The cost-of-living crisis poses challenges because so many businesses and customers are unfamiliar with high inflation and rising lending rates, NatWest CEO Alison Rose said.
Firms on the bank’s books are experiencing falling confidence, she told BBC Scotland.
Ms. Rose blamed problems with supply chains, energy bills and skills shortages.
Russia’s invasion of Ukraine has also “exacerbated” people’s concerns, she added.
Three years after taking over the top position from Ross McEwan and rebranding as the Royal Bank of Scotland, or RBS, with the Natwest brand, Ms Rose said the impact of inflation, higher interest rates and the invasion of Ukraine had “raised concerns” for businesses about “Growing Confidence”.
“We’re still seeing positive tailwinds from the recovery from the pandemic as businesses grow again, but business confidence will definitely be hit,” she said.
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She added that Natwest’s corporate clients are not withdrawing their investments, although caution is expressed about long-term projects.
“We’re seeing people increasing their investment in working capital as they restructure their supply chains,” Ms. Rose said.
“One of the challenges we all need to recognize is that for many business owners and many families, an environment of inflation and rising interest rates is not something they have had to contend with for a long time.”
Interest rates were cut sharply during the 2008/09 financial crisis when RBS had the largest balance sheet of any bank in the world, ran into serious trouble with its vulnerability to bad loans and had to be bailed out with £45bn of capital being injected by the UK Government.
Just this month, the Bank of England’s base rate returned to 1% and the current CPI is at 9%, a 40-year high and rising.
So it’s a declining minority of people in Britain who remember the troubles of living with high inflation, and few business people can remember both rising at the same time.
Ms Rose, who joined Natwest 30 years ago, said the bank has account managers who could offer experience managing turbulence in business conditions.
“People are really worried and worried about all these trends so we encourage them to come down and talk to us because there are things we can do and help with,” she explained.
The chief executive said the bank sees no signs that mortgage arrears or bad debts will continue to rise.
“As we emerged from the pandemic, many companies built a lot of liquidity on their balance sheets. One of the things we’ve focused on is helping people save money and put it aside for when times get tough.
“We don’t see any of these early warning indicators of bad debt or bankruptcy or even calls to our financial health and support teams.
“But we are very aware that people are concerned about these challenges. We encourage customers to contact us if they have any concerns.”
In the financial sector, unlike almost all other sectors, wages have increased before inflation. RBS bonuses are up 44% this year.
While others face declining real incomes, the Natwest chief defended the bank’s compensation as fair and competitive with other banks as the bonus pool dwindles.
“We are aware that we are paid well in the financial sector, but the majority of our employees do not receive any bonuses. The majority receive fixed salaries,” she said.
“We always said we would pay fairly and competitively. Our employees are paid above minimum wage. It is also important to bring the right talent into our company so that we can support our customers.”
Referring to the very low savings rates for customers of Natwest and the Royal Bank of Scotland and their Ulster Bank brand – just 0.15% on the Premium Savings Account and 0.45% on ISA cash – the chief executive replied: “We need all of these balance elements. We have always said we will pass on prices to keep the balance and ensure we do so responsibly and fairly.
Ms Rose also recalled a “really difficult time” in the interview, which looked back on her time at the investment bank when her deals were on the verge of causing the collapse of the Royal Bank of Scotland in 2008.
“I’ve spent my whole career here and I vividly remember the financial crisis and the impact we can have on people’s lives when things go wrong. That’s been a big part of my commitment to rebuilding some of the bank’s reputation,” she said.
“I remember walking through the floors, talking to younger people and trying to reassure them. What I saw was a lot of my colleagues – good people doing a good job, traumatized by what had happened (feeling) it wasn’t the bank they were recognised. They didn’t.”
She reflects that the last two CEOs – Mr McEwan and Stephen Hester – have struggled to survive while their jobs have been about focusing on the future and growth, building relationships and being more than just a bank for transactions.
And moving away from its Scottish branding, she said Natwest remains proud of its Scottish heritage, owning one in three Scottish businesses, one in five households and one in seven Scottish mortgages, while being a major employer north of the border.
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