NatWest Group plc

The stable outlook reflects our expectation that NatWest will perform resiliently over the remainder of the current credit cycle. We expect the 2021 impairment charge could be close to zero as the economy recovers from the pandemic, which would provide a significant boost to earnings. Loan arrears and defaults are likely to increase moderately as the U.K. government withdraws its furlough scheme and tapers other fiscal measures, and we think NatWest's provision cover is sufficient to manage this trend. We anticipate our RAC ratio falling to 9.5%-10.0% as NatWest makes significant shareholder distributions under its plan to reduce surplus regulatory capital. We could consider raising the ratings over our two-year outlook horizon if NatWest demonstrates a stronger and more consistent

...NatWest ranks among the leaders in the U.K.'s banking market. NatWest is one of the leading players in U.K. retail and commercial banking, which contributes the majority of its revenue and earnings. It stands to benefit as the U.K. economy recovers from the pandemic, but low short-term interest rates continue to weigh on its margin. The group's material impairment provisions appear sufficient to cover ultimate COVID-19 credit losses. Like other U.K. banks, NatWest incurred significant impairment charges in the first half of 2020. Actual credit losses have remained low due to fiscal and monetary intervention, but are likely to increase as the U.K. government withdraws its furlough scheme and other fiscal measures. NatWest released provisions in the first quarter of 2021, and further releases appear likely in the second quarter, when the bank will update its IFRS 9 macroeconomic assumptions. NatWest is reshaping its business model to support stronger earnings. The NatWest Markets (NWM) and...

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