NatWest Group ( NYSE: NWG ) ADSs dropped 9.1% in U.S. midday trading Friday after the U.K.-based bank took charges in Q3 for souring loans and warned of higher costs and a deteriorating economy in its outlook.
The weaker economic outlook resulted in an increase in charges, with an additional £127M in Q3, the company said .
Q3 operating profit for continuing operations before taxes, excluding notable items, of £3.43B increased from £3.10B in Q2 and increased from £1.04B in Q3 2021.
For the quarter, NWG took impairment losses of £242M, up from £39M in the prior quarter and from £226M in the year-ago quarter. Its loan impairment rate of 26 basis points rose in Q3 compared with a release rate of 2 bps in Q2 and release of 24 bps in Q3 2021.
The company's bottom line included a £652M loss at Ulster Bank Republic of Ireland operations, classified as discontinued operations, as NWG phases out its operations there. That loss includes a £419M loss associated with the reclassification of UBIDAC mortgages to fair value.
NatWest ( NWG ) expects 2022 income excluding notable items and Ulster Bank ROI operations to be ~£12.8B. Net interest margin should be greater than 2.8% for the year.
For 2023, it still sees return on tangible equity in the range of 14%-16%. But the composition will shift as income will be higher due the increase in interest rates, but costs won't be "broadly stable" because of increased inflationary pressures.
Q3 ROTE, excluding Ulster Bank ROI, was 12.1% vs. 16.5% in Q2 and 8.6% in Q3 2021. Net interest margin was 2.99%, up from 2.72% in the prior quarter and from 2.285 in the year-ago quarter.
"Our loan book is performing well, and while we expect impairments to increase, we remain comfortable with our through the cycle impairment loss rate guidance of 20-30 basis points, including 2023," the company said.
Earlier, NatWest ( NWG ) GAAP EPS of 1.90p, total income of £3.23B.
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NatWest Group stock slumps as bank warns of higher costs, boosts impairment