“That interest rate rise is definitely a positive tailwind to our income performance. […] on the liability side, as rates rise leading to higher interest rates, we will look to pass on more.”
That was NatWest Group PLC
chief executive Alison Rose on Tuesday at the Bank of America Financials Conference, where she discussed passing on interest rate rises to depositors to “get a balanced return.”
During the talk, Rose was asked about how she anticipates both sides of NatWest’s
balance sheet to fare with rising interest rates in the next year.
“I think with higher interest rate rises, what we’re seeing is an ability to manage that both sides of the balance sheet,” she began.
On the asset side, Rose said the mortgage market is “behaving in a very sensible way” so the bank has been able to put price increases through.
She also discussed what the bank has been doing on the liability side. “We didn’t pass any interest rate rises through on the first couple of rises. We have passed more through and what I’ve said is as rates rise leading to higher interest rates, we will look to pass on more,” she added.
“Around August, we were saying we passed on around 15% cumulatively of the interest rate rises, slightly higher on retail, lower on commercial.”
The current Bank of England bank rate in the U.K is 1.75%, as voted by the monetary policy committee in August.
NatWest recorded over £2 billion ($2.2 billion) in net interest income in the first 3 months of this year. As of Jul. 26 2022, the group reported £482.9 million in customer deposits in Q1 and estimates a drop to £480.9 million for Q2.
The bank’s net interest margin increased from 2.31% in 2021 to 2.46% in Q1 2022 and it estimates a jump to 2.61% for the full year.
Elsewhere in the conversation, Rose was asked if the bank’s strategy has changed at all since the inflationary environment became more volatile.
“We are clearly facing the same inflationary environment as everyone else,” she explained, adding that the bank has increased pay for its staff to mitigate inflation.
“We put through the highest pay rewards that we’ve done in five years in our normal pay rounds in April.”
For customers, she maintained that the bank hasn’t changed its strategy, and is continuing to do financial outreach to help people save money.
“A lot of households and businesses haven’t had to operate in an inflationary environment. So for consumers, our strategy around helping them save more, helping them manage their budget, building economic resilience are really important conversations that we’re having,” she said.
NatWest shares were down 0.3% down on Tuesday in London.