NatWest Group Q1 2025 profit surges 36% to £1.34bn as net interest margin expands and RoTE hits 18.5%

NatWest Group plc reported a 36 percent year-on-year surge in Q1 2025 pre-tax profit, reaching £1.81 billion, as rising net interest margins, tighter cost control, and resilient credit quality helped the British lender outperform expectations. With total income rising 14.5 percent to £3.98 billion and a strong return on tangible equity (RoTE) of 18.5 percent, the group reinforced its strategic pivot toward operational efficiency, core-market lending, and disciplined capital distribution amid shifting global banking dynamics.

This performance arrives during a period of heightened macroeconomic uncertainty for UK and European financial institutions. Many peers have issued cautious guidance for 2025 in response to elevated inflation, potential rate cuts, and subdued mortgage lending demand. In contrast, NatWest’s ability to expand margin, grow deposit volumes, and maintain a robust capital buffer has positioned it as one of the more insulated large-cap banks in the British financial sector.

What Drove NatWest’s Strong Q1 2025 Financial Performance?

NatWest’s total income rose to £3.98 billion in the March quarter, up from £3.48 billion a year earlier. The increase was primarily led by net interest income, which climbed 14.1 percent to £3.03 billion. This was supported by effective repricing of deposit products, lending mix optimisation, and higher interest rates. As a result, the group-wide net interest margin improved to 2.27 percent, compared to 2.05 percent in Q1 2024 and 2.19 percent in the previous quarter.

Non-interest income also contributed positively, rising 15.8 percent year-on-year to £954 million. This growth was attributed to improved trading and underwriting income within the Commercial & Institutional Banking segment, along with healthy fee-based activity in Retail and Private Banking.

Operating expenses, excluding litigation and conduct items, fell to £1.94 billion from £2.03 billion in the prior quarter. The cost reduction was attributed to lower transformation costs, seasonal absence of the Q4 bank levy, and ongoing efforts to streamline workforce and real estate overheads. The cost-to-income ratio improved to 48.6 percent from 58.4 percent a year earlier, reflecting improved operating leverage.

The bank’s RoTE of 18.5 percent significantly exceeded its guided full-year range of 15 to 16 percent, while diluted earnings per share rose to 14.7 pence from 10.3 pence in the prior-year quarter.

Which Segments Drove NatWest’s Profit Growth in Q1?

Retail Banking delivered £750 million in operating profit, up 18 percent year-on-year. The division’s income grew to £1.54 billion, supported by an 11 basis point improvement in net interest margin to 2.58 percent. Net loans rose by £2 billion to £196.4 billion, primarily due to higher mortgage balances ahead of the 1 April Stamp Duty Land Tax changes. The return on equity in Retail reached a strong 24.5 percent.

Private Banking contributed £77 million in operating profit, on total income of £265 million. The business maintained a healthy return on equity of 17.1 percent and reported stable growth in client lending. Assets under management and administration remained broadly steady, and income from these portfolios came in at £72 million.

Commercial & Institutional Banking posted £1.02 billion in operating profit, up from £742 million in the first quarter of 2024. Total income from the segment grew to £2.17 billion, supported by elevated client trading volumes, advisory revenue, and improved corporate finance deal activity. The return on equity in this segment improved to 19.3 percent from 14.6 percent a year earlier.

Total net loans to customers increased by £3.4 billion in Q1 to £371.9 billion, while customer deposits grew by £2.1 billion to £433.4 billion, with broad-based increases across Commercial, Institutional, and Retail Banking clients.

How Has NatWest Managed Credit Risk and Impairments?

The group reported net impairment losses of £189 million, which equates to 19 basis points of gross customer loans and remains in line with its guidance to keep impairment costs below 20 basis points for the full year. Loan quality across key portfolios remained stable despite persistent inflation and slower GDP growth.

In anticipation of further volatility, NatWest booked £333 million in post-model adjustments related to geopolitical uncertainty and potential economic shocks. However, actual levels of defaults and delinquency remained contained, and exposure to high-risk commercial real estate and unsecured consumer lending segments was closely managed within board-approved risk limits.

