NatWest said the economic fallout from the conflict in the Middle East could cost it \u00a3140m amid slowing growth and rising inflation even as it reported profits ahead of expectations.<\/p>\n
Overall, the FTSE 100 lender booked a \u00a3283m impairment charge and said that almost half of that was because of a reassessment of its economic forecast to \u201creflect increased geopolitical risk and weaker equity markets\u201d.<\/p>\n
The bank said it expects its base case for UK gross domestic product growth to be only 0.4% this year, half that forecast by the International Monetary Fund earlier this month.<\/p>\n
NatWest reported a 12% year-on-year increase in operating profits to \u00a32bn in the first three months of the year, up from \u00a31.8bn in the same period last year. The consensus among analysts was for an average of \u00a31.9bn.<\/p>\n
But its shares fell as much as 4.2% in early trading on the hit from the Iran war and gloomier forecasts.<\/p>\n
NatWest\u2019s economic forecasts include a rise in the rate of unemployment in the UK to 5.5% this year. Last week the Office for National Statistics put the rate of unemployment at 4.9% in February but said it expected that to climb because of the conflict.<\/p>\n
The bank said the impact of the Iran war will lead to inflation hitting 3.5% in its base case scenario.<\/p>\n
Paul Thwaite, NatWest chief executive, said that its base case scenario did not mean that the UK economy was heading for stagflation \u2013 the double hit of rising inflation at the same time as slower economic growth.<\/p>\n
\u201cThe events of the last six weeks or so have made the environment more uncertain for customers and businesses,\u201d he said.<\/p>\n
\u201cBut we are seeing a lot of resilience. Customer activity has been good, leverage for corporations is relatively low and household savings are high. But there is definitely a sentiment and confidence issue. The big question is how long the conflict lasts; a lot depends on the duration of the energy shock and the supply issues.\u201d<\/p>\n
He said that its base case forecasts assumed the conflict \u201cunwinds during the course of this year\u201d.<\/p>\n
NatWest said the first quarter saw 23,000 new customers investing, compared with 50,000 across the whole of last year, while customer deposits grew by \u00a33.1bn to \u00a3444.8bn.<\/p>\n
The bank said gross lending rose \u00a37.3bn in the first quarter, up 1.9% to \u00a3400bn, including \u00a34bn to first time buyers \u2013 with a target of \u00a310bn this year.<\/p>\n
\u201cHouseholds and businesses are being more pro-active than ever in making adjustments,\u201d he said. \u201cThe mortgage market has been strong in the first quarter. There was a lot of acceleration of remortgage activity in March.\u201d<\/p>\n
On Thursday, the average two-year fixed mortgage hit 5.79%, compared with 4.83% at the start of March, according to MoneyFacts.<\/p>\n
NatWest believes the Bank of England will not move to increase the base interest rate, which stands at 3.75%, this year, and that it will be maintained at this level until at least 2030.<\/p>\n
The market is factoring in at least two rate rises by the monetary policy committee by the end of this year.<\/p>\n
Earlier this week, Lloyds Banking Group, which booked a \u00a3151m charge because of the changing economic conditions<\/a>, forecast GDP growth of 0.5% this year as its base case.<\/p>\n On Thursday the Bank of England voted to leave the rate at 3.75%<\/a> but warned of increases later this year, saying \u201chigher inflation is unavoidable\u201d as a result of the war in the Middle East.<\/p>\n NatWest also said that while it expects house prices to rise by an average of 0.7% this year, it forecasts a 1.8% contraction next year and a 0.5% fall in 2028.<\/p>\n The banking industry has benefited from the turbulence in markets because of the Middle East conflict, with NatWest saying that it expects income for the year to be near the top of previous guidance of \u00a317.2bn to \u00a317.6bn.<\/p>\n In February, NatWest struck a \u00a32.7bn deal to buy Evelyn Partners<\/a>, one of the UK\u2019s biggest wealth managers, the bank\u2019s biggest acquisition since it was bailed out by taxpayers in 2008.<\/p>\n The bank, which returned to full private ownership last year, already owns the private bank Coutts.<\/p>\n On Friday, Santander said that it had completed its multi-billion pound cash deal <\/a>to buy TSB.<\/p>\n Last year, the Spanish bank struck a \u00a32.65bn deal to buy the British high-street lender.<\/p>\n However, Santander said it has now paid \u00a32.86bn based on the change in the value of assets at TSB between when the deal was struck and its completion on Thursday.<\/p>\n