NatWest reports profit up 20%, raises performance outlook

By Lawrence White

LONDON, July 31 (Reuters) -

NatWest reported a better-than-expected first-half operating profit before tax of £4.3 billion ($5.8 billion) on Friday and raised its performance guidance for the year, as it grew income while keeping costs under control. 

NatWest said it now expects this year's return on tangible equity, a key measure of profitability, to be greater than 19%, up from previous guidance of above 17%. 

The bank's profit for January to June was above analysts' forecasts for £4 billion and up 20% from £3.6 billion in the same period a year ago.

NatWest also announced an interim dividend of 12 pence per share and said it would consider share buybacks from when it reports full-year 2026 results in February, six months earlier than previously planned.

The latest results update from the bank extends a period of unusually strong profitability for Britain's major lenders, which have in recent years benefited from higher interest rates, resilient consumer credit quality and cost savings from investment in technology.

Banks including NatWest, Lloyds and Barclays have reported returns well above their cost of equity, allowing them to return billions of pounds to shareholders through dividends and share buybacks.

The results from the lender formerly known as RBS showed it continuing to sustain income despite recent cuts to the elevated central bank interest rates that had powered British lenders' stellar profits.

While NatWest's net interest margin of 2.49% was slightly below expectations, according to Jonathan Pierce, analyst at Jefferies, the bank's half-year update showed a solid performance overall that would reassure shareholders.

Those investors' attention will now turn to the implications of Prime Minister Andy Burnham's new administration for the banking sector.

Some investors have raised concerns that banks' strong profitability could make them a target for higher taxation as the government looks for ways to fund spending priorities while adhering to its fiscal rules.

Those concerns have, however, been partially offset by signs Burnham intends to maintain the previous administration's broadly pro-City agenda,  including a Reuters report last Friday that the government will keep implementing the Financial Services Growth and Competitiveness Strategy set out by Burnham's predecessor Keir Starmer.

($1 = 0.7440 pounds)

(Reporting by Lawrence White; Editing by Emelia Sithole-Matarise, Joe Bavier and Tomasz Janowski)