Image source: Getty Images The NatWest Group (LSE: NWG) share price has been surging in 2023, following an end-of-year climb in 2022. Since the bull run started in October, NatWest shares have gained 45%. Bank share valuations are rising across the sector. Over the same timescale, Lloyds Banking Group and Barclays have recorded similar gains. The NatWest share price is now ahead of its pre-pandemic levels. So is the price rise likely to run out of steam soon? Or is there more to come? A lot could depend on 2022 full-year results, due on 17 February. Optimism It seems like investors are currently optimistic. But if those results don’t quite meet expectations, I wouldn’t be surprised to see the share price fall back a bit. The bank’s outlook and dividend plans for the coming year could prove crucial too. I’ll be looking for bad debt provisions, among other things. Judging the way the banks handled the same issue during the Covid pandemic, I suspect they might be a bit pessimistic. But I’d rather see an abundance of caution, followed by some impairment reversals, than risk any cash flow crisis. At the end of the third quarter, the bank reckoned it was still on track to hit its planned return targets. Return on tangible equity in 2023 should, it said, be in the range of 14-16%. But with economic conditions changing, the mix should be different than previously expected. Interest rates Higher interest rates should boost NatWest’s income for the year. But costs are becoming less stable due to rising inflation. The end of 2023 is still a long way away, and it could turn out to be a pretty uncertain year for the financial sector. On the valuation front, NatWest shares are on a price-to-earnings (P/E) ratio of around 10 based on 2022 expectations. That’s relatively modest compared to the long-term FTSE 100 average. But with the economic risks we face in the next 12 months, I can’t help wondering if it might represent a fair valuation now. By contrast, the City pundits have Lloyds on a 2022 P/E of less than eight. And the Barclays multiple is only around 6.5. Dividends NatWest dividends are a fraction weaker too, with forecasts suggesting a yield of 4%. At Lloyds, we’re looking at a predicted 4.3% yield. So, on the one hand, NatWest does appear to be more highly valued than other banks. But then, does that reflect lower risk? Lloyds, as the UK’s biggest mortgage lender, faces more risk from housing market pressure. It’ll be interesting to see how much risk impairment Lloyds thinks is needed in 2023. And Barclays is open to commercial banking and international risk. Verdict So what’s my verdict on the NatWest share price right now? I still see the whole banking sector as undervalued. And I intend to buy more bank shares during 2023 to hold for the long-term. But the safety margin compared to the risk does appear to be declining. I think NatWest shares remain reasonably good value. But Lloyds is still my pick of the sector.
