NatWest Group plc (NWG) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial metrics, optimistic guidance, and strategic acquisitions. The Q&A section reveals confidence in ECL models and stable margins, despite minor concerns in sectors like agriculture. The upgraded income guidance, strategic acquisitions, and expected growth in lending and deposits support a positive sentiment. However, absence of market cap data limits precise prediction, but overall indicators suggest a stock price increase in the 2% to 8% range over the next two weeks.
Key Financial Performance
Customer Lending Grew 6.6% year-on-year to GBP 400 billion. Reasons for growth include balanced lending across businesses, with GBP 3.3 billion in mortgages and GBP 3.8 billion in Commercial & Institutional lending.
Customer Deposits Grew 2.6% year-on-year to GBP 445 billion. Reasons include growth in Corporate & Institutional deposits, partially offset by a decrease in Retail and Private Banking deposits due to annual tax payments.
Assets Under Management and Administration Grew 16.9% year-on-year to GBP 57 billion. Reasons include net inflows of GBP 900 million and 23,000 new investors, though partially offset by market movements.
Income Grew 6.9% year-on-year to GBP 4.2 billion. Reasons include growth in volumes and margin, supported by deposit margin expansion.
Costs Increased 4.8% year-on-year to GBP 2 billion. Reasons include accelerated investment spend and higher restructuring costs, though offset by ongoing cost savings.
Return on Tangible Equity 18.2%, driving strong capital generation of 65 basis points in the first quarter. Reasons include strong earnings and capital efficiency.
Earnings Per Share Grew 15.5% year-on-year to 17.9p. Reasons include strong income growth and operational efficiency.
Tangible Net Asset Value Per Share Increased 15.1% year-on-year to GBP 4. Reasons include strong capital generation and earnings.
Common Equity Tier 1 (CET1) Ratio 14.3%, up 30 basis points since the end of the year. Reasons include strong earnings and active management of risk-weighted assets.
Impairment Charge GBP 283 million, equivalent to 26 basis points of loans. Reasons include GBP 140 million provision due to revised macroeconomic assumptions, though credit performance remains strong.
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Operating Highlights
Mortgage Market Expansion: Increased share of the mortgage market and announced new partnerships, such as becoming the exclusive mortgage provider for Rightmove.
Private Banking & Wealth Management Acquisition: Acquired Evelyn Partners, which is expected to complete in Q2 2026, subject to regulatory approval.
Start-Up Banking Growth: Onboarded 24,000 new start-ups, a 25% increase compared to the same period last year, supported by easier agentic onboarding.
Climate and Transition Finance: Provided over GBP 10 billion in climate and transition finance in Q1 2026, contributing to a total of GBP 29 billion since July 2025, progressing towards a GBP 200 billion target by 2030.
Cost Savings: Delivered over GBP 100 million in additional cost savings in Q1 2026.
AI in Software Development: Over 40% of code is now written by AI, reducing development time significantly. For example, some projects now require only 6 hours instead of 6 weeks.
Balance Sheet Management: Actively managed the balance sheet to free up capacity for growth and dynamically allocate capital.
Economic Scenario Adjustments: Revised economic assumptions due to geopolitical uncertainty, expecting higher inflation and slower economic growth, with interest rates remaining at 3.75% for the year.
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Risk or Challenges
Geopolitical Uncertainty: Conflict in the Middle East has increased geopolitical uncertainty, which could potentially impact customer sentiment and economic conditions.
Macroeconomic Conditions: Revised economic scenarios indicate higher inflation, slower economic growth, and a modest increase in unemployment, which could affect lending risk appetite and credit quality.
Interest Rate Environment: Higher interest rates are expected to persist, which may impact borrowing costs and customer behavior.
Impairment Charges: An additional provision of GBP 140 million was taken due to revised macroeconomic assumptions, reflecting potential risks in credit performance.
Market Movements: Negative market movements impacted assets under management and administration, though partially reversed in April.
Regulatory Approvals: The acquisition of Evelyn Partners is subject to regulatory approval, which could delay strategic plans if not granted in a timely manner.
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Guidance & Outlook
Income Guidance: Income, excluding notable items, is expected to be at the top end of the GBP 17.2 billion to GBP 17.6 billion range for 2026, supported by higher interest rates and revised economic scenarios.
Interest Rate Assumptions: The Bank of England base rate is assumed to remain at 3.75% throughout 2026, rather than decreasing to 3.25% as previously expected.
Economic Assumptions: Inflation (CPI) is expected to peak at 3.5% in 2026, with GDP growth projected at 0.4% and unemployment anticipated to rise modestly to 5.7%.
Loan Impairment Rate: The loan impairment rate is expected to remain below 25 basis points for 2026, with no new signs of stress in the credit portfolio.
Capital Generation: The company expects around 200 basis points of capital generation before distributions in 2026, while maintaining a CET1 ratio of approximately 13%.
Cost Guidance: Full-year 2026 costs are expected to be around GBP 8.2 billion, with an uneven cost profile throughout the year.
