By Elena Vardon

NatWest shares fell as much as 4% in Friday morning trading after a conservative revenue outlook overshadowed a first-quarter profit beat on higher interest rates and sustained customer activity.

The U.K. lender reported a 12% rise in pretax profit to 2.03 billion pounds ($2.76 billion) for the first three months of the year, topping a company-compiled consensus of 1.94 billion pounds. Top-line growth outpaced slightly higher costs, pushing total income up 9.5% to 4.36 billion pounds. However, stripping out notable items, core revenue fell short of analyst forecasts.

Net interest income--what the company earns on loans minus what it pays on deposits--improved from a year earlier but slightly missed expectations. Still, NatWest's net interest margin rose to 2.47%, helped by a structural hedge mechanism that locks in higher yields from previous years to mitigate the impact of rate cuts by the Bank of England.

NatWest said it now expects total income excluding notable items for the year to land at the upper end of its 17.2 billion to 17.6 billion-pound guidance range. The upgrade was already factored into expectations as analyst consensus currently pencils in 17.72 billion pounds for the year. Management tends to prefer to set conservative targets and nudge them up as the quarters go by.

The group's revised guidance assumes central banks will now delay further rate cuts this year to tame inflation stemming from the geopolitical fallout from the conflict in the Middle East. But while higher-for-longer rates buoy lending margins, they also squeeze borrowers and dampen economic growth. As such, NatWest bumped up its provisions for bad loans, mirroring prudent steps taken by European peers earlier in the week as the industry braces for potential credit deterioration.

"We have started the year with positive momentum, with growth across all three of our customer businesses underpinned by healthy customer activity," Chief Executive Paul Thwaite told reporters. "The near-term outlook is a bit more subdued given some of that uncertainty," he added.

The bank generated 100 million pounds in extra savings in the quarter as part of its efficiency push, it said. Restructuring, increased investment, and the deployment of artificial intelligence helped it bring down its cost-to-income ratio to 46.5%.

A market-leading cost-to-income ratio gives the bank limited potential for material improvement, Keefe, Bruyette & Woods analysts wrote in a note to clients. "It is clear that [net interest income] generation is getting more challenged over the next 24 months."

To lessen its reliance on traditional lending, NatWest recently agreed to buy wealth manager Evelyn Partners to boost its fee-generating engines. The current financial guidance excludes the impact of the deal, which is set to close this summer.

NatWest, which returned to full private ownership last year after the U.K. government sold off the last of its crisis-era bailout stake, said it remains on track to meet the broader 2026 financial targets it laid out in February.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

May 01, 2026 05:46 ET (09:46 GMT)

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