RBS profits halve as bank takes £800m coronavirus hit

Royal Bank of Scotland sets aside sum to cover surge of bad debts during pandemic

Profits at Royal Bank of Scotland halved in the first quarter after the taxpayer-owned bank set aside more than £800m to cover a surge of bad debts caused by the Covid-19 crisis.

RBS announced on Friday that pre-tax profits had fallen to £519m in the first three months of 2020, comparedwith just over £1bn a year earlier.

Profits were hit by an £802m provision, a sum set aside to cover potential loan losses due to an economic downturn that could make it harder for its retail and business customers to repay their debts. Analysts were expecting a £515m charge, according to consensus estimates compiled by the lender.

The Edinburgh-based bank, which is changing its parent name to NatWest this year, said the group “has significant exposures to many of the commercial sectors that are already being impacted by the Covid-19 pandemic, including property, retail, leisure, travel and shipping”.

Alison Rose, the chief executive, said: “Having been involved and worked through the financial crisis, I’m aware of the importance of the financial stability and strength and liquidity of the bank which is a core priority for me.”

She assured that RBS was well diversified going into the crisis: “We’re comfortable with the level of risk on our books, including the new lending and the government schemes.”

RBS accounts for the largest proportion of lending through the UK’s government-backed coronavirus business interruption loan scheme (CBILS), which has been widely criticised for being slow to distribute funds to struggling firms.

The bank has so far approved £1.6bn to 8,292 businesses, or 31% of the 25,262 total. RBS said it had a share of about 20% of the small and medium-sized business banking market.

The chief financial officer, Katie Murray, said while CBILS would not be hugely profitable for the lender she expected a “nominal return” from the loans.

Rose said it was inevitable that some businesses would fail during the crisis, but RBS has not yet had a surge in insolvencies or payment delinquencies as customers have taken advantage of government support.

Across the entire bank, Rose noted a slowdown in spending and a rise in deposits during the lockdown. RBS forecasts a 4.3% drop in UK economic growth for 2020.

“Of course we will suffer losses on our books as the crisis plays out, but we think it’s too early to estimate the shape and scale of the economic impacts,” Rose said.

The RBS provision brings the total loan loss charges announced by the five largest UK banks to about £7.4bn for the first quarter.

A provision of £1.4bn nearly wiped out first-quarter profits at Lloyds Banking Group, which fell 95% to £74m. On Wednesday, Barclays reported a 38% drop in pre-tax profits after taking a £2.1bn charge to cover bad debts, which it predicted could soar to £4.5bn by the end of the year.

This week HSBC warned it could end up setting aside $11bn (£8.8bn) to cover loan losses for 2020, after the pandemic hit its main markets across Asia and Europe. It reported a first-quarter charge of $3bn (£2.4bn). Standard Chartered also revealed a $962m (£776m) loan loss charge on Wednesday that pushed first-quarter pre-tax profits down 29% to $886m.

RBS, which is still 62% owned by the taxpayer after its £45.5bn bailout in 2008, also announced it was winding down its fledgling digital retail bank, Bó, months after its launch in November. It plans to fold the technology into Mettle, its digital bank for small and medium-sized business customers.


Kalyeena Makortoff Banking correspondnet

The GuardianTramp

Related Content

Article image
RBS tells its staff to carry on working from home until next year
Banking group says it takes safety seriously days after Boris Johnson calls for a return

Hilary Osborne

20, Jul, 2020 @3:54 PM

Article image
More than 50,000 RBS staff to work from home until at least September
Bank memo also outlines new Covid-19 safety rules for 400 employees returning in June

Rupert Jones

21, May, 2020 @1:05 PM

Article image
'UK youth employment prospects crumbling' in coronavirus crisis
Employers warn of grim summer for graduates as firms, big and small, trim recruitment

Jasper Jolly

20, Apr, 2020 @9:05 AM

Article image
HSBC could be first big UK bank to charge for current accounts
Lender to accelerate restructuring as it tries to make up for record low interest rates

Kalyeena Makortoff Banking correspondent

27, Oct, 2020 @8:28 AM

Article image
Small firms hit by coronavirus could miss out on bounce-back loans
Concern over lack of lenders signing up for state scheme to offer low-cost emergency loans

Kalyeena Makortoff Banking correspondent

05, May, 2020 @5:46 PM

Article image
EasyJet secures £600m coronavirus loan from UK Treasury and Bank
Airline also plans to borrow £400m from creditors to ensure liquidity during shutdown

Gwyn Topham Transport correspondent

06, Apr, 2020 @3:09 PM

Article image
'Carbon savings' from Covid-19 lockdown halve within weeks
Greenhouse gas emissions from energy and transport sectors climb as more people return to work

Jillian Ambrose

19, Jul, 2020 @3:51 PM

Article image
Lloyds Bank Group cancels staff bonuses after profits slump
Profits were already down 85% to £434m in first nine months of the year

Kalyeena Makortoff Banking correspondent

18, Dec, 2020 @4:26 PM

Article image
Lloyds rushes to fix flaw that stopped firms receiving Covid loans
Exclusive: UK subsidiary caught in bank’s tangle over government-backed loans

Kalyeena Makortoff Banking correspondent

10, May, 2020 @12:26 PM

Article image
Loan and credit card payments to be frozen for three months in UK
Financial regulator fast-tracks measures to help consumers during coronavirus crisis

Kalyeena Makortoff Banking correspondent

02, Apr, 2020 @10:07 AM