NatWest Group has reported an 3.4% increase in total income in the latest quarter but analysts described the results as “disappointing” as shareholder net profit drops below expectations.

The banking group’s shareholder net profit currently stands at £866m in the third quarter, after it was predicted to reach £891m earlier this year.

Furthermore, it has recorded a net interest margin of 2.94%, after an expected 3.07% was forecast, leading the group to drop its full year guidance to “greater than 3%”.

However, deposit levels at NatWest are £2.4bn higher in the latest quarter compared to Q2 2023, and sit at £423.5bn, with term balances up from 11% to 15% in the same period.

Net loans have also increased by £1.8bn to £354.5bn during Q3, which includes a £1.3bn uplift in its commercial and institutional division as term loan facilities increased.

Chief executive, Paul Thwaite, said: “Today’s Q3 2023 results show that NatWest is a strong bank which is performing well, generating sustainable profits and returns. This performance is built on the foundations of strong customer franchises and a robust balance sheet with high levels of liquidity and a well-diversified loan book. As a result, credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty.”

However, equity analyst at Hargreaves Lansdown, Matt Britzman, added that the results were “largely disappointing" as the net interest margin dipped below 3%, and the outlook was lowered. Deposit levels did grow, which is a positive sign that NatWest is pricing itself at the right levels to attract customers searching for higher rates. That trend’s plain to see, with longer-term cash balances jumping to 15% of the book – compared to 11% last quarter.

“But it’s less profitable business than non/low-interest current accounts. Add in mortgage headwinds as highly profitable business written over the pandemic rolls off, and that’s caused the hit to net interest margin.”

The results come as the group comes under scrutiny following the Financial Conduct Authority’s (FCA) completion of its phase one investigation into NatWest and Coutts’, which is owned by NatWest, action after it closed the private bank account of Brexiteer, Nigel Farage.

Although the FCA found the closure to be legal, it said that it has set out a number of potential breaches and areas for improvement that the group to make.

As a result, NatWest’s share price has fallen by as much as 18%, the BBC has reported.

Investment director at AJ Bell, Russ Mould, said: “The details of NatWest’s third quarter results may initially have been pushed into the background by admissions of failure over its treatment of Nigel Farage.

“An independent review found shortcomings in decision-making and communication, and it comes at a point where market conditions are becoming less favourable.

“Investors didn’t take long to turn their attention to an equally damaging profit downgrade. Guidance on the net interest margin has been lowered as any benefit from higher interest rates seems to be evaporating.

“While bad debts remain under control for now, the market is clearly wary of a deterioration here as the pressures on households and businesses continue to mount.”

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