View from City Road: NatWest finds lucrative loans hard to come by

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Culling your customers is a new phrase for the dictionaries, courtesy of National Westminster. No, it does not mean taking pot shots with a hunting rifle, but ending relationships with large borrowers whose business is unprofitable.

Competition to lend is driving big corporate loan margins to ridiculous levels. Customers without a broader relationship in which they use other more profitable banking services are politely discouraged.

NatWest Markets, where these big customers are serviced, is the tortoise that quietly became a hare. It has now developed a broad enough spread of services to take that robust line. A few years ago it would have been shown laughingly to the door.

The cautious dividend increase of only 6 per cent is an easily explicable result of five years in which NatWest's total retained earnings add up to minus pounds 47m. At least another year of rebuilding capital will be needed for rises to reach Lloyds' stratospheric 20 per cent.

The real problem is not dividends but profitable lending. Last year lending shrunk pounds 6bn, and the half that was not from accounting changes explains part of the dullness of trading profits before bad debts.

Fears a year ago that NatWest would be held back by a shortage of capital now look silly.

Richard Goeltz, the finance director, calculates NatWest could lend another pounds 7bn, or nearly 7 per cent, without falling below its self- imposed floor of a 5.4 per cent ratio of capital to risk-weighted assets. The pounds 7bn is a risk-adjusted figure. If it were all mortgages, for example, it would allow pounds 14bn of loans since they have such a low risk weighting.

Clearing banks have more ways of saving capital than shareholders ever suspected when they had rights issues dumped on them in the 1980s. But banks cannot do much to make customers borrow. Those peak share price levels last year were hard to justify.