Natwest shares fell after the bank delivered its third-quarter following a muted quarter for profit growth.

The FTSE 100 bank recorded a pre-tax profit of £2.2bn, broadly in line with internal consensus and up 1.9 per cent from the same period last year. Its stock fell some four per cent to 611p in early trading.

The bank recorded a total income of £4.6bn for the period, up 7.1 per cent, driven by an increase in its Private Banking & Wealth Management division following its first full quarter with Evelyn Partners.

Natwest sealed a £2.7bn deal to purchase the firm from its private equity owners Permira and Warburg Pincus in February. It added the acquisition had completed at the end of June.

This helped income in the wealth division surge 47 per cent compared with the second quarter. Non-interest income more than doubled to £233m while assets under management income rose to £225m, from £92m.

Group non-interest income beat expectations at just shy of £1.1bn, compared to the £1bn pencilled in. This helped offset a weaker performance in net interest income, which fell below expectations at £3.6bn, marking a modest £49m miss.

“Natwest has rounded off the banks’ quarterly reporting season with a fair to middling performance which was not sufficient for the bank to upgrade guidance for the year,” Richard Hunter, head of markets at interactive investor, said.

He added the negative market reaction to the numbers “reflects some disappointment with the general tone of the update”.

Natwest forecasts interest rate hike

The company recorded a £35m charge “following a routine review of customer repayment behaviour across retail banking and commercial & institutional,” which helped eat into net interest income.

Still, the bank’s net interest margin, a key indicator of its profitability from lending, nudged up to 2.5 per cent. This followed on from a 13 basis point annual gain in the second quarter to 2.49 per cent after a boost from the higher interest rate environment.

The group increased its income target 2026 in August, expecting to pocket the top end of its £17.2bn to £17.6bn range following the elevated rate environment caused by the US-Iran war. On Friday, the bank said it was forecasting the Bank of England to hike interest rates to four per cent in next week’s monetary policy committee meeting.

The update follows banks being targeted for a tax raid in John Healey’s maiden Budget. The Chancellor doubled the surcharge, which sits on top of corporation tax, to six per cent from January for 15 months.

The Office for Budget Responsibility (OBR) has forecast the increase will raise around £1.5bn with surcharge receipts pulling in £2.4bn in 2027-28, up £1.2 billion from 2025-26.

Analysts said Natwest is tipped to be one of the most exposed UK banks to the changes with a four per cent hit to attributable profit.

Paul Thwaite, the chief executive of Natwest, held back on any direct criticism, though added he “really wants” to use the bank’s capital to “support the UK’s growth agenda”.

He said: “There is an uncertain kind of macroeconomic backdrop. There’s obviously pressure on the rising cost of living.”

Thwaite said the 15-month time limit on the tax increase provided “welcome clarity” and would allow investors to have a “view on the outlook for the policy environment”.