NatWest Group raised its full-year financial outlook after reporting a broad-based increase in first-half earnings, supported by higher lending balances, stronger deposit margins and operating costs that grew substantially more slowly than revenue. The Edinburgh-based banking group reported profit attributable to ordinary shareholders of £3.04 billion for the six months ended June 30, up 22% from £2.49 billion in the comparable period of 2025.

Operating profit before tax rose 20.4% to £4.32 billion, exceeding the roughly £4 billion expected by analysts surveyed ahead of the release. Second-quarter operating profit before tax reached £2.29 billion, an increase of 28.9% from a year earlier and 12.4% from the first quarter. The quarterly result reflected continued income growth and a reduction in impairment charges from the preceding three months.

NatWest increased its 2026 return-on-tangible-equity forecast to more than 19%, compared with previous guidance of more than 17%. The bank generated a 19.7% return in the first half, up from 18.1% a year earlier, while the second-quarter return reached 21%. The change is significant because return on tangible equity is a closely watched measure of how effectively a bank is using shareholder capital to generate earnings.

The group now expects total income excluding notable items of approximately £17.9 billion in 2026. That forecast includes about £275 million associated with Evelyn Partners, the wealth-management business NatWest acquired at the end of the reporting period. At its first-quarter update in May, NatWest had forecast income at the top of a £17.2 billion to £17.6 billion range, excluding the then-pending acquisition.

Much of the numerical increase in the income forecast therefore reflects the addition of Evelyn Partners. Excluding the expected contribution from the acquired business, the revised target is approximately £17.63 billion, slightly above the previous range. The more consequential upgrades are in profitability and capital generation, which indicate that management expects the underlying bank to continue producing stronger returns than it anticipated earlier in the year.

NatWest raised its forecast for capital generation before distributions to more than 240 basis points, excluding the acquisition’s impact, from approximately 200 basis points previously. On a reported basis, including the capital absorbed by the Evelyn Partners transaction, it expects capital generation of more than 100 basis points. The bank retained its target for a common equity Tier 1 ratio of about 13%.

Chief Executive Paul Thwaite said the consistency of the group’s operating performance and the completion of the Evelyn Partners acquisition had given management confidence to strengthen the outlook. He said NatWest was growing across retail banking, private banking and wealth management, and commercial and institutional banking, while continuing to improve efficiency.

Total first-half income increased 11% to £8.86 billion. Net interest income, which represents the difference between interest earned on assets and interest paid on funding, rose 12.6% to £6.89 billion. Non-interest income advanced 5.7% to £1.97 billion. Excluding notable items, total income increased 8.9% to £8.67 billion.

Net interest margin averaged 2.48% in the first half, 20 basis points higher than a year earlier. The second-quarter margin increased by two basis points from the first quarter to 2.49%, supported by lending growth, the widening benefit from deposit margins and one additional calendar day. Those factors offset continued pressure on mortgage margins as borrowers refinanced and competition remained strong in the UK home-loan market.

The result showed that NatWest continued to benefit from its structural hedge, a portfolio used to reduce the sensitivity of earnings to changes in short-term interest rates. The bank expects structural hedge income to increase by more than £1.5 billion in 2026 compared with 2025. It also anticipates an increase of more than £1 billion in 2027 compared with 2026, providing a potential cushion as older fixed-rate assets are reinvested at higher yields.

Operating expenses increased 2.6% to £4.12 billion, substantially below the rate of income growth. Excluding litigation and conduct costs, the cost-to-income ratio improved to 46% from 48.8% a year earlier. NatWest said approximately £250 million of gross cost reductions helped offset higher staff compensation, technology spending, property costs and transaction-related expenses.

The bank expects 2026 operating expenses excluding litigation and conduct costs of about £8.5 billion, including roughly £300 million from Evelyn Partners. Its previous guidance was approximately £8.2 billion before the acquisition, suggesting that the increase primarily reflects consolidation of the new business rather than a material deterioration in the underlying cost outlook.

NatWest continued to expand its balance sheet during the first half. Net loans to customers excluding central items rose by £17 billion to £406.2 billion, with growth in commercial and institutional lending as well as retail mortgages. Customer deposits excluding central items increased by £5.9 billion to £447.6 billion. The group’s loan-to-deposit ratio, excluding repos and reverse repos, stood at 90% at the end of June.

Customer assets and liabilities increased by £95.2 billion, or 10.7%, during the half. The acquisition of Evelyn Partners added £71.7 billion of assets under management and administration, while NatWest’s existing businesses produced £23.5 billion of growth. Management said the organic increase was consistent with progress toward its longer-term target of annual customer asset and liability growth above 4% through 2028.

