NATWEST GROUP (NWG) SHARES: 2025 PERFORMANCE IN UK, KEY DRIVERS, MILESTONES AND RISKS —'26 OUTLOOK

How did NatWest Group (NWG) shares perform in 2025?

In 2025, investors in NatWest Group (LON: NWG) witnessed a year shaped by continued macroeconomic transitions, regulatory changes, and strategic shifts within the UK banking sector. As a major British bank with significant retail and commercial exposure, NatWest’s share performance reflected broader systemic challenges as well as company-specific opportunities and risks.

By the close of 2025, NWG shares posted a broadly stable performance, hovering within a moderate range compared to the FTSE 100 index. Starting the year at approximately £2.30 per share, NatWest ended December 2025 slightly higher at £2.56, delivering a year-to-date gain of around 11%. This modest uptick beat some market expectations, driven partly by a series of resilient earnings results and a relatively strong dividend yield, which continues to appeal to income-focused investors.

The Group continued to benefit from a more favourable interest rate environment early in the year — with the Bank of England maintaining base rates above 4.5% in H1 2025 before initiating gradual cuts in the latter part of the year. Higher interest rates bolstered NatWest’s net interest margin (NIM) through much of the year, although margin compression became visible as rate cuts progressed and competition for deposits intensified.

Key corporate milestones in 2025 included:

• State divestment: The UK government reduced its stake in NatWest from 33% to approximately 22% via market placements and the retail share offer announced in October 2025. The IPO-style offer drew strong retail participation, further diversifying the shareholder base.
• Cost efficiency programme: NatWest accelerated digital transformation initiatives, closing additional physical branches and increasing investment in AI-enhanced customer engagement platforms. These changes resulted in modest reductions in operating costs.
• ESG and green lending: The bank increased its sustainable finance portfolio to £21 billion, edging closer to its 2027 target of £100 billion in climate and sustainable finance funding.

However, despite these positives, persistent structural headwinds remain. Sluggish mortgage growth, pressure on small business lending, and weak consumer discretionary spending have kept return on equity (RoE) in the mid-single digits. Lending volumes showed signs of flattening amid caution from both borrowers and lenders as economic growth in the UK remained tepid at under 1%.

Meanwhile, NWG’s capital position remained solid with a CET1 ratio near 14.8%, supporting its ability to maintain robust capital distributions through buybacks and dividends. The full-year dividend yield stood strong at near 7.5%, underpinned by the bank’s substantial retained earnings.

From a valuation standpoint, NWG shares traded at a price-to-book (P/B) ratio of around 0.65x by year-end — still a discount to tangible book value, suggesting a cautious investor outlook due to perceived risks despite decent profitability metrics.

What were the key factors driving NatWest's share performance?

A number of strategic, economic, and regulatory drivers shaped NatWest Group’s 2025 share performance and likely remain pivotal in the year ahead. Each of these influences affected investor sentiment and valuation trends in varying degrees across the year.

1. Interest rate dynamics

Perhaps the most consequential factor for NatWest over the past year was the shape of the UK interest rate curve. With the Bank of England (BoE) holding rates high during the first half of the year and gradually reducing them from September onward, NWG benefited from elevated net interest margins early on. However, pressure increased across Q3 and Q4 as margins narrowed, especially within the mortgage book where repricing was slower to keep pace with funding costs.

2. Government share sell-down

The UK government’s continued divestment of its shareholding in NatWest was a significant stock market event. The October 2025 Retail Share Offer was structured to appeal to small investors and achieved strong demand. Nevertheless, the placements introduced some volatility, with investors anticipating medium-term overhang effects and dilution risks. Despite this, the market largely absorbed the additional supply effectively, indicating growing investor confidence.

3. Retail banking performance

NatWest’s core UK retail and small business operations faced mixed fortunes. Consumer banking volumes remained resilient, helped by wage growth and stable employment, although discretionary spending on credit cards softened. The mortgage division, accounting for over 50% of its loan book, slowed amid a tepid housing market and tighter affordability criteria, with new originations down 9% year-on-year.

