NatWest; Asset Quality Trends Positive For Credit, BARC & LLOY.

NatWest (NWG LN) reported 4Q23 results which showed good asset quality, a pre-tax profit beat and, for equity holders, a share buyback on-market. In credit terms, these results are solid and a positive indicator for Barclays and Lloyds, which both report next week.

• Revenues were 5% lower y/y but, with the reduction in rate tailwinds well known, revenues were 4% ahead of consensus. NIM was 2bp better than expected. Expenses missed expectations by 3% (+1% y/y) but loan losses were around half the expected level and 13% lower than 4Q22. Pre-tax was around 20% better than consensus and a tax write-back meant net income was much higher.
• In credit terms, loan losses were just 13bp (from 24bp in 3Q23) and non-performers are 1.41% of gross loans (flat on Sep-23). CET1 ratio was down 10bp on Sep-23 and 10bp below consensus (at 13.4%) and total capital 30bp lower (at 18.4%). So broadly neutral on capital but that asset quality news is good.
• Outlook from mgmt appears relatively positive. Revenue guidance is slightly below current consensus (GBP13.0-13.5bn vs. 13.77bn) but with loan losses <20bp, mgmt sees a RoTE of c.12%, marginally better than current consensus.