Balance Sheet and Lending Growth: Customer assets and liabilities (CAL) are projected to grow in line with the 2028 target of more than 4% annual growth, supported by strong loan and deposit growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What drove the loan and deposit growth, particularly in C&I, and how sustainable is it?
A:Loan and deposit growth was broad-based, with increases in mortgages, C&I, and unsecured retail lending. C&I growth was driven by structural drivers like project finance, infrastructure, transition finance, utilities, and energy transition. The pipeline remains strong, indicating sustainability due to structural trends rather than short-term opportunities.
Q:What caused the reduction in average interest-earning assets (AIEA) despite loan and deposit growth?
A:The reduction in AIEA by 0.2% was due to the optimization of surplus liquidity, including the repayment of GBP 4 billion of TFSME at the end of Q4. Surplus liquidity was deployed to meet customer loan demand during a quarter of seasonally lower deposit growth.
Q:Why did mortgage spreads hold up better than expected in Q1, and what is the outlook for spreads?
A:Mortgage spreads held up due to steady growth at attractive returns and flexibility in pricing. Margins are expected to face some pressure as COVID-era mortgages roll off, but April margins were above the back book. The book margin is expected to reprice to around 60 basis points over the year.
Q:What is the outlook for commercial spreads and the types of business being underwritten?
A:Commercial lending margins are stable on a product-by-product basis, with variations depending on asset classes. Margins are higher in small business lending but lower in areas like social housing and project financing, which offer high risk-adjusted returns. No major changes are expected in spreads.
Q:Is the income guidance conservative, and how does NatWest weigh deposit volumes versus margins?
A:Income guidance has been upgraded to the top end of the range due to strong Q1 performance and revised rate assumptions. NatWest balances deposit volumes and margins by focusing on relationship value and managing pricing effectively, particularly in the competitive ISA market.
Q:What are the assumptions behind the income guidance for this year, particularly regarding the hedge reinvestment and volumes?
A:Hedge reinvestment rates are expected to average 3.9% for the product hedge and 4.7% for the equity hedge. Volume assumptions balance strong Q1 activity and pipelines with potential softening due to economic conditions like higher rates and slower growth.
Q:What caused the drop in C&I noninterest income in Q1, and what is the outlook?
A:C&I noninterest income dropped due to lower sterling rates income, which was a one-off. Improvements are expected in Q2 and beyond due to more stable volatility.
Q:How confident is NatWest in its ECL models, and what is the sensitivity to downside scenarios?
A:NatWest is confident in its ECL models, which are independently verified. In a downside scenario, ECL would increase by GBP 99 million for Stage 1 and 2, but Stage 3 losses could add more. The extreme downside scenario suggests a GBP 1.7 billion impact.
Q:How is NatWest managing the refinancing profile of mortgage customers, and what are the risks?
A:NatWest is managing refinancing through customer engagement and flexible pricing systems. Customers are locking in rates early, and the bank is largely locked in for forthcoming roll-offs. Risks are mitigated by active management and are factored into guidance.
Q:What is the strategy for growth in financial institutions and private credit lending?
A:NatWest prioritizes risk-adjusted returns over volume growth, maintaining stable limits and focusing on senior lending with good protection. Spreads are expected to widen, improving risk-adjusted returns.
Q:Are there any sectors in the corporate book that NatWest is more cautious about given global uncertainties?
A:NatWest is cautious about sectors like agriculture and hospitality, which are sensitive to energy and input costs. However, businesses have shown adaptability and resilience due to past challenges.
Q:What is the outlook for deposit margins and income beyond this year?
A:Deposit margins are expected to expand in coming quarters. Income growth is anticipated through 2026-2028, supported by lending, deposits, AUMA growth, and a higher-for-longer interest rate environment.
Q:What is the status of the Evelyn Partners acquisition and its expected impact?
A:The acquisition is progressing well, with expected revenue and costs of GBP 300 million each in the first year. Evelyn will enhance NatWest's investment capabilities and support AUMA growth.
Q:How does NatWest view its risk appetite and balance between low-risk and growth opportunities?
A:NatWest maintains a low-risk business model with high capital generation and sector-leading RoTEs. While it has broadened its addressable markets, it prioritizes a diversified, low-risk approach to sustain strong returns.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether the income guidance is conservative relative to consensus expectations, providing general confidence in the guidance without explicitly commenting on the gap with consensus.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI software
Banking saving
Banking share
CFO Murray
East uncertainty
England stress
GBP Lending
GBP client
GBP customer
GBP leverage
GBP outlook
GBP people
Institutional decrease
Middle East
Murray presentation
Private Banking
Retail Private
Rightmove Private
UK start
Wealth acquisition
acquisition addition
agent hour
approval Commercial
arrears light
assumption credit
business progress
capacity capital
capital environment
confidence knowledge
conflict Middle
corporates level
credit rate
development
engineer
income ratio
start ups
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