NatWest Sees Profits Soar to £2.2bn Thanks to Surge in Interest Rates

NatWest has achieved one of its most impressive quarterly outcomes since the financial downturn, recording a 30.4 per cent increase in pre-tax profits to £2.2 billion for the three-month period ending in September — significantly surpassing City forecasts.

The FTSE 100 financial institution stated that revenue climbed nearly 16 per cent to £4.3 billion, propelled by expanding deposit margins and a slight calendar advantage from an additional trading day this quarter. Its net interest margin – the primary indicator of profitability between loans and deposits – rose to 2.37 per cent, up from 2.18 per cent the previous year.

Shares in the company increased by 3 per cent to 563p, reaching their highest point since the taxpayer rescue of 2008, as investors reacted positively to the improved outlook.

CEO Paul Thwaite mentioned that the performance was “supported by strong levels of customer engagement,” asserting that the group’s balance sheet remained robust even in a challenging macroeconomic environment.

NatWest now anticipates that full-year revenue, excluding extraordinary items, will reach approximately £16.3 billion, up from its earlier projection of “more than £16 billion.” The bank also elevated its target return on tangible equity to above 18 per cent, an increase from the prior 16.5 per cent estimate.

The results highlight how prolonged higher interest rates have enhanced the earnings of UK banks. The Bank of England base rate, which peaked at 5.25 per cent during 2023 and 2024, has since decreased to 4 per cent — yet remains significantly above historical averages, enabling banks to sustain healthy lending margins.

NatWest’s results follow similarly strong performances throughout the banking industry. Barclays reported £2.1 billion in pre-tax profits this week, announcing a £500 million share repurchase, while Lloyds Banking Group posted £1.2 billion despite incurring an £800 million provision concerning motor finance mis-selling.

Banks have also profited from “structural hedging” tactics, utilizing derivatives to manage exposure to interest rate fluctuations — a crucial factor for earnings stability in the current environment.

However, soaring profits could attract unwelcome scrutiny from the Treasury ahead of the Chancellor’s Autumn Budget on 26 November. With Rachel Reeves aiming to address a multibillion-pound fiscal deficit, experts caution that banks’ robust returns may render them a tempting target for new tax measures or windfall levies.

Lenders maintain that they already face a heavier tax load compared to global counterparts, arguing that further hikes could undermine the competitiveness of Britain’s financial sector at a moment when international firms are reevaluating their UK exposure.