NatWest warns of 'challenging times' amid surprise profit

NatWest posted an unexpected profit but warned of "challenging times" ahead for the business.

It posted a £355m profit before tax for July to September. City-watchers had anticipated that the bank would have set aside more money for bad loans.

The lender, formerly known as Royal Bank of Scotland, put by £254m for expected loan losses.

The four largest UK banks all set aside less than expected as government help kept businesses and households afloat.

But some of the largest assistance programmes, such as the furlough scheme, is due to come to an end.

"Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced," said NatWest chief executive Alison Rose.

In common with most lenders, the bank's share price has dropped in recent months.

Donald Brown, senior investment manager at Brewin Dolphin, said: "The market clearly remains pessimistic about NatWest's immediate prospects, with the shares still around 50% below where they started the year."

As well as the risk of bad loans, lenders are under pressure in the shape of the difference they make between borrowing from depositors and lending to borrowers.

The Bank of England cut rates to anew low of 0.1% in March and some analysts think negative rates could be on the horizon.

That means smaller margins as the central bank demands that loan rates are chopped.

NatWest's net interest margin dipped slightly to 1.65%