RBC Capital Markets has updated its forecasts for NatWest following the UK lender's third-quarter results, but the changes are more fine-tuning than a shift in outlook. The investment bank kept its “sector perform” rating and its £7 price target, while adjusting its revenue, margin, and profit expectations for the coming years.
What changed in RBC's model
RBC now expects NatWest's 2026 revenue to come in at £17.87 billion, almost exactly in line with management's own guidance of roughly £17.9 billion. The bank also models the net interest margin (NIM) — the difference between what a bank earns on loans and pays out on deposits — to exit the fourth quarter at 252 basis points and then hold steady through 2027.
That flat-margin view is notable because RBC says it had already trimmed its net interest income expectations ahead of the third-quarter print, anticipating that funding costs would be a headwind into 2027. In other words, the bank is not expecting much improvement in the core lending profitability over the next few years.
On the profit side, RBC trimmed its 2027 forecast slightly, pointing to higher expected credit losses and a mix shift between loan growth and margin. That suggests the bank may be growing its loan book in lower-yielding areas or facing slightly higher costs from bad loans, even if the overall picture remains stable.
Where RBC sees the real value: payouts
Where RBC sounds more confident is in capital return. The bank estimates NatWest could hand investors £12.1 billion back over 2026-2028: £9.4 billion via dividends and £2.7 billion via buybacks. That includes a £500 million repurchase program RBC expects to be announced alongside the 2026 results.
Put together, those payouts imply an average dividend yield of 6.9% and a “total return yield” — dividends plus buybacks as a share of the current valuation — of 8.9%. For context, that is a high yield compared to the broader UK market, where the FTSE 100's average dividend yield is typically around 3-4%.
RBC's unchanged price target is a signal in itself. By keeping the target at £7 while projecting such large payouts, the bank is effectively saying it does not expect investors to pay a higher multiple for NatWest's earnings. Instead, the expected return comes largely from cash being sent back to shareholders.
What it means for investors
For everyday investors, the key takeaway is that RBC sees NatWest as a stock that delivers returns through dividends and buybacks rather than through share price appreciation. That can make the shares look “range-bound” under this framework unless earnings expectations rise.
The critical question is sustainability. Can NatWest keep generating enough capital to support something close to RBC's £12.1 billion distribution plan without squeezing future growth or running into tougher credit conditions? Banks often face a trade-off between returning cash to shareholders and investing in growth, and higher credit losses could eat into the capital available for payouts.
NatWest's outlook is also tied to the broader UK economy. As a major high-street lender, its fortunes are closely linked to interest rates, mortgage demand, and the health of British households and businesses. If the Bank of England cuts rates faster than expected, that could pressure margins; if the economy weakens, loan losses could rise.
RBC's view is just one analyst's perspective, but it offers a useful framework for thinking about NatWest as an investment. The stock's appeal rests heavily on its ability to keep paying out cash, and that depends on the bank maintaining its capital strength through the cycle.
For more on how analysts are adjusting their views on European banks, you can read about RBC's recent upgrade of CaixaBank and BP's debt-reduction focus. Also, tech stocks have been sliding, which may be shifting investor attention toward income-paying sectors like banking.
