NatWest share price has done well this year, making it one of the best performers in the FTSE 100 index. It has risen by over 50%, beating the likes of Lloyds (LON:LLOY), HSBC (LON:HSBA), and Barclays (LON:BARC).
Lloyds Bank earnings
NatWest, the parent company of the Royal Bank of Scotland (LON:NWG), Coutts, and Ulster Bank, stock will be in the spotlight on Friday as it publishes its quarterly financial results.
These numbers will come a day after Lloyds Bank published mixed results and a week before the Bank of England (BoE) delivers its interest rate decision.
In its statement, Lloyds said that its statutory profit after tax rose to £2.4 billion as its net income fell by 9%. Its return on tangible equity (RoTE) fell to 13.5%. RoTE is an important number that looks at the profits that a company makes for investors using just its tangible assets.
The company’s financials also showed that loans and advances to consumers rose to £452 billion while customer deposits came in at £474 billion. These are important numbers because Lloyds Bank is the biggest retail bank in the UK.
Other notable metrics were that its CET1 ratio rose to 14.1%, higher than its target of 13%. As a result, the company decided to increase its dividend by 15%. This trend will likely continue as Lloyds works to reduce its CET1 ratio to 13.5% by the end of the year and 13% by 2025.
Like other European banks, Lloyds has over the years allocated cash into reserves following the Global Financial Crisis (GFC). Now, most of them are reducing these reserves to align with their international peers.
NatWest earnings ahead
The NatWest share price will now be in the spotlight as the company publishes its financial results on Friday.
The consensus among analysts is that its second-quarter total income fell from £3.4 billion to £3.40 billion in the second quarter. The closely watched net interest income (NII) is expected to come in at £2.61 billion from £2.615 billion in the first quarter, meaning that the impact of the Bank of England rate hikes have faded.
Analysts also expect that the company’s profit for the period will come in at £904 million. Net loans to customers is expected to be £360 billion, higher than the previous quarter’s £378 billion.
Altogether, analysts believe that this year will be weaker than in 2023 when the bank benefited from high rates. In this regard, the view is that the company’s revenue will drop from £14.7 billion in 2023 to £13.8 billion.
Unlike Lloyds, NatWest does not have a lot of room to reduce its capital reserves since its CET1 ratio figure is expected to come in at 13.1%.
Bank of England decision
The next important catalyst for the NatWest share price will come on Thursday next week when the Bank of England will publish its interest rate decision.
This decision will come at a time when the UK economy is doing well. A report by S&P Global on Wednesday showed that the manufacturing and services PMIs rose in July. Inflation has fallen to the BoE’s target while pound has been one of the best-performing currencies in the developed world.
Therefore, analysts are torn about what to expect in this meeting. Some believe that the bank will decide to cut interest rates by 0.25% while others expect it to leave rates unchanged. The latter have been motivated by a recent statement by Huw Pill, the Chief Economist of the bank. Pill believes that it is too early for the BoE to celebrate inflation.
In theory, the NatWest stock price should drop if the BoE starts cutting interest rates since that will mean lower interest income. However, I believe that NatWest and other banks will do well when the BoE and the Fed start cutting interest rates.
This explains why most analysts are bullish on the NWG share price. Some of the most bullish are analysts from Deutsche Bank (ETR:DBKGn) and Peel Hunt (LON:PEEL).
NatWest share price analysis
The NatWest stock price dropped to a low of 326p on Thursday after the mixed Lloyds earnings. This was an important level since it was along the lower side of the ascending channel shown in blue.
It then bounced back and moved above the key resistance point at 330p, its highest point on May 16th. The stock remains above the 50-day and 100-day Exponential Moving Averages (EMA).
It has also jumped above the first resistance of the Woodie pivot points. Therefore, the stock will likely continue rising as buyers target the year-to-date high of 342p. A break above the upper side of the channel will point to more gains. This view is in line with my last NWG forecast.
On the flip side, a move below the lower side of the channel will point to more downside, with the next point to watch being at 313p.