NatWest Group (NWG) Q4 2025 earnings review
Fully Private and Highly Profitable
NatWest delivered a standout year, marking its return to full private ownership with a 27% surge in attributable profit to £5.5 billion. The bank is firing on all cylinders: Total income rose 12% to £16.4 billion (ex-notables), driven by a 21 basis point expansion in Net Interest Margin (NIM) to 2.34%. Management isn't resting on these laurels, announcing a £2.7 billion acquisition of Evelyn Partners to create a wealth management giant. With a proposed final dividend of 23p (up 51%) and a new £750 million buyback, shareholder returns are accelerating alongside growth.
🐂 Bull Case
The structural hedge remains a massive profit engine. Income from the hedge is expected to rise by ~£1.5 billion in 2026 and another £1 billion in 2027, providing high visibility on Net Interest Income growth regardless of short-term rate cuts.
The £2.7bn acquisition of Evelyn Partners is a game-changer, accelerating the strategy to grow non-interest income. It adds £59bn in Assets Under Management/Administration, balancing the group's reliance on net interest income.
🐻 Bear Case
While the Cost:Income ratio improved, absolute operating expenses (ex-litigation) rose 3.1% to £8.1bn. Q4 costs specifically spiked 11% QoQ. FY26 guidance sees costs rising further to ~£8.2bn, suggesting efficiency gains are getting harder to squeeze out.
The loan impairment rate rose to 16bps (from 9bps in FY24). While still below the through-the-cycle average, the trend is upward, with a £671m charge in FY25 vs £359m in FY24. Higher stage 3 charges indicate pockets of stress.
⚖️ Verdict: 🟢🟢
Bullish. NatWest is executing perfectly: expanding margins, controlling the narrative with the Evelyn acquisition, and returning massive capital (50% payout ratio + buybacks). Guidance for 2026 implies continued top-line momentum.
Key Themes
Strategic M&A: Evelyn Partners
NatWest announced the acquisition of Evelyn Partners for £2.7 billion. This move directly addresses the need to diversify revenue streams beyond lending. Evelyn brings £59bn in AUMA and a leading financial planning capability. It transforms the Private Banking & Wealth Management segment from a steady performer into a primary growth engine for the group.
Margin Expansion (NIM)
Accelerating. Net Interest Margin (NIM) expanded significantly to 2.45% in Q4 (up 8bps QoQ and 26bps YoY). This defies the sector trend of margin compression. The driver is clear: the structural hedge is rolling over onto higher yields, and deposit margins are managing well. Management guides for £1.5bn incremental hedge income in 2026.
Cost Seasonality and Inflation
Decelerating efficiency. While the full-year Cost:Income ratio improved to 48.6%, Q4 showed a sharp spike in costs. Other operating expenses jumped £227m in Q4 vs Q3 (+11.4%). Management cited property exit costs, seasonal items, and the bank levy. Guidance for FY26 (£8.2bn) implies costs will remain sticky despite simplification efforts.
Corporate & Institutional Growth
The C&I segment is a standout, with operating profit up 13% YoY to £4.1bn. Lending grew 8.7% (£12.3bn), driven by mid-market and corporate clients. This segment is successfully offsetting weakness in other areas and benefiting from deposit margin expansion (RoTE 19.1%).
Credit Normalization
Stable but watching. The impairment charge nearly doubled YoY to £671m (16bps) from £359m (9bps). Stage 3 (default) provisions increased to £2.2bn. While 16bps is low historically, the direction of travel is upward, driven by higher Stage 3 charges and lower good book releases.
Other KPIs
Accelerating. Up from 17.5% in FY24. This significantly exceeds the cost of capital and peers. Driven by strong income growth (+12%) outpacing cost growth (+1.4%).
Stable/Strong. Up 40bps YoY. Capital generation was robust at 252bps, easily absorbing RWA growth and distributions. Target lowered slightly to ~13.0%, implying room for further distributions.
Accelerating. Up £20.7bn (+5.6%) YoY. Growth was broad-based: Retail mortgages (+£5.1bn) and C&I (+£12.3bn). This volume growth, combined with margin expansion, is the 'goldilocks' scenario for a bank.
Guidance
Accelerating. The midpoint (£17.4bn) implies ~6% growth vs FY25's £16.4bn. Driven by volume growth and the structural hedge tailwind (£1.5bn uplift).
Decelerating. Guidance is conservative compared to the 19.2% delivered in FY25, likely factoring in normalization of impairments and higher capital base, but remains a very strong return profile.
Stable. Slight increase from £8.1bn in FY25. Management continues to target a cost:income ratio <45% by 2028, implying positive operating leverage will continue.
Accelerating (worsening). Guidance raised slightly from 'below 20bps' in prior periods to '<25bps', acknowledging the normalization of credit conditions.
Key Questions
Evelyn Partners Integration Risk
Large wealth management acquisitions have a mixed history in banking. What are the specific integration risks regarding platform migration and advisor retention, and when will the acquisition become accretive to EPS?
Cost trajectory into H2 2026
With costs spiking in Q4 25 and guidance for £8.2bn in 2026, are we seeing structural wage inflation embedding into the cost base, or is this primarily investment-driven? How much flex exists if revenue disappoints?
Deposit Migration
As rates potentially fall, are you seeing any shift in customer behavior regarding term deposits vs current accounts that could impact the structural hedge reinvestment assumptions?