Capital and Liquidity: How Strong Is NatWest’s Balance Sheet?

NatWest ended the first quarter with a Common Equity Tier 1 (CET1) capital ratio of 13.8 percent, up from 13.6 percent at the end of 2024. This provided the group with a substantial buffer of 330 basis points over its regulatory minimum of 10.5 percent.

The Tier 1 capital ratio increased to 17.0 percent and the total capital ratio improved to 20.6 percent. Liquidity Coverage Ratio (LCR) remained strong at 150 percent, backed by a liquidity portfolio of £222.1 billion. The Net Stable Funding Ratio (NSFR) stood at 136 percent, ensuring a healthy long-term funding structure.

Risk-weighted assets rose by £3.8 billion in the quarter to £187 billion, largely driven by loan growth and a £2.2 billion increase due to operational risk recalibrations. Despite this, the bank’s capital metrics remained comfortably within target ranges.

What Does Investor Sentiment Indicate for NatWest’s Stock?

Shares of NatWest Group rose by over 2 percent following the release of Q1 earnings, with the stock gaining more than 22 percent since the start of the year. At approximately 486.5 pence, the stock is approaching the UK government’s 502 pence bailout breakeven level, signaling a potential end to the state’s residual ownership.

Buy-side institutions responded positively to the strong margin and profitability metrics. UK pension funds and mutual funds showed net accumulation, while Foreign Institutional Investors maintained a stable exposure level. Domestic Institutional Investors also recorded modest net inflows into NatWest shares, reflecting a broader rotation into dividend-yielding bank stocks.

With a trailing dividend yield of 4.26 percent and capital return visibility supported by the bank’s robust CET1 ratio, the stock remains an attractive holding for income-oriented investors. Analyst consensus currently leans towards a “Buy” or “Outperform” rating, with a 12-month average price target of around 520 pence.

What Is the Strategic Outlook for FY25 and Beyond?

NatWest has reiterated its full-year 2025 guidance, targeting group income of between £15.2 billion and £15.7 billion, excluding one-off items. Operating costs are projected to remain around £8.1 billion. The bank expects its RoTE to remain within the 15 to 16 percent range and aims to maintain its CET1 capital ratio between 13 and 14 percent through 2025.

Loan impairment costs are forecasted to remain under 20 basis points, while risk-weighted assets are expected to close the year between £190 billion and £195 billion. NatWest plans to continue distributing approximately 50 percent of attributable profits to shareholders as ordinary dividends, with additional share buybacks being considered depending on capital position and regulatory developments.

The bank has also announced that it has achieved its £100 billion sustainable financing target ahead of schedule, having deployed £7.8 billion in climate and green finance initiatives in Q1 alone. Going forward, NatWest plans to accelerate its ESG-led product offerings and digital lending platforms to support climate transition financing.

The UK Treasury’s stake in NatWest has now fallen below 2 percent, moving the group closer to full privatisation. This shift is expected to enhance strategic flexibility and could pave the way for a more active approach to capital allocation, organic expansion, and customer acquisition in core UK markets.

Is NatWest Well Positioned for Sustainable Growth?

NatWest Group’s Q1 2025 results offer clear evidence of its strategic and operational resilience. The combination of strong net interest margin, improved cost-to-income ratio, robust capital adequacy, and stable credit quality has allowed the bank to outperform expectations and maintain positive momentum despite broader industry challenges.

All three core banking divisions contributed meaningfully to group profitability, while the 18.5 percent RoTE and growing institutional investor support reflect growing market confidence in the group’s leadership under Chief Executive Paul Thwaite. As interest rate conditions evolve, NatWest’s conservative provisioning, solid liquidity profile, and dividend consistency offer a credible value proposition for long-term investors.

With privatisation nearly complete and green financing targets met ahead of schedule, the group appears well-positioned to navigate sector headwinds while capitalising on domestic market growth opportunities.