NatWest May See Gains From Trade Deals

After Lloyds set a positive tone for the UK bank earnings season, easing tariff risks could mean fewer provisions on top of increased M&A deals, which could support NatWest’s bottom line.

Lloyds Earnings Support Dividend Growth

UK banking giant when it reported its first-half results on Thursday, with pretax profits rising 5% to £3.5 billion. The increased financial headroom allowed the company to announce a 15% jump in its interim dividend to 1.22p per share. What also pleased investors was that the company reaffirmed its outlook for the remainder of the year and 2026. Total provisions decreased to £2.18 billion from £2.31 billion, indicating that the bank has regained confidence in the economic outlook and no longer requires as much money in reserve in case of a downturn.

Last quarter, earnings for UK banks were due to elevated macroeconomic uncertainty ahead of tariff announcements by US President Donald Trump. Lloyds had put aside £100 million for this item specifically. However, after a deal with the UK was reached and recent reports of further progress in trade negotiations, the risk of tariffs appears to have decreased. UK banks can reduce provisions and possibly even reverse them, thereby boosting the bottom line and making more funds available for dividend payments.

NatWest to Shrug Off Tariffs Again?

The market chaos of the trade war provided a windfall for UK banks, as investors sold off stocks and bought into safe-haven assets, resulting in a . HSBC, for example, saw a 47% increase in its revenue from equity markets. However, in the first quarter, those gains were offset by higher provisioning, which may not be the case in Q2, as trade tensions appear to be improving. Market volatility since 1 April could have likely continued to maintain higher income for banks in this item.

According to a company-compiled consensus of analysts, to £1.21 billion in Q2 from £1.34 billion in the prior quarter when it updates investors on Friday. The main reason is higher expenses and impairments, as revenue is expected to increase to £3.11 billion from £3.03 billion in the same period. Despite a strong start to the year, falling interest rates could ultimately squeeze profit margins going forward, which could make investors nervous about NatWest's guidance. However, the key could be (as with Lloyds) how much provision is taken and how much profit is passed on in the form of higher dividends.

NatWest Earnings Supporting Momentum?

NatWest's share price continues its recovery from the early July drop to £470, with the RSI still not reaching overbought territory. A follow-through could find resistance at the month's high of £510 per share, with a break higher exposing the 2025 high of £537. On the flip side, if price action turns lower, it could encounter support at the recent low, which coincides with the lower Bollinger Band at £490, followed by the month's low.

Source: SpreadEx | NWG

Key Takeaways

NatWest's earnings are expected to follow a similar pattern to those of rival Lloyds. The consensus is that higher expenses will undermine the bottom line, but this could be offset by lower provisions due to easing concerns about the trade situation and global macroeconomic outlook. Investors will be looking at comments around what effect lower interest rates could have on the bank's profits going forward.