UK bank NatWest posts bumper profits but shares tank

British bank NatWest on Friday posted a jump in annual profits as it trimmed costs and the sector benefitted from rising interest rates.

Its share price tanked almost seven percent, however, despite NatWest announcing a big buyback of shares, with analysts blaming profit-taking after the bank's stock value climbed strongly in the final quarter of 2022.

There is also a fear that the sector could face a surge in bad loans with Britain facing a cost-of-living crisis as UK annual inflation remains above 10 percent despite recent easing.

European lenders have reported bumper earnings after central banks worldwide hiked rates in efforts to bring inflation under control. Retail banks in turn have raised rates on loans, including mortgages.

NatWest said net profit climbed 13 percent to £3.34 billion ($4 billion) last year.

Revenue increased 26 percent to £13.2 billion.

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"A slightly perplexing reaction has hit the shares in early trade, perhaps in light of some profit taking after the share price spike of 24 percent over the last three months, while a weaker market generally is also clouding sentiment," said Richard Hunter, head of markets at Interactive Investor.

Shares in rival Barclays shed as much as 10 percent earlier in the week after it warned of surging bad loans linked to the cost-of-living crisis.

Free of state control

As for NatWest, last year was notable for it no longer being under majority state control.

The UK government in March cut its stake to below 50 percent for the first time since the global financial crisis.

NatWest, then known as Royal Bank of Scotland, had been rescued with £45.5 billion of taxpayers' cash in the world's biggest banking bailout at the height of the 2008 meltdown.

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"NatWest Group delivered a strong performance in 2022, with pre-tax profit up more than a third to £5.1 billion," chief executive Alison Rose said in the earnings statement.

"We made considerable progress against our strategic goals, maintained a well-balanced loan book and distributed significant capital to our shareholders, including the UK government.

"Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now and that many more are worried about what the future holds," added Rose, one of only eight women CEOs in charge of companies trading on London's top-tier FTSE 100 shares index.

Around 1030 GMT, shares in NatWest were down 6.8 percent at 284.70 pence, while the FTSE 100 was 0.2-percent lower overall. Rival lender Lloyds was the next biggest faller ahead of publishing its annual earnings next week.

"The remaining government stake of around 46 percent (in NatWest) is something of an overhang for the shares, although the commitment to continue to whittle it down further has already been declared," analyst Hunter added.

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"Elsewhere, the economic outlook in the UK, which could yet deteriorate towards a recessionary environment, would put more pressure on the banks' customers, for both individuals and companies alike."

Britain narrowly avoided recession last year, but is forecast to contract throughout this year according to the Bank of England.

Source: AFP