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

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.
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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.

"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.Advertisement

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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.
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Here are the key numbers:

Revenue: £2.68 billion versus the £2.66 billion estimate Earnings per share: -8.2p versus the -2.6p estimateAdvertisement

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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