NatWest returned to profit last year, posting an operating pre-tax profit of £4 billion ($5.44bn) after recovering from a loss of £481 million in 2020 as the <a href="https://www.thenationalnews.com/Business/UK/2022/02/11/uk-economy-rebounds-75-despite-hit-from-omicron/" target="_blank">wider economy rebounded</a>. The UK’s biggest corporate lender said mortgage demand and customer deposits were growing, with its more buoyant figures coming after it returned £1.3bn to its balance sheet from the £3.2bn it set aside in the early stage of the pandemic to cushion against bad loans. The Edinburgh-based bank is now reversing these changes as the economy recovers, with £341 million of the money released in final quarter of last year alone. Alison Rose, chief executive of the bank, said she was very pleased with the financial performance of the bank. “What we’ve seen with the underlying performances of our customers — both businesses and consumers — is very low levels of impairments,” she said. “Our customers are performing well with very, very low levels of distress.” Ms Rose said the bank was “acutely” aware of the challenges its customers were facing from the <a href="https://www.thenationalnews.com/Business/UK/2022/02/17/britains-cost-of-living-crisis-causes-financial-pain-for-76-of-adults/" target="_blank">rising cost of living</a> after <a href="https://www.thenationalnews.com/Business/UK/2022/02/16/uk-inflation-rose-at-fastest-pace-in-nearly-30-years-to-hit-55-in-january/" target="_blank">inflation hit 5.5 per cent in January</a>. The Bank of England expects the rate to surpass 7 per cent in April. Shareholders will receive a payout of £3.8bn through a dividend of 7.5 pence per share, with the bank also unveiling a further £250m share buyback. Shares in the bank were down 3.08 per cent at 9.51am in London. The bank’s better than expected earnings come after the outlook for UK banks was set high heading into their latest reporting season, according to AJ Bell financial analyst Danni Hewson. “After all the banking sector is one of the few industries which will be waving flags and cheering as interest rates are increased as it allows them to generate a higher return from their lending activities,” Ms Hewson said. The bank upgraded its return on tangible equity target for 2023 to “comfortably above 10 per cent". However, Ms Hewson said the more upbeat outlook was, to some extent, “baked in”, meaning investors may be concerned about the possibility of an increase in bad debts as its customers face a higher cost of living. “This could outweigh any boost to profitability from higher rates,” she added. However, the bank warned that rising prices would make it harder to cut overheads, while it also lowered its annual cost-cutting target to 3 per cent from 4 per cent. It also saw higher costs than expected in the fourth quarter with the cost-to-income ratio at 87 per cent versus a company consensus forecast of 82 per cent. Mark Crouch, analyst at the social investment network eToro, said the best is yet to come for the bank, which only had a hint of the recent interest-rate hikes in its results. “NatWest is a business never far from some controversy, but the tailwind it will feel in 2022 thanks to the Bank of England will make a more compelling case than usual for investors,” said Mr Crouch. “That being said, the company still has headaches to deal with in the form of potential loan losses as the economy begins to struggle this year, and costly digital upgrades desperately needed to drag the bank towards something resembling competitive technology in the face of a FinTech banking boom.”