The NatWest share price is trending lower and it has been in a downtrend since early June, last week it dropped to an eight week low. The economic outlook for the UK is getting worse as there are worries the economy will cool, and such an outcome would most likely weigh on NatWest as it is heavily exposed to the British economy, especially the property market. Even though things are looking downbeat for Britain, the speculation about a possible recession has faded a little as the economy expanded by 0.5% in May, bucking the trend of contacting by 0.2% in April and shrinking by 0.1% in March. Even if the UK manages to dodge a recession, it seems the level of growth will be low.
Despite the cooling economy, the Bank of England have hiked interest rates five times since December. Rate hikes are a doubled edged sword for NatWest, as a higher interest rate environment should improve their lending profitability, but the BoE’s actions will put the brakes on the economy which will work against the bank. Last week we saw US banks like JPMorgan ramp up their provisions for bad debts and we could see something similar from NatWest.
In April, NatWest posted solid first quarter numbers, but the gloomy outlook weighed on the stock. Operating profit before tax surged by 40% on the year to £1.24 billion which smashed the £755 million forecast. The rate hikes by the BoE are clearly paying off as the net interest margin was 2.46%, up from 2.32% one year ago. Loan impairments dropped by 90% to one basis point. There was also a substantial improvement in the cost to income ratio as it fell from 69.2% to 59.7%, this speaks to belt tightening. As far a funding goes, the bank is well financed as the common equity tier ratio is a healthy 15.2%, but it did fall from 18.2%. The numbers were strong but the warning about an ”uncertain” economic outlook hit the NatWest share price.
The UK government has now reduced its stake in the bank to 48%, so the taxpayer is no longer a majority shareholder in the group. It projects an air of confidence that the stake is being reduced as it is a sign the bank can start to stand on its own feet once again. The various rounds of cash injections from the government brought the taxpayers stake to 84%, so it is positive the position has been cut to less than 50%, but on the other hand, it could easily be another decade before the government reduces its position to zero.
The NatWest share price has been pushing higher in the past week and while it holds above 200p, the uptrend should continue, resistance might be found at 233p or 249p. The MACD indicator shows that positive momentum is fading, suggesting the bulls are running out of steam. A break below 200p could bring 189p into play.
NatWest will announce its first half report on 29 July.