Predictions suggest that Natwest will surpass its sector with a prosperous year, according to analysts' forecasts
Natwest's Breakout Quarter
Savvy analysts from RBC have given Natwest a thumbs-up, slapping a "Sector Outperform" rating on the lender after its impressive first-quarter results. The bank's resilience, in the face of waning interest rates, caught the analysts' eyes, and they've made some exciting upgrades.
Full-year profit before tax estimates have been pumped up by three percent to a whopping £7.1bn, compared to the previous estimate of £6.2bn for 2024. The stock's target price is on the rise, too, climbing from 465p to 475p. The analysts reckon the boost came from net interest income (NII), which stayed steady in the first quarter despite the interest rate drop.
Natwest pocketed £3bn in NII, matching the figure from the final quarter of 2024. The bank's net interest margin, a crucial measure of profitability, expanded eight basis points from the end of 2024 to 2.27 percent. This burst of financial prowess comes as the Bank of England mulls over whether to hold or cut interest rates again on May 8 after lowering them from a post-financial crisis peak of 5.25 percent to 4.5 percent.
The upgrade isn't all good news though; while retail banking contributed to the positivity, the Commercial and Institutional division provided a partial offset. The bank's net loans increased an impressive £3.4bn in the quarter, thanks to a surge in retail banking mortgages as customers scrambled to meet the Stamp Duty deadline on March 31.
With the Chancellor, Rachel Reeves, changing zero rate thresholds for main residences—dropping from £250k to £125k, and the first-time homebuyer thresholds from £425k to £300k—it's no surprise that there was increased activity in the mortgage market.
Natwest Set to Rake in Billions for Shareholders
RBC predicts Natwest's 2025 income to hit £16bn, sitting comfortably at the higher end of Natwest's revised guidance of around £15.2bn to £15.7bn. The analysts are excited about the bank's performance so far in 2025 and believe that the bank's structural hedge will give it an extra boost throughout the year.
"Natwest has put in a strong showing in 2025, with its underlying drivers providing additional momentum moving forward," said Benjamin Toms and Pablo de la Torre Cuevas, the equity analysts from RBC. They see significant growth in deposits and a potential softening of ring-fencing regulation as positive catalysts for the bank. However, despite the enthusiasm, the analysts believe that the shares are trading 20 percent more than the bank's tangible assets will be worth in a year, giving them a sense that "there's more upside potential elsewhere amongst our UK banks coverage."
Over the next few years, analysts anticipate £11.2bn worth of shareholder returns for Natwest, with £7.5bn coming from dividends and £3.8bn from buybacks. With the government's stake in the company dropping below two percent and Natwest expected to re-enter full private ownership in the coming weeks, it's clear that things are looking up for this dynamic bank.
- The enhanced performance of Natwest, as predicted by RBC, is expected to result in a significant increase in income, reaching £16bn in 2025.
- The bank's extraordinary earnings come from the steady net interest income (NII) despite the interest rate drop and a surge in retail banking mortgages, partly due to the changes in zero rate thresholds for main residences.
- RBC believes that Natwest's structural hedge will provide an additional boost to its performance throughout 2025.
- Despite the optimistic predictions, RBC analysts believe that the shares are currently trading at a premium, with a value 20 percent more than the bank's tangible assets in a year.
- Over the coming years, analysts anticipate £11.2bn worth of shareholder returns for Natwest, with a substantial portion coming from both dividends and buybacks.
- As the government's stake in Natwest drops below two percent and the bank is expected to re-enter full private ownership in the future, it points towards a promising future for this dynamic banking institution.
