP 100 billion target for climate and sustainable funding and financing.
Deposit Margin Expansion:
- NatWest Group's net interest margin increased by 8 basis points to 227 basis points, with a significant contribution from deposit margin expansion.
- The structural hedge and repositioning of the liquidity portfolio supported margin enhancement.
- The base rate cuts were offset by structural hedge tailwinds and non-repeat of previous mortgage EIR charges.
Mortgage and Lending Growth:
- Mortgage balances grew by GBP 2.1 billion, with strong gross new lending reflecting some pull-forward of second quarter completions ahead of stamp duty changes.
- Gross customer loans in Commercial & Institutional increased by GBP 1.6 billion, driven by infrastructure and project finance.
- The completion of the Sainsbury's Bank transaction added approximately GBP 2.5 billion of unsecured lending and GBP 2.7 billion of savings.
Cost Management and Capital Generation:
- Costs were down by 8.5% in the first quarter compared to the fourth quarter, with an annual wage award and higher national insurance contributions impacting future costs.
- Capital generation before distributions included 49 basis points from earnings and 10 basis points from CET1 capital improvements.
- The CET1 ratio remained strong at 13.8%, with guidance for returns at the upper end of the 15% to 16% range for 2025.
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