Executive Summary / Key Takeaways

• NatWest Group plc has achieved a significant milestone, returning to full private ownership in Q2 2025 after 17 years, marking a new era for attracting investors and driving growth.
• The company delivered robust financial performance in the first half of 2025, with income growing 13.7% to £8 billion and a strong return on tangible equity (RoTE) of 18.1%, driven by disciplined growth and operational efficiency.
• Strategic acquisitions, including Sainsbury's Bank (JSAIY), have significantly expanded NatWest's customer base and unsecured lending portfolio, while ongoing bank-wide simplification and technological advancements, such as AI-powered data platforms, are enhancing efficiency and customer engagement.
• Management has upgraded its 2025 guidance, now expecting income greater than £16 billion and RoTE above 16.5%, supported by structural hedge tailwinds and continued volume growth, with a commitment to attractive shareholder distributions.
• NatWest maintains a strong capital position with a CET1 ratio of 13.6%, actively managing risk-weighted assets and prioritizing shareholder returns through dividends and share buybacks, while prudently assessing macroeconomic risks.

A New Chapter: NatWest's Strategic Foundation and Market Position

NatWest Group plc, a venerable institution founded in 1727, has embarked on a transformative journey, culminating in its return to full private ownership in the second quarter of 2025. This pivotal moment, following 17 years of government stakeholding, is viewed by management as a critical catalyst for attracting new investors and accelerating growth. The company operates across three core segments: Retail Banking, Commercial & Institutional, and Private Banking & Wealth Management, primarily serving the United Kingdom and international markets. This diversified structure underpins its strategy of disciplined growth, bank-wide simplification, and active balance sheet and risk management.

Within the competitive UK banking landscape, NatWest holds a prominent position, particularly in retail and commercial segments, leveraging its extensive network and customer-centric approach. The company's market share in mortgages, for instance, remained stable at 12.6% in Q2 2025, even amidst a competitive period where mortgage spreads tightened. In unsecured lending, the acquisition of Sainsbury's Bank is set to increase its credit card stock share to approximately 11% on a pro forma basis, enhancing its competitive standing. While direct quantitative comparisons with all private competitors are challenging to ascertain, NatWest's focus on domestic stability and operational execution provides a qualitative edge against more globally diversified rivals like Barclays (BCS) and HSBC (HSBC). These larger, international players often benefit from broader revenue streams and faster innovation in global markets, whereas NatWest's strength lies in its deep UK market penetration and customer loyalty.

Technological Edge and Operational Streamlining

NatWest Group is actively differentiating itself through a robust technological roadmap aimed at enhancing efficiency and customer experience. A core aspect of this is the ongoing digitization of customer journeys, with over 30 such journeys transformed in the first half of 2025 alone. In Retail Banking, this includes enabling customers to change credit card and ATM limits and access new U.S. dollar travel accounts. For Commercial & Institutional clients, the bank has extended its capability for business banking customers to access up to £100,000 of unsecured lending within 24 hours to commercial mid-market customers, saving colleagues an average of 2.5 hours per application. In Private Banking, automatic renewal of fixed-term deposits exemplifies this digital push.

Beyond customer-facing improvements, NatWest is modernizing its technology estate. Commercial customers have been migrated to a new, modern bank line platform, allowing for the decommissioning of older systems. The private bank is also rehosting its core banking platform from a third-party provider in Switzerland to the group data center in the U.K., a move that is expected to reduce spend and increase capacity. A significant technological differentiator is the strategic collaboration with AWS (AMZN) and Accenture (ACN) to modernize data capabilities. This initiative includes the creation of a platform that uses artificial intelligence (AI) to provide a single view of customer data across the bank. The stated goals for this AI-powered platform are to enable greater personalization, faster onboarding, better protection against fraud, and stronger customer engagement. These technological advancements contribute directly to NatWest's competitive moat by improving operational efficiency, reducing costs, and enhancing the customer value proposition, thereby supporting higher margins and market positioning.

Financial Performance Reflects Strategic Execution

NatWest Group's financial performance in the first half of 2025 underscores the effectiveness of its strategic initiatives. The company reported a 13.7% increase in income to £8 billion, while costs were prudently managed, reducing by 1.4% to £3.9 billion. This resulted in a robust operating profit of £3.6 billion and an attributable profit of £2.5 billion. The return on tangible equity (RoTE) stood at an impressive 18.1% for the first half, demonstrating strong profitability. The cost-to-income ratio notably improved, falling from approximately 56% in the prior year to around 49% in the first half of 2025.

