British bank NatWest swings to a 2nd-quarter loss of $1.7 billion as income tumbles and impairment charges soar

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© RBS RBS NatWest posted sharply lower profits last quarter as less income and a hefty impairment charge weighed on its business. The British bank’s total income tumbled 34% year-on-year to £2.7 billion ($3.5 billion) and its impairment losses soared to over £2 billion, meaning it swung from a pre-tax […]



Alison Lithgow wearing a suit and tie smiling and looking at the camera: RBS


© RBS
RBS

  • NatWest posted sharply lower profits last quarter as less income and a hefty impairment charge weighed on its business.
  • The British bank’s total income tumbled 34% year-on-year to £2.7 billion ($3.5 billion) and its impairment losses soared to over £2 billion, meaning it swung from a pre-tax profit of £1.7 billion ($2.2 billion) to a £1.3 billion ($1.7 billion) loss.
  • “Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19,” CEO Alison Rose said in the earnings release.
  • NatWest’s net interest margin fell and its loan impairment rate soared, but it also shored up its finances, increasing both its liquidity coverage ratio and common equity tier one (CET1) ratio.
  • Visit Business Insider’s homepage for more stories.

NatWest suffered a sharp slump in second-quarter profits as pandemic-related lockdowns and travel restrictions weighed on business activity and consumer spending. The British bank — formerly known as RBS — also shored up its finances in case the crisis worsens.

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“Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19,” CEO Alison Rose said in the earnings release.

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“However, NatWest Group has a robust capital position, underpinned by a resilient, capital-generative and well-diversified business.”

NatWest stock climbed 1% on Friday, outpacing a 0.7% gain for the benchmark FTSE 100 index.

Here are the key numbers:

Revenue: £2.68 billion versus the £2.66 billion estimate

Earnings per share: -8.2p versus the -2.6p estimate

NatWest’s net interest income slid 3% and its non-interest income tumbled 63% year-on-year last quarter, driving total income down 34% to £2.7 billion ($3.5 billion).

The bank’s impairment losses also soared almost nine-fold year-on-year to £2 billion, meaning the bank swung from a £1.7 billion pre-tax profit in the second quarter of 2019 to a £1.3 billion loss last quarter.

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NatWest’s earnings underscored the challenges of lending during a pandemic. Its net interest margin shrunk from 2.02% to 1.67%, while its loan impairment rate surged from 0.3% to 2.29%.

The bank also worked to reduce the risk it will be caught short of cash. It increased its liquidity coverage ratio from 152% to 166% in the first half of the year, and its common equity tier one (CET1) ratio — a key measure of a bank’s financial strength from a regulatory standpoint — from 16.2% to 17.2%.

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