NatWest Passes 2021 Stress Test

No-moat NatWest comfortably passed the Bank of England’s stress test. At its lowest point, NatWest’s common equity Tier 1 ratio dropped to 10.3% from a starting point of 17.5% at the end of 2020, on a fully loaded basis. This was comfortably above the minimum of 7.0% regulators believe NatWest should hold in capital reserves. The stress test aims for a plausible and severe macroeconomic scenario, which is significantly more punitive than what the U.K. economy experienced during 2020. While allowing for a great performance in this stress test, the high starting point and well-above-requirements common equity Tier 1 ratio at its low point highlights the overcapilization of NatWest. The bank is addressing its capital levels through shareholder distributions, primarily. Overall, the bank more than adequately capitalized, will retain functional without capital infusions in such a severe macroeconomic scenario, and does not rely on transitional accounting arrangements to smooth capital drawdowns throughout the stress. We maintain our GBX 230 per share fair value estimate.