NatWest will cumulatively pass on more interest rate hikes to depositors, says CEO

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“This rise in interest rates is certainly a positive tailwind for our earnings performance. […] on the liability side, as rates rise, leading to higher interest rates, we will look to pass on more.

It was NatWest Group PLC NWG,
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Chief Executive Alison Rose at the Bank of America Financials Conference on Tuesday, where she discussed the impact of interest rate hikes on depositors to “achieve a balanced return.”

During the conversation, Rose was asked how she anticipates the two sides of NatWest’s NWG,
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balance sheet to cope with rising interest rates next year.

“I think with higher interest rate increases, what we’re seeing is an ability to manage both sides of the balance sheet,” she began.

On the asset side, Rose said the mortgage market is “behaving very sensibly,” so the bank has been able to push through price increases.

She also discussed what the bank has done on the liability side. “We did not pass on the interest rate increases during the first two hikes. We’ve pushed through more and what I’ve said is that as rates go up leading to higher interest rates, we’ll be looking to push through more,” she added.

“Around August, we were saying that we had passed through about 15% cumulatively in interest rate increases, slightly higher on retail, lower on commercial.”

The Bank of England‘s current bank rate in the UK 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 July 26, 2022, the group reported £482.9 million in customer deposits in the first quarter and estimates a decline to £480.9 million for the second quarter.

The bank’s net interest margin fell from 2.31% in 2021 to 2.46% in the first quarter of 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 had changed at all since the inflationary environment became more volatile.

“We are clearly facing the same inflationary environment as everyone else,” she said, adding that the bank has raised staff salaries to dampen inflation.

“We offered the highest pay rewards we’ve made in five years during our normal pay rounds in April.”

For customers, she maintained that the bank had not changed its strategy and continued to do financial awareness to help people save money.

“Many households and businesses have not had to operate in an inflationary environment. So for consumers, our strategy to help them save more, manage their budget, and build economic resilience are really important conversations we’re having,” she said.

Shares of NatWest fell 0.3% on Tuesday in London.

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