NatWest Earnings: Good Quarter and Year; Deposit Mix Shift Slowing

NatWest reported fourth-quarter 2023 results largely in line with our expectations, closing an overall strong year for the bank. Income generation, excluding notable items, declined 2% on a sequential basis to GBP 3.442 billion on lower noninterest income. Net interest income was virtually flat as higher interest-earning assets nearly fully offset a 6-basis-point lower net interest margin at the group level. The declining deposit margin is the main culprit driving NIMs lower as depositors shift from noninterest-paying accounts into higher-rate savings accounts. Positively, the shift appeared to slow in the fourth quarter, which overall is a positive sign for NIM development in future. That said, with the base rate likely to be reduced as early as this summer, NIMs are set to be compressed in future. Loan-loss provisions of GBP 126 million were positive and better than we had expected. We maintain our GBX 280 per-share fair value estimate and no moat rating for NatWest.