NatWest Allocates £3.2bn to Cover Bad Loans
NatWest Group reported a loss for the year 2020 to the tune of 351 million pounds. The firm reported that it had set aside 3.2 billion pounds to compensate for possible bad loans due to the pandemic. The bank also announced that it will start paying dividends to its shareholders again.
Setting aside money for bad loans
A total of 3.2 billion pounds was set aside as reserve funds by the bank. Setting aside money for bad loans is a precautionary measure NatWest has decided to take in light of the pandemic. The bank believes that the actual losses from bad loans are expected to be much lower than 3.2 billion, however.
The bank also decided to pay out dividends with a total of 364 million pounds going out to shareholders. Last year, the Bank of England asked other banks to halt dividend payments; but in December, regulators lifted this restriction and allowed them to start paying dividends again.
The bank has a healthy balance sheet with its assets exceeding its liabilities even with the reported loss. During the course of the year, it reduced the size and activities of its investment branch, helping improve its capital position. This is one reason why the bank was able to pay a dividend despite the situation.
Since the UK government is also a shareholder in the group, the Treasury is set to receive returns of 225 million pounds.
Ulster closure in Ireland
The group has also decided to leave the Irish market after withdrawing from the region last week. Ulster Bank, which is the third-largest bank in the Republic of Ireland was already struggling with its operations. The bank was not profitable and sustainable returns for investors were becoming increasingly harder.
The CEO of NatWest Group, Alison Rose, said a detailed review of the bank’s performance had taken place and even though the bank looked like it was making progress, it was clear the bank would continue struggling in the long run. Allied Irish Banks will acquire some of the commercial loans of the struggling bank as well as hire some of its staff.
Paschal Donohoe, the Irish finance minister, said that it was a sad day for the country. The bank had served the region for 160 years.
The financial results of NatWest group come after another bank, Barclays, reported its results the same week. Barclays reported a profit of 3.1 billion pounds and was able to perform better thanks largely to its investment banking activities. It had also decided to set aside 4.8 billion pounds for bad loans for reasons similar to NatWest Group.
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