NatWest profits surge as interest rates boost lenders
High Street bank’s pre-tax profits rose 30.4 per cent to £2.2 billion, raising questions about potential tax implications for lenders
Ben Martin, Banking Editor
Friday October 24 2025, 8.00am BST, The Times
Higher-for-longer interest rates have helped to boost quarterly profits at NatWest far above the City’s expectations and the bank’s performance has prompted bosses to lift their revenue and returns forecasts for the year.
The FTSE 100 lender said on Friday that its pre-tax profits for the three months to the end of September had surged to almost £2.2 billion, up 30.4 per cent from a year earlier and surpassing the £1.8 billion forecast by analysts.
Total income rose almost 16 per cent to £4.3 billion, “reflecting deposit margin expansion alongside the benefit of one additional day in the quarter”. This meant its net interest margin, the key difference between what it charges for loans and pays for deposits, increased to 2.37 per cent from 2.18 per cent 12 months previously.
NatWest shares rose 3 per cent, or 17p, to 563p, the highest since it was bailed out by the taxpayer during the 2008 financial crisis.
Paul Thwaite, the NatWest chief executive, said the bank had enjoyed a strong performance that was “underpinned by healthy levels of customer activity”.
As a result it now expects income for the year, excluding notable items, of about £16.3 billion, up from its guidance of more than £16 billion in the summer. It is also now targeting a return on tangible equity this year of more than 18 per cent, having previously told the City to expect more than 16.5 per cent.
Borrowing costs have risen sharply in recent years as the Bank of England has wrestled with inflation, the Bank’s base rate having surged since 2021 and peaked at 5.25 per cent between 2023 and 2024. It has since fallen to 4 per cent but rate cuts have been slower than expected, which has boosted lenders.
Banks are also benefiting from their so-called “structural hedges”, a strategy deployed by the industry that involves using derivatives to insulate lenders against rate volatility.
Resilient earnings also meant that Barclays, which posted quarterly pre-tax profits of £2.1 billion this week, unveiled a surprise £500 million capital return to investors through a share buyback. Lloyds Banking Group reported profits of £1.2 billion, even though it took an £800 million hit for a mis-selling scandal in the motor finance industry.
Posting strong earnings, however, potentially poses a risk for banks. Rachel Reeves, the chancellor, must fill a multibillion-pound hole in the public finances with her forthcoming budget on November 26. There is speculation that the banking sector’s robust performance could tempt her to embark on a tax raid on lenders.
Banks argue that their tax burden is already higher than that placed on lenders in other countries and to raise levies further would harm the international competitiveness of the British industry.
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