NatWest profits surge as lenders benefit from higher interest rates and cost discipline

NatWest has reported a sharp rise in profits, buoyed by an increase in its net interest margin and strong loan growth, marking its best quarterly performance since before its government bailout. The high street lender’s turnaround continues to gather momentum, propelled by resilient income streams and disciplined cost management.

Pre-tax profits soared to nearly £2.2 billion for the three months to the end of September—a 30.4 per cent jump on the previous year—eclipsing analyst expectations of £1.8 billion. This performance coincided with a 15.7 per cent increase in total income to £4.3 billion, while NatWest shares climbed 4.9 per cent to close at a 15-year high. Riding this wave of profitability, the management team has raised its full-year forecasts and now anticipates annual income, excluding notable items, of around £16.3 billion, up from earlier guidance of more than £16 billion. Crucially, the bank is now aiming for a return on tangible equity above 18 per cent for the year.

Paul Thwaite’s appointment as chief executive came amid controversy during the summer of 2023, but NatWest’s subsequent financial results have bolstered his reputation. The group’s net loans grew by £4.4 billion, while its wealth and private banking arm saw assets rise 8.1 per cent to £56 billion. Higher-for-longer interest rates have provided a tailwind, with NatWest’s net interest margin rising to 2.37 per cent from 2.18 per cent year on year.

Where competitors Barclays and Lloyds Banking Group faced setbacks from provisions for mis-sold motor finance, NatWest’s results were unclouded. The bank has no exposure to the car loan scandal impacting its peers, a distinction which, along with astute dealmaking—a notable acquisition of Sainsbury’s banking business and a significant mortgage book from Metro Bank—adds to its recent successes.

Cost discipline remains central to NatWest’s outlook. The group’s cost-income ratio, excluding litigation, dropped to 47.8 per cent in the year’s first nine months, down from 52.8 per cent in 2024. Market analysts have praised NatWest’s balanced approach, noting strong lending, tight cost controls and exemplary credit quality.

As robust banking profits catch the attention of policymakers looking to fill gaps in the public finances, speculation abounds that the sector could face a tax grab in the upcoming budget. Bank leadership continues to emphasise their intent to deploy capital in support of customers amid this backdrop.

NatWest’s resurgence owes as much to clear strategy and selectivity in dealmaking as it does to the environment of higher interest rates. The business continues to outperform rivals, benefiting both shareholders and the wider UK economy since the landmark conclusion of state ownership earlier this year