The wealth transaction is central to NatWest’s effort to increase income from investment management, financial planning and advisory services. NatWest acquired all of Evelyn Partners on June 30 for total consideration of approximately £2.2 billion, after adjusting the agreed £2.7 billion enterprise value for cash, debt and working capital. Because the deal completed on the final day of the reporting period, Evelyn Partners made no contribution to NatWest’s first-half income statement.

The acquired business will begin affecting earnings in the second half. NatWest expects Evelyn Partners to contribute about £275 million of income and £300 million of operating expenses during 2026. The near-term figures include only six months of expected consolidation and do not capture all potential revenue or efficiency benefits from combining Evelyn’s advisory capabilities with NatWest’s retail, private-banking and commercial customer relationships.

Before the acquisition’s earnings contribution, NatWest’s private banking and wealth-management division reported first-half operating profit of £212 million, up from £179 million. Division income increased 10.4% to £595 million, and assets-under-management net inflows reached a record £2 billion. The annualized inflow rate was equivalent to 9.2% of opening assets, reflecting demand across investment and advisory products.

Retail Banking generated operating profit of £1.73 billion, compared with £1.49 billion a year earlier, while Commercial & Institutional produced £2.28 billion, up from £1.98 billion. The figures demonstrated that the earnings improvement was not confined to one business line. NatWest said it supplied £8.2 billion of mortgage lending to first-time buyers during the half and continued expanding business lending across corporate and commercial customers.

Credit quality remained resilient. First-half impairment losses were £423 million, compared with £382 million a year earlier, while the loan impairment rate was unchanged at 19 basis points. Second-quarter impairment charges declined to £140 million from £283 million in the first quarter and £193 million a year earlier. The quarterly loan impairment rate fell to 13 basis points.

NatWest maintained its expectation that the full-year loan impairment rate will remain below 25 basis points. That guidance implies some allowance for credit costs to rise from current levels while remaining low by historical standards. The bank’s performance continues to benefit from relatively contained defaults among mortgage, consumer and business customers, although management’s outlook remains sensitive to economic growth, unemployment, interest rates and geopolitical uncertainty.

The group’s common equity Tier 1 ratio was 13.2% at June 30, down approximately 80 basis points from the end of 2025. The Evelyn Partners acquisition reduced the ratio by about 140 basis points, partly offset by earnings and risk-weighted-asset management. NatWest generated 137 basis points of capital before distributions during the half and before accounting for the acquisition’s impact.

The capital ratio remains close to management’s target of approximately 13%, limiting the amount of capital the bank needs to retain above its operating objective. NatWest also reported an average liquidity coverage ratio of 140%, indicating that it maintained a substantial portfolio of liquid assets relative to expected short-term cash outflows.

The bank declared an interim dividend of 12 pence per ordinary share, representing an aggregate payment of approximately £955 million. That compares with an interim distribution of 9.5 pence a year earlier. The dividend is scheduled to be paid on September 18 to shareholders registered on August 14, subject to the usual settlement timetable.

NatWest continues to expect ordinary dividends equivalent to about 50% of attributable profit. It also said its next share-buyback announcement would be considered alongside the 2026 full-year results, six months earlier than previously planned. The statement does not constitute the launch of a new repurchase program, but it gives investors a clearer timetable for when surplus capital could next be returned.

Shares rose more than 3% in London following the results as investors responded to the earnings beat, higher profitability guidance and accelerated buyback timetable. Analysts noted that second-quarter net interest margin was slightly below some expectations, but the overall result showed stronger capital generation and earnings resilience than the market had forecast.

The upgraded outlook comes as UK banks attempt to demonstrate that recent returns can be sustained through a changing interest-rate cycle. Falling policy rates can reduce the benefit banks receive from non-interest-bearing and low-cost deposits, but structural hedges, loan growth, fee income and disciplined expense management can offset part of that pressure. NatWest’s wealth expansion is designed to add another source of revenue that is less directly tied to interest margins.

Execution risks remain. Integrating Evelyn Partners will require NatWest to combine systems, employees, investment platforms and regulatory processes while retaining advisers and clients. The acquisition increased headcount and created substantial goodwill on the group’s balance sheet, making revenue delivery and cost discipline important measures of whether the transaction meets its strategic and financial objectives.

Capital requirements also remain a constraint on future distributions. NatWest expects the implementation of Basel 3.1 rules to increase risk-weighted assets by approximately £10 billion on January 1, 2027. That increase could absorb part of the capital generated by earnings, although management has incorporated the expected regulatory change into its planning assumptions.

For 2028, NatWest retained its targets for customer asset and liability growth above 4% annually, a cost-to-income ratio below 45%, return on tangible equity above 18% and capital generation exceeding 200 basis points. The first-half performance places the bank ahead of those profitability thresholds, but maintaining that position will depend on margins, credit conditions, organic growth and the successful conversion of Evelyn Partners’ expanded wealth platform into sustainable fee income.