NatWest Earnings: New Era with Rising Rates?

It might be that the recovery has only just started for the UK banking sector. Are BoE rate hikes reason enough to stay optimistic on the NatWest share price?

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As has been stated many times, it’s been a lost decade for those investing in banks since the financial crisis. But times could be changing.

A new era for investing in banks?

NatWest has benefited from the same tailwinds affecting banks around the world. And being a British bank, it might be slightly ahead of others because the Bank of England is one of the first central banks to start raising rates.

Generally, businesses find life tougher because it's harder to borrow money when interest rates are on the rise. That's not the case for banks, where Net Interest Margins rise when interest rates rise. As long as the economy is improving, banks perform better in higher interest rate environments.

All about the outlook

Interest rates have only just started rising, so the benefit likely won't be recorded in the earnings we are about to get. The market will take its cues around rates from the bank's outlook and where interest rates are likely headed.

The flipside of raising rates this time is because it is to combat rising inflation. Higher prices and loan costs will have some dampening effect on consumers, which could reduce their spending on credit cards and hurt banking income. It will be interesting to see how NatWest foresees this balance to play out.

Returning to normal income

NatWest took out nearly £1.0B in provisions during the pandemic over fears of potential credit defaults. Since the financial situation has improved, the bank has been releasing those funds, which has substantially boosted reported profits.

That process has largely been completed, so it's unlikely that the final quarter will have as good results as the first three. That is on top of the traditional reduced performance that banks typically have for the end of the year. Now, traders will be looking to see how the bank can maintain underlying growth, although the consensus among the analysts is quite optimistic.

NWG: Breaking the downtrend

NatWest has been on a bullish rampage for over a year now. All attempts to sell off have been scooped up by investors, forming higher lows on each occasion since September 2020.

Following a retest of the 50 & 200-day average support down at 207, the share price got a boost above pre-pandemic levels. The NWG price trend remains intact.

A major zone of resistance of 255-65 sits around the 26-month high of 258. Above that, 300 should be treated as resistances. A break below 230 opens the door to the 100-day average at 218 open. The swing low of $207 marks a lower low.

Source: Spreadex trading platform

Key takeaways

Due to a tighter policy environment, earnings are expected to improve but unlikely to transpire in NatWest's share prices as early as Q4.

As the UK's economy accelerates, investors will be more interested in seeing how the forecasted mix of higher rates, inflation and consumer spending will impact the bank's profits.