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LONDON: Britain’s NatWest bank said Friday that it surged back into annual profit last year as the economy recovered from Covid, and forecast it stands to gain from rising interest rates.

The lender, which is majority-owned by the government, said in a statement that net profit hit £2.95 billion ($4 billion, 3.5 billion euros) in 2021.

That contrasted sharply with a loss of £753 million the prior year, when it set aside £3.2 billion in provisions to cover potential fallout from the Covid-19 pandemic.

As the UK economy bounced back on easing Covid restrictions, the bank said Friday it was able to release almost £1.3 billion from those provisions.

NatWest is the first of Britain’s major banks to publish annual results.

“NatWest Group delivered a strong performance in 2021,” said chief executive Alison Rose.

The decision to release some of the provisions reflected “an improvement in the economic outlook and a low level of defaults”.

NatWest last year also cut costs by £256 million, while £3.8 billion was redistributed to shareholders via dividends and buybacks.

Some £1.7 million of that cash was handed to UK taxpayers, who own just over 50 percent of the lender.

Amid heightened anxiety among Britons over the soaring cost of living as inflation surges, NatWest increased its total payout in annual staff bonuses by around 50 percent to £298 million, slightly below its pre-pandemic level.

Rose acknowledged that Britain’s banks stood to gain from rising UK borrowing costs this year.

The Bank of England this month lifted its main interest rate for the second time in a row in a bid to bring down inflation, which is rising faster than workers’ wages.

UK inflation surged to a 30-year high of 5.5 percent in January, official data showed this week, adding pressure to the cost of living and on the BoE to keep raising rates.

Rising interest rates benefit savers and boost banks’ bottom lines.

However, they also push up loan repayments, dealing a major problem in particular for governments that borrowed vast sums to prop up economies during the pandemic.

“We do benefit from higher interest rates,” Rose told Bloomberg television.

Despite the return to profit, NatWest’s share price sank 2.4 percent to 234.60 pence in Friday afternoon trading on the London stock exchange, while the rest of the market was flat.

“Today’s numbers are more good news for the taxpayer-funded bank, which after years of patchy performance is now a net contributor to the public purse,” noted CMC Markets UK Michael Hewson.

“The payment of bonuses is likely to be a hot-button issue for the bank, given the challenges being faced by the UK economy,” he warned.

Formerly known as Royal Bank of Scotland, NatWest remains majority owned by the UK government after its rescue at the height of the global financial crisis in 2008. Fellow UK heavyweight banks Barclays, HSBC and Lloyds will publish their annual results next week.

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