British bank NatWest (NWG.L) reported a 20 billion pound deposit drop in the first quarter despite a fiercely competitive environment and a cautious outlook pointing to future problems, dulling forecast-beating earnings.
Higher central bank interest rates that enhance lending returns prompted clients to shop around and drove banks to raise savings product rates, causing NatWest’s income to rise 37% but fall short of analysts’ expectations.
Despite a profit increase, the bank’s shares plummeted 6% in early trade as investors digested a third consecutive quarter of lower deposits. In addition, analysts noted the lack of a year-end performance projection revision.
NatWest reported first-quarter pretax earnings of 1.8 billion pounds ($2.25 billion), up from 1.2 billion a year earlier and above market projections of 1.6 billion.
Like Barclays, which reported Thursday rising interest rates boosted revenue.
NatWest blamed a 19.8 billion pound deposit decline on fiercer price competition, greater customer tax payments, and abandoning its Ulster operation in Ireland.
NatWest said clients sought higher rates with term deposit products or competing banks, reducing personal current account balances by 2.6 billion pounds and personal savings by 1.8 billion pounds in the first quarter.
After Silicon Valley Bank’s rapid collapse caused global banking jitters and showed how quickly customers can move money online, bank deposit levels were scrutinized.
This week, NatWest chair Howard Davies, who will leave the bank by mid-year, blamed “poor risk management” for recent bank failures and said NatWest is resilient.
British inflation, which squeezes household budgets and raises the chance of borrowers defaulting, worries bank investors.
State-backed NatWest put aside 70 million pounds to cover future loan defaults, compared to a minor release of cash reserves the year before. However, loan arrears remained low, and the charge was below the 144 million pounds posted in the previous quarter.
“By monitoring customer behaviour and looking closely for signs of financial distress we are able to put in place proactive measures to help those who are struggling right now,” Chief Executive Alison Rose said.
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