“On our new forecasts, total capital return for 2022-23 is equivalent to a 13-14% yield,” Deutsche Bank said
() () shares remain merely a ‘hold’ for (), which is concerned about margin pressure.
The state-owned lender recently issued second-quarter results that showed net interest income rose 4% year-on-year (yoy) but with net interest margin (NIM) – essentially a measure of how much it is making lending out deposited money – down by three basis points (100 basis points equals a full percentage point).
“Natwest reports more mortgage margin compression than other UK banks, with application margins lower than back book margins. We expect continued growth in mortgages at lower margins to continue to pressure NIM going forward into H2 2021, but net interest income growth to pick up more substantially in 2022 (+8%yoy),” () said.
In common with many other banks, NatWest released money set aside for bad debts as the fall-out from the pandemic has not been as bad as feared.
Deutsche is forecasting a £400mln net release for the whole of 2021.
“Natwest still sits on an £800mln post model adjustment for economic uncertainty and asset quality trends remain stable. We expect impairments will remain below normalised levels through 2022 going forward,” the German bank said.
The bank’s legion of small private shareholders will likely have been pleased with the £750mln share buyback programme announced by NatWest and improved capital distribution guidance.
“It is now a minimum of £1bn from 2021-23, plus general buybacks, and maintain the capacity to participate in directed buybacks,” Deutsche said.
“On our new forecasts, total capital return for 2022-23 is equivalent to a 13-14% yield,” it noted.
() has increased its target price to 230p from 210p.