LONDON, Feb 17 (Reuters) - NatWest warned on Friday that rising interest rates may not deliver the long-lasting earnings bonanza investors hope for, even though profit jumped by 33% last year.
Shares in the bank fell as much as 9% as investors digested the forecasts on the lender's net interest margin and costs for 2023, even as the bank reported annual pretax profit that rose to 5.1 billion pounds ($6.1 billion) from 3.8 billion pounds.
"We think broadly the results are likely to be seen as a miss on 2023 expectations today," Credit Suisse analysts said, citing the bank's guidance of a net interest margin at 325 basis points for 2023.
Net interest margin, a measure of the gap between what banks charge borrowers and pay to depositors, should be showing healthy increases after a succession of central bank rate hikes.
The state-backed lender also announced a 10 pence per share final dividend and an 800 million pound share buyback.
It also raised the staff bonus pool by nearly a quarter to 368 million pounds, risking potential criticism because it is still 44% owned by taxpayers after a state bailout at the height of the 2008-2009 financial crisis.
Britain's economy narrowly avoided a technical recession at the end of 2022, official data showed last week, but inflation could still squeeze households and lead to more loan defaults.
The bank set aside 337 million pounds over the year to cover potential soured loans, though this was lower than 400 million-plus figure analysts expected.
British inflation registered a faster than expected slowdown to 10.1% in January but the rate is still higher than in the United States or euro zone.
"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," Rose said.
While higher rates hurt borrowers, lenders benefit from the widening gap between what they charge borrowers and pay savers.
NatWest's revenue leapt more than a quarter over the year to 13.2 billion pounds, boosted by growth in its mortgage book. The bank expects this to grow to 14.8 billion pounds this year, based on the Bank of England benchmark rate remaining at 4%.
The lender also aims to deliver a cost-to-income ratio below 52%, excluding costs linked to litigation and conduct, it added.
($1 = 0.8372 pounds)
Reporting by Iain Withers and Lawrence White Editing by David Goodman
Source: Reuters