Despite lower second-quarter profitability and economic “uncertainty,” the bank will distribute dividends to stockholders.

Despite a decline in the bank’s second-quarter profitability and “uncertainty” over the UK’s economic outlook, the UK government is still set to receive £1 billion from its nearly 50% ownership in NatWest Group.

Following “excellent growth” in lending and deposits across the board, NatWest announced on Friday that it was prepared to distribute dividends worth 20.3p per share. This was made possible in part by rising interest rates, which allowed it to charge borrowers more for loans and mortgages.

The Treasury, which still holds 48% of the bank’s shares following its £46 billion state rescue at the height of the 2008 financial crisis, will get nearly half of the dividends, or around £1 billion.

Additionally, the bank increased its bonus pool by 37% to £195 million. This sum is expected to rise even further before bankers are paid in the spring.

However, the chief executive, Alison Rose, claimed some of the bank’s most vulnerable customers were struggling with a 9.4% increase in inflation. Shareholders and bankers are expected to get rewards.

People with the lowest incomes were falling into fuel poverty, which is defined as spending more than 10% of their income on energy bills, while the majority of consumers were having to spend about 20–30% more on “essential things” including utilities and petrol.

Since nine out of ten clients were on fixed rates, Rose said that it was not leading to defaults on loans or mortgages, which have been impacted by interest rate increases intended to contain inflation. She claimed that the bank was “not immediately observing any signals of trouble.”

“What we’re witnessing is a pressure on disposable income,” she continued. No credit event is present. People are managing lower disposable income and many obstacles, which could result in weaker growth.

Executives are aware that “the most severe difficulties are still to come,” according to Rose.

But there was no increase in provisions related to prospective defaults as a result of the prognosis. Instead, the bank disbursed £18 million that had been set aside initially to cover possible defaults. That was in spite of “uncertainty” surrounding economic projections, such as the trajectory of inflation. According to consensus projections, the lender was expected to set aside £145 million for impairment costs.

According to updated projections, the bank’s estimates for the UK economy have been lowered from its earlier projections of 1.7 percent growth to an average annual growth rate of 1.1 percent over the next five years. This includes estimates for growth of 3.5 percent this year and 0.8 percent in 2023.

In addition, the key scenario forecasts that unemployment will rise to pre-pandemic levels and that inflation would eventually fall in the second half of 2019. As the Bank of England works to contain increasing prices, NatWest also stated that it anticipates a further increase in interest rates to 2 percent as well as a “gradual cooling” of the property market.

NatWest reported a drop in profits between April and June, which decreased 5% to £1.4bn, down from £1.5bn a year earlier, despite the bank reporting a 13 percent growth in profits for the first half of the year, in part due to a good performance in the first quarter. Nevertheless, that was higher than the consensus expectation of £940m from experts.

The financial impact of Ulster Bank in Ireland, which is in the process of selling its loan books while NatWest closes down the company, is not included in the figures.

Source Content :

https://www.theguardian.com/business/2022/jul/29/uk-government-payout-natwest-group-profits

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