Breaking down the performance, Q2 2025 saw income, excluding notable items, rise by 1.5% to £4 billion, with operating expenses increasing by 3% to £2 billion. Net interest income grew 1.6% to £3.1 billion, primarily driven by volume growth across lending and deposits, and margin expansion from the product structural hedge. The net interest margin (NIM) increased by 1 basis point to 228, largely reflecting deposit margin expansion. This performance highlights the company's ability to generate income efficiently while controlling its cost base, even in a dynamic interest rate environment.

Liquidity and capital resources remain robust. NatWest generated 101 basis points of capital in H1 2025, including 139 basis points from earnings, contributing to a stable Common Equity Tier 1 (CET1) ratio of 13.6%, comfortably within its target range of 13% to 14%. The company also actively managed its risk-weighted assets (RWAs), achieving a £2.9 billion reduction in H1 2025 through measures such as significant risk transfers. This disciplined capital management supports both organic growth and shareholder distributions.

Outlook and Strategic Initiatives Drive Future Growth

NatWest Group has upgraded its 2025 guidance, reflecting increased confidence in its trajectory. The company now anticipates income greater than £16 billion and a return on tangible equity above 16.5% for the full year. This optimistic outlook is underpinned by several factors: expected continued volume growth across its businesses, the full run-rate contribution from the Sainsbury's Bank acquisition, and the significant tailwind from the structural hedge. Management projects 2025 product hedge income to be £1 billion higher than 2024, with a further increase of more than £1 billion in 2026 compared to 2025, and a continued tailwind into 2027. These projections are supported by a substantial portion of future hedge income already being locked in.

The company's strategic initiatives are designed to sustain this momentum. In Retail Banking, lending grew 3% in H1 2025, with a 4% increase in mortgage application share since early last year, helping 24,000 people buy their first home. The introduction of family-backed mortgages further expands its proposition. Commercial & Institutional lending grew 4% in H1 2025, driven by project finance, infrastructure, sustainable finance, and social housing, with £2.7 billion of lending in the latter. The company has also set an ambitious new target to deliver £200 billion of climate and transition finance by 2030, extending its scope in line with government strategy. Operating expenses for 2025 are expected to be around £8.1 billion, including approximately £100 million in one-time integration costs, demonstrating a continued focus on cost discipline while investing in transformation.

Risks and Competitive Dynamics

Despite the positive outlook, NatWest Group faces several risks and competitive pressures. The macroeconomic environment, while showing signs of improvement in early 2024, remains uncertain. The company's assumption of two further rate cuts in 2025, bringing rates to 3.75% by year-end, could impact net interest income, although the structural hedge is expected to provide a significant offset. Management maintains £234 million in post-model adjustments for economic uncertainty, reflecting a prudent approach to potential credit quality shifts. However, the diversified prime loan book continues to perform well, with no significant concerns about the credit portfolio at this point. The loan impairment rate is expected to remain below 20 basis points for the full year 2025.

Competitive dynamics are intense across all segments. In the mortgage market, NatWest's stock share remained stable at 12.6%, but the market is described as "always competitive." The "competitive ISA season" highlights ongoing pressure in deposit gathering. In unsecured lending, the Sainsbury's Bank acquisition strengthens NatWest's position, but the broader market remains dynamic. The increasing role of non-banks in the private credit market also presents a competitive challenge, though NatWest engages with distribution partners in this space to support commercial lending and RWA management. Regulatory changes, particularly prudential reviews around capital and ring-fencing, are ongoing. While management supports reforms to enhance international competitiveness and reduce friction for customers, the precise impact on capital requirements and operational flexibility remains a factor to monitor.

Conclusion

NatWest Group plc stands at a pivotal juncture, having successfully transitioned to full private ownership and demonstrating robust financial and operational momentum in the first half of 2025. The company's core investment thesis is firmly rooted in its disciplined growth strategy, underpinned by strategic acquisitions like Sainsbury's Bank, continuous bank-wide simplification, and a clear commitment to technological innovation. The upgraded 2025 guidance for income and returns, coupled with the significant tailwind from the structural hedge, signals a strong financial trajectory.

NatWest's proactive management of its capital, evidenced by a stable CET1 ratio and active RWA reductions, reinforces its capacity for both organic investment and attractive shareholder distributions. While macroeconomic uncertainties and intense competition persist, the company's diversified prime loan book and strategic focus on customer-centric digital transformation position it favorably. The ongoing integration of AI and modernization of its technology estate are critical differentiators, enhancing efficiency and customer engagement, which are expected to contribute to sustained profitability and a strengthened competitive moat in the evolving financial services landscape.