RBC Capital Markets has updated its outlook on NatWest, the UK lender, after the bank's second-quarter results, and the investment firm sees the bank's balance-sheet growth continuing to support earnings well into the next decade. In a note to clients, RBC kept its 'sector perform' rating—meaning it expects NatWest to perform in line with the sector—and laid out a forecast for substantial shareholder returns over the next few years.
Specifically, RBC modeled £12.5 billion in total shareholder returns for the fiscal years 2026 through 2028, which includes £2.8 billion in share buybacks. That's a significant amount of capital being returned to investors, and it underscores the bank's ability to generate excess cash.
What's driving the optimism?
RBC's refreshed view is based on a few key factors. First, the bank's balance sheet is growing faster than expected. That means NatWest is taking in more deposits and making more loans, which can boost interest income. Second, RBC points to a 'structural hedge'—a portfolio of fixed-rate assets that benefits when interest rates change over time. As higher rates filter through, this hedge can provide a steady tailwind to earnings.
The note also highlights NatWest's recent acquisition of Evelyn Partners, a wealth management firm, as a 'medium-term swing factor.' That deal could add to earnings but also carries integration risks. RBC suggests that deposit growth could be an upside driver that consensus forecasts still underplay, meaning the market might be underestimating how much NatWest can earn from its growing customer base.
This is not the first time analysts have taken a positive view on NatWest after its recent results. Earlier, Berenberg lifted its price target and pulled forward buyback expectations, as we covered in our report on Berenberg's NatWest upgrade. And the bank itself beat profit forecasts and raised its 2026 target, as noted in our coverage of NatWest's Q2 earnings.
What does this mean for investors?
For everyday investors, the key takeaway is that NatWest is expected to return a lot of cash to shareholders over the next few years. Buybacks reduce the number of shares outstanding, which can boost earnings per share and often supports the share price. Dividends, if any, would be on top of that.
However, RBC's 'sector perform' rating suggests the stock is fairly valued relative to its peers—not a screaming buy, but not a sell either. The bank's balance-sheet momentum is real, but the market may have already priced in much of the good news.
Investors should also be aware of the risks. The structural hedge, while helpful, is not a permanent tailwind—it depends on interest rates staying elevated. If rates fall, the benefit could fade. The Evelyn Partners deal is a growth opportunity, but integration can be tricky, and any missteps could weigh on earnings.
Overall, RBC's forecast of £12.5 billion in shareholder returns is a strong signal of confidence in NatWest's cash generation. But as with any investment, it's important to consider the broader economic backdrop, including UK interest rates and the health of the housing market, both of which affect NatWest's lending business.
For context, NatWest is one of the UK's largest banks, and its performance is closely tied to the domestic economy. The bank has been working to improve efficiency and returns, and recent results suggest that strategy is paying off.
As always, this is not a recommendation to buy or sell. It's simply a look at what one major investment bank thinks about NatWest's future. Investors should do their own research and consider their own financial situation before making any decisions.
