The UK's NatWest has today reported a £20 billion fall in deposits in the first quarter amid a fiercely competitive environment and a cautious outlook pointing to the challenges ahead, taking the shine off forecast-beating profit.
NatWest's income jumped 37% but came in just below analysts' forecasts.
This comes as higher central bank interest rates that boost lending returns encouraged customers to shop around and forced banks to boost rates on savings products.
The bank's shares fell 6% in early trading despite a jump in profit, as investors digested a third successive quarter of reduced deposits.
Analysts also pointed to the lack of an expected upgrade to the bank's performance forecast for the year.
NatWest reported pretax profit of £1.8 billion for the first quarter, up from £1.2 billion achieved a year earlier and above an average of analyst forecasts of £1.6 billion.
Like rival Barclays, which reported results yesterday, higher interest rates continued to lift revenue.
But the higher rate environment also poses challenges for lenders, with NatWest blaming a £19.8 billion reduction in deposits partly on fiercer pricing competition, higher customer tax bills and exiting its Ulster business in Ireland.
Personal current account balances decreased by £2.6 billion and personal savings decreased by £1.8 billion in the first quarter, NatWest said, as customers sought out better rates with term deposit products or with rival banks.
Deposit levels at banks have attracted closer scrutiny after the rapid collapse of US lender Silicon Valley Bank sparked jitters across the global banking sector.
It also highlighted how quickly customers can shift money in the digital era.
NatWest chair Howard Davies, who plans to leave the bank by the middle of next year, this week said that "poor risk management" was largely behind recent bank failures and that NatWest remains resilient.
Bank investors are also wary that inflation remains stubbornly high in Britain, squeezing household budgets and raising the risk of borrowers falling behind on loan repayments.
NatWest set aside £70m to cover potential loan defaults, compared with a small release of cash reserves the previous year, but it said loan arrears remained low and the charge was below the £144m booked in the previous quarter.
"By monitoring customer behaviour and looking closely for signs of financial distress we are able to put in place proactive measures to help those who are struggling right now," the bank's chief executive Alison Rose said.
Over the last few months, NatWest has agreed deals with AIB to buy Ulster Bank's performing commercial loans as well as its tracker mortgages portfolio.
Deal for Ulster Bank's performing non-tracker mortgages, its Asset Finance business, including its Lombard digital platform, 25 Ulster Bank branches and performing SME loans were also agreed with Permanent TSB.
