NatWest steps up interim payout to delight of City: Wanless warns of margin damage if rates fall by 2%

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The Independent Online
NATIONAL Westminster Bank pleased the City with six-month results at the top end of expectations and a surprise increased dividend, the first for three years, even though ordinary UK branch business remained flat.

Pre-tax profits for the six months to June nearly doubled to pounds 421m from pounds 211m in 1992. Provisions for bad debts fell by nearly a quarter, also more than expected, but this failed to feed fully into profits because of pounds 159m provisions against the closure and sale of retail banking operations in France and Australia.

Lord Alexander, chairman, also said that the UK branch network was being hit hard by the lack of customer demand for lending, and the impact of falling interest rates on the bank's margins.

The bank had struggled to slow the erosion of its margins under the impact of successive rate cuts, but another big cut could be serious, he said. The net interest margin for the group as a whole fell from 3.2 per cent a year ago to 3 per cent in December and 2.8 per cent now. Derek Wanless, chief executive, said that a further 1 per cent cut in UK interest rates would be broadly neutral for the group, but that a 2 per cent cut would be 'uniformly bad' for it.

Natwest's shares rose 13p to 510p as the market digested the increased dividend, up 4.5 per cent to 6.4p, and the buoyant figures from Natwest Markets. Although Mr Wanless fought shy of the accusation that NatWest Markets' foreign exchange dealers had done well out of the recent European exchange rate turmoil, he admitted that volatility was good for the subsidiary. NatWest Markets' contribution in the half-year to June was up 79 per cent on the same half in 1992 at pounds 253m.

'Clearly in times of currency volatility volumes are higher, which is obviously better from our point of view,' Mr Wanless said.

The once-troubled Natwest Bancorp operations in the US and other international business also forged ahead. Analysts fretted that too much profit growth was coming from outside the bank's domestic base. Provisions for bad debts in UK branch banking fell significantly to pounds 442m from pounds 609m but net interest income fell compared with the first half of 1992 as a result of continuing weak loan demand. UK branch pre-tax profits were pounds 69m ( pounds 74m loss).

UK bad debts came down for the hard-pressed property and construction sector as well as other areas. Mr Wanless said that NatWest had no big companies in its intensive care ward, but that its huge small business customer base was still under intense pressure. The UK recovery was still 'patchy', and with the continuing ERM turbulence it was impossible to say what would happen.

Mr Wanless said that although group staff numbers fell by 2,600 in the half-year, it was taking on people in the NatWest Life subsidiary launched in January. He said plans for the life division were 'pretty ambitious'. The new operation contributed profits of pounds 21m and made 60,000 policy proposals - the same number of proposals as Abbey National Life, launched a month later.

NatWest's mortgage operations enjoyed profits of pounds 59m, nearly triple the figure in the first half of 1992, as the bank piled on pounds 1bn of new mortgage business over the last 12 months.

View from City Road, page 24

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