NatWest reported a £2.1bn impairment charge for the second quarter, more than twice the size of its first-quarter provision © Phil Noble/Reuters

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NatWest became the latest in a string of British banks to report a sharp jump in provisions to absorb an expected surge in bad debts due to the worsening outlook for the UK economy.

The company, formerly known as Royal Bank of Scotland, reported a £2.1bn impairment charge for the second quarter, more than twice the size of its first-quarter provision.

NatWest’s impairment charge pushed it to a £1.3bn pre-tax loss for the three months to June, compared with a £1.7bn profit in the same period last year.

Government support measures since the start of the pandemic have so far kept the rate of loan defaults among consumers and businesses relatively low, but banks are preparing for a wave of difficulties in the coming months due to pessimistic growth and unemployment forecasts.

Separately on Friday, TSB — the UK’s seventh-largest bank — also swung to a loss due to the impact of the coronavirus crisis. 

The reports from RBS and TSB followed similarly pessimistic updates from several rivals earlier this week. Lloyds Bank fell to a £676m pre-tax loss in the second quarter after warning that lockdown had inflicted more damage on the UK economy than expected. Meanwhile, Barclays’ net profits dropped 91 per cent and Santander took large writedowns on the value of several of its businesses, led by its UK arm.

Despite NatWest’s loss and uncertain outlook, its chief executive Alison Rose and chairman Howard Davies both stressed the company’s “robust capital position”. Ms Rose said the bank had headroom of between £6bn and £7bn above its target capital levels, which would allow it to return to dividend payouts after regulators lift sector-wide restrictions.

“It’s always disappointing to report a loss . . . [but] we are open for business and not in any way in the same position as [the] last financial crisis,” Sir Howard added.

NatWest predicted that impairments would rise further in the second half of the year, albeit at a slightly slower rate. It forecast a full-year charge of between £3.5bn and £4.5bn, compared with a total of £2.9bn in the first half.

Revenues dropped from £4.1bn to £2.7bn. However, the previous year’s numbers benefited from a series of one-off gains, and net interest income of £1.9bn — only a 1 per cent slide on the previous year — was better than average analyst forecasts.

Shares in NatWest rose 3 per cent in early trading on Friday, though they had already fallen more than 7 per cent since the start of the week following rivals’ updates and wider market concerns about coronavirus. 

TSB chief Debbie Crosbie similarly stressed the bank’s secure balance sheet. An £88m increase in impairment charges drove the company, owned by Spanish lender Sabadell, to a pre-tax loss of £66m for the first half, but Ms Crosbie said the company made good progress in cost cutting and improving efficiency. 

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