NatWest Group Signals Confident Yet Cautious Outlook

Natwest Group Plc ((NWG)) has held its Q1 earnings call. Read on for the main highlights of the call.

NatWest Group’s latest earnings call struck a confident yet measured tone, as management balanced strong lending, deposit and AUM growth with clear acknowledgement of macro risks and margin pressures. The bank highlighted improved profitability, a tighter cost base and robust capital generation, but also pointed to higher provisions, mortgage headwinds and market volatility as reasons for continued caution.

Strong lending and deposit growth

Customer lending expanded 6.6% year on year to GBP 400bn, with GBP 7.3bn of new lending in Q1 split between GBP 3.3bn of mortgages and GBP 3.8bn in Commercial & Institutional. Customer deposits rose 2.6% to GBP 445bn, giving NatWest additional balance sheet firepower even as competition in deposits intensifies.

Client assets and AUM momentum

Assets under management and administration climbed almost 16.9% year on year to GBP 56.7bn, helped by GBP 0.9bn of net inflows and 23,000 new investors in the quarter. Total client assets and liabilities edged above GBP 900bn, up 5.2%, keeping the group on track for its target of more than 4% annual CAL growth through 2028.

Improving income, profitability and returns

Income increased 6.9% to GBP 4.2bn, underpinning a 15.5% rise in earnings per share to 17.9p and a robust 18.2% return on tangible equity. Tangible net asset value per share rose 15.1% to GBP 4, underscoring improved capital efficiency and enhancing the bank’s capacity to support future distributions.

Cost efficiency and transformation progress

NatWest delivered over GBP 100m of incremental cost savings in the quarter, reducing its cost income ratio by 2.1 percentage points to 46.5%. Total operating costs fell versus the prior quarter despite ongoing investment, signalling that transformation programmes are beginning to pay off in operating leverage.

Capital strength and generation

The Common Equity Tier 1 ratio stood at 14.3%, up 30 basis points since year end, supported by 65bps of capital generation in Q1, mostly from earnings. Management reiterated expectations of around 200bps of capital generation before distributions this year and plans to operate around a 13% CET1 level over time.

Strategic and technology execution

Management reported steady progress on strategic initiatives, with the Evelyn Partners acquisition on track for completion in the second quarter pending approvals. The bank also highlighted technology scale, noting over 12,000 software engineers and that more than 40% of code is now produced by AI, which is materially shortening development cycles and supporting digital growth.

Sustainability financing progress

NatWest provided more than GBP 10bn of climate and transition finance in the quarter, taking the total to GBP 29bn since last July. This keeps the bank on a clear trajectory toward its GBP 200bn target by 2030, reinforcing its positioning as a key financier of the U.K.’s net zero transition.

Upgraded income guidance and stable targets

The bank now expects full year income excluding notable items and Evelyn to land at the top end of the GBP 17.2bn to GBP 17.6bn range. Other financial targets, including around GBP 8.2bn of costs and a loan impairment rate below 25bps for 2026, remain unchanged, signalling confidence in the current trajectory.

Additional provisioning and elevated impairment

Q1 impairment charges reached GBP 283m, or 26bps of loans, including an extra GBP 140m provision linked to updated macroeconomic assumptions. Excluding this scenario charge, underlying impairment was 16bps, while the ECL balance rose to GBP 3.7bn with coverage at 84bps, reflecting a more cautious stance on credit risk.

Revised economic assumptions and slower growth

NatWest’s base case now assumes consumer price inflation peaking at 3.5% in 2026, with the Bank Rate held at 3.75% through the year and GDP growth at just 0.4%. Unemployment is expected to peak modestly higher at 5.7%, prompting more conservative provisioning and tempering expectations for near term economic momentum.

Mortgage margin pressure from COVID roll offs

The bank flagged pressure on mortgage margins as COVID era remortgages roll off, with front book spreads now below the back book. Management expects the mortgage book margin to reprice toward about 60bps over the year, as roughly 30% of the book reprices with blended roll off impacts of around 90bps.

Costs and Evelyn related one offs

Other operating expenses rose 4.8% year on year due to stepped up investment and higher restructuring charges, alongside costs tied to the Evelyn transaction. The deal brings GBP 150m of cost to achieve and ongoing intangible amortisation, creating near term cost lumpiness even as management targets GBP 100m of run rate synergies.

Market volatility and AUMA sensitivity

Assets under administration fell by GBP 1.4bn in the quarter, with negative market moves of GBP 1.7bn dragging balances lower. Management noted that markets rebounded in April, but the episode underscored how sensitive AUMA levels, and associated fee income, are to swings in asset prices.

Geopolitical uncertainty and sector risks

The group acknowledged rising geopolitical risk, particularly from conflict in the Middle East, even though it has not yet seen significant customer stress. Sectors such as agriculture, hospitality and leisure, and supply chains were flagged as potential pressure points, prompting added caution in scenario modelling.

C&I non interest income volatility

Commercial and Institutional non interest income slipped to about GBP 170m in Q1, below the usual GBP 230m to GBP 240m quarterly range. Management attributed the shortfall mainly to sterling rate moves and one off market effects, highlighting inherent volatility in trading and fee based income streams.

Retail deposit seasonality and competition

Retail and Private Banking deposits declined in the quarter as customers withdrew GBP 10.3bn to meet tax liabilities, a seasonal pattern. At the same time, management pointed to intense competition in term deposit pricing across the market, which could pressure deposit margins even as overall balances continue to grow.

Forward looking guidance and outlook

Management reaffirmed 2026 guidance, with income excluding notables and Evelyn expected toward the top of the GBP 17.2bn to GBP 17.6bn range assuming a 3.75% Bank Rate. They maintained cost guidance around GBP 8.2bn, a RoTE target above 17%, an expected loan impairment rate below 25bps and about 200bps of capital generation before distributions while operating around a 13% CET1 ratio.

NatWest’s earnings call painted the picture of a bank that is using its capital strength, technology investment and growing franchise to push returns higher while preparing for a tougher macro backdrop. For investors, the combination of upgraded income guidance, disciplined costs and conservative provisioning suggests a resilient story, albeit one that will be tested by rate paths, mortgage dynamics and geopolitical risks.