NatWest posted profit up 18% to £1.3bn in the three months to September, but downgraded its outlook for the year, as the mortgage market eased and customers shifted to savings accounts.  

The bank said its net interest margin – the difference between what it charges to borrowers and what it pays out to savers – fell 19 basis points to 2.94% from the previous quarter, in a statement to the London Stock Exchange.  

It said: “The reduction is largely due to changes in deposit mix as customers shifted balances from non-interest-bearing current accounts to interest-bearing savings accounts, particularly term, as well as the continued impact on mortgage margins as the higher margin Covid-era book rolls off and is replaced at lower margins.”  

It added that its home loan business saw “continued mortgage margin dilution” in the period.  

The lender downgraded its net interest margin forecast for the full year to “greater than 3%” from a previous view of around 3.15%.  

It added that gross new mortgage lending in the third quarter came in at £7.5bn, compared with £7.6bn in the previous three months and £11bn a year ago.  

Shares in the group opened 16% lower, but were down 11% to 183.2p in mid-morning trading.  

Major UK banks have reported a run of strong profits buoyed by Bank of England base rate rises that have lifted 14 times since December 2021 to 5.25%.        

However, investors are concerned about tougher competition for savers’ cash and potential loan defaults in a cost-of-living crisis have weighed on the sector.  

Lloyds Banking Group, Barclays and Santander all reported results this week.  

NatWest chief executive Paul Thwaite said: “Credit losses and impairments remain low and we are ready and able to stand by our customers and businesses through the current economic uncertainty.”  

Separately, the group admitted “serious failings” in the closure of the Coutts account [a bank owned by NatWest] of former Brexit Party leader Nigel Farage earlier this year, which led to the resignation of former chief executive Alison Rose.  

The Financial Conduct Authority says: “In recent weeks, we have confirmed to both firms [NatWest and Coutts] that we are now reviewing how the firms’ governance, systems and controls are working to identify and address any significant shortcomings.” 

The banking group has yet to disclose the details of the severance package for Rose.