4. Expense control and digital strategy

Cost containment was a major strategic focus in 2025. NatWest’s continuing investment in digital capabilities — including the expansion of its ‘Bank of the Future’ platform — helped streamline operations and reduce branch-related overheads. Employee headcount declined modestly via natural attrition and restructuring, aiding efficiency ratio improvements, which stood at 55.4% by year-end.

5. Regulatory and ESG expectations

Increasing ESG scrutiny and regulatory compliance costs were also noteworthy headwinds. The bank continued to align its asset portfolio with the UK’s net-zero transition goals, increasing exposure to green segments while actively managing transition risks in areas such as oil and gas financing. Financial Conduct Authority (FCA) guidance also led to greater emphasis on consumer duty and fair pricing, increasing product oversight obligations.

6. Capital allocation strategy

Despite modest profitability, NatWest returned substantial capital to shareholders in 2025. Share buybacks of £1.5 billion and dividends totalling £1.1 billion enhanced total shareholder returns. This level of capital return was enabled by the bank’s strong capital position, but some analysts cautioned that upcoming macro shifts might constrain future distributions.

Overall, the interplay between income stability, digital efficiency, shareholder distributions, and gradual derisking of balance sheet exposure framed NatWest’s value proposition during 2025 — and will continue to do so in 2026.

What risks and trends could affect NatWest in 2026?

Looking ahead to 2026, several themes and risks could shape NatWest Group’s outlook — from economic convergence and interest rate adjustments to sectoral rebasing and geopolitical pressures. Investors assessing NWG for the coming year will want to monitor a closely interwoven set of internal strategies and external trends.

1. Interest rate inflection and NIM pressure

The Bank of England’s path toward a neutral policy rate is a central watchpoint. Consensus expectations suggest base rates could decline to around 3.25% by Q4 2026, intensifying margin compression and reducing the profitability of NatWest’s deposit-heavy balance sheet. As rates fall, competition in the savings market is likely to rise, pressuring spreads further. Active repricing of liabilities and a focus on fee-based income may be necessary to cushion margins.

2. Mortgage and housing sector risks

The UK’s housing market remains a critical risk zone. With mortgage affordability near post-2010 lows and average house prices still elevated, any further decline in property values could increase non-performing loan (NPL) ratios, particularly in the buy-to-let segment. NatWest has tightened underwriting standards, but exposure to residential mortgages remains material and will need careful monitoring.

3. Political and regulatory uncertainty

Hampered productivity growth, potential fiscal tightening, and a mid-year UK general election could introduce new policy uncertainties in 2026. Regulatory focus on consumer duty, banking competition, and data privacy is likely to intensify regardless of the political outcome. Additionally, any newly passed taxation or windfall levy measures targeting UK banks could adversely impact earnings forecasts.

4. Digital and cyber risk

As NatWest moves deeper into digital banking transformations, risks associated with data privacy, cyber threats, and technology obsolescence could increase. In 2025, NatWest experienced a brief but impactful service outage in its app-based platform, sparking debate around resilience standards for digital-first banks. Maintaining cybersecurity investments and regulatory compliance will remain essential in 2026.

5. Earnings quality and credit performance

Credit conditions could deteriorate moderately in 2026 if economic activity remains subdued. Impairment provisions for SME loans and unsecured consumer portfolios may rise slightly. Analysts will be watching for any signs of declining loan book quality or a shift toward lower-yielding assets. Earnings quality and return on tangible equity (RoTE) must be preserved to justify continued capital returns.

6. Exit of government ownership

The potential full exit of the UK government’s shareholding would mark a historic shift for NatWest. Speculation suggests that a final significant tranche could be sold in late 2026, which presents both strategic freedom and short-term supply risk. While government disengagement enhances corporate autonomy, volatility surrounding large-scale dilution events could temporarily affect share valuation metrics.

Overall, NatWest’s prospects in 2026 will depend on its ability to balance capital return ambitions with macro prudence, maintain digital innovation momentum, and strengthen earnings durability. With relatively low valuation multiples and strong capital buffers, NWG shares could present selective opportunities — especially for investors focused on income and long-term resilience.