NatWest lifts guidance and dividend after strong first half

NatWest Group PLC reported robust first-half 2025 results, with attributable profit rising 28% to £2.5 billion and return on tangible equity reaching 18.1%, prompting the bank to raise its full-year profit expectations. Driven by growth in lending, deposits, and customer acquisition, including the Sainsbury's Bank acquisition, NatWest increased its interim dividend by 58% to 9.5p per share and announced a new £750 million share buyback. Strategic investments in technology and AI contributed to an improved cost-to-income ratio, with the bank now forecasting a full-year return on tangible equity exceeding 16.5% and targeting ordinary dividends of around 50% of attributable profit from 2025.

Analysis

NatWest Group PLC has demonstrated significant operational and financial momentum in its first-half 2025 results, leading to an upgraded full-year outlook and enhanced capital returns. The bank reported a 28% year-over-year increase in attributable profit to £2.5 billion, driving a return on tangible equity to a strong 18.1%. This performance was underpinned by broad-based growth, including a £11.6 billion rise in net loans and a £4.5 billion increase in customer deposits, supported by the acquisition of Sainsbury’s Bank which contributed to the addition of 1.1 million new customers. Operational efficiency has notably improved, with the cost-to-income ratio decreasing to 48.8% from 55.5%, a result the bank attributes to its strategic investments in technology and AI through partnerships with firms like OpenAI and Amazon Web Services. Reflecting this confidence, NatWest raised its interim dividend by 58% to 9.5p and announced a £750 million share buyback. The bank's financial strength remains robust, with a Common Equity Tier 1 ratio of 13.6%, comfortably within its target range. The upgraded 2025 guidance, now forecasting a return on tangible equity above 16.5% and income over £16 billion, signals management's confidence in sustaining this performance, further bolstered by the milestone of returning to full private ownership.

Key Decisions for Investors

• The strong earnings beat, combined with a significant dividend increase and a new share buyback program, provides a strong bullish signal, validating the bank's strategic execution and improved profitability.
• Investors should monitor the bank's ability to maintain its low loan impairment rate, targeted below 20 basis points, as this is a key assumption for achieving the upgraded full-year guidance.
• The improved cost-to-income ratio driven by technology integration is a key positive, but it is prudent to track the successful execution of these simplification efforts and containment of the £100 million in one-time integration costs.
• With a stated policy of returning 50% of attributable profit via dividends from 2025 and potential for further buybacks, investors should evaluate the sustainability of the bank's long-term target of a 15% return on tangible equity to assess future capital return capacity.