NatWest has upgraded its full-year income guidance for a second consecutive quarter, after the FTSE 100 lender reported better-than-expected first-half profits and announced a substantially increased dividend for shareholders.

The bank posted a 20 per cent rise in pre-tax profit to £4.3bn for the first six months of 2026, up from £3.6bn in the same period a year earlier and ahead of analyst estimates of approximately £4bn. Total income grew 11 per cent to £8.7bn, driven by a nearly 13 per cent increase in net interest income, which reached £6.9bn.

NatWest has benefited from interest rate expectations remaining higher for longer, which contributed to another upward revision of its income forecast. When the Bank of Rate holds rates elevated, banks typically earn more on their lending margins — a dynamic that has underpinned earnings across the UK banking sector through the current cycle. The bank now projects total income of £17.9bn for 2026, raised from the £17.2bn to £17.6bn range guided at the beginning of the year. That figure is expected to include a £275m tailwind from the integration of Evelyn Partners.

The lender's net interest margin — a closely watched measure of profitability from lending — widened by 20 basis points year-on-year to 2.48 per cent, supported by higher deposits across its retail and wealth operations. Operating costs edged up 2.6 per cent to £4.1bn, but the cost-to-income ratio improved to 46 per cent from 48.8 per cent.

Shareholder Returns Boosted

NatWest raised its interim dividend by 26 per cent to 12p per share, resulting in a total payout of £955m to investors. The bank also said it would consider launching a share buyback alongside its full-year 2026 results — six months earlier than previously planned. The acceleration of capital returns underscores how far NatWest has moved from the aftermath of its 2008 state bailout, when the UK government took a majority stake in what was then Royal Bank of Scotland; the government completed its full exit from the lender in 2024.

In February, NatWest acquired Evelyn Partners in a £2.7bn deal that CEO Paul Thwaite said would create the group's "third growth engine." The transaction will bring Evelyn's £69bn in assets under management under the NatWest umbrella, giving the bank approximately £127bn in total assets and making it the largest among bank-owned wealth managers in the UK. The push into wealth management reflects a broader industry trend, as lenders seek to diversify revenue beyond traditional interest income and capture fees from a growing pool of UK investable assets.

However, NatWest's share price fell in the subsequent trading session after it was disclosed that the bank paid a 9.7x multiple on Evelyn's latest £179m in earnings.

Wealth income rose more than 10 per cent in the first half to £595m.

Sector-Wide Earnings Surge

NatWest's results follow a string of strong earnings reports from major UK banks. Lloyds Banking Group — which owns the Bank of Scotland, Halifax, and Lloyds Bank — reported £4.3bn in pre-tax profit for the first half of 2026, exceeding an internal analyst target of £4.1bn and representing a 23 per cent increase from £3.5bn in the same period last year.

Barclays posted a 30 per cent jump in profit to £3.3bn for the second quarter and allocated £1.3bn to its bonus pool for the first six months of the year, up from £1bn a year earlier.

The wave of bumper earnings has intensified calls from the Trades Union Congress (TUC) and left-leaning members of Parliament for Prime Minister Andy Burnham and Chancellor John Healey to impose a tax on the banking sector. Any such levy could affect how much surplus capital banks return to shareholders, making the political debate a key factor for investors monitoring the sector's distribution trajectory.

Barclays CEO C.S. Venkatakrishnan cautioned against such a move, stating that for every £1 of capital the bank holds, approximately £8 to £10 is lent to businesses and households, supporting economic growth.