RBS ‘ready to grow’ as Hester makes lending pledge

RBS chief Stephen Hester. Picture: Getty
RBS chief Stephen Hester. Picture: Getty
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ROYAL Bank of Scotland said yesterday its restructuring was almost complete and that it was now ready to begin growing again.

Chief executive Stephen Hester said the shrinking of the balance sheet was over and that the bank was “desperate” to lend to businesses.

In a first-quarter trading update the bank said it had taken advantage of the Bank of England and UK government’s cheap finance initiative, the Funding for Lending Scheme (FLS), to increase net lending to small businesses by 1 per cent to £34 billion. The scheme had saved small firms £70 million.

It said small business loan applications rose slightly quarter-on-quarter at 49,000, although they remained lower than a year earlier, while repayment levels were still high.

SMEs are still choosing to build up cash reserves, as shown by a drop in RBS business overdraft usage rates, to 43 per cent from 46 per cent a year earlier.

But it said it was approving 90 per cent of applications for SMEs, with those declined largely as a result of a lack of ability to repay.

“We have more deposits than we know what to do with. We are desperate for there to be more lending opportunities,” said Hester. “In that sense we have no need to shrink our balance sheet any more. I would like to grow it.”

He said that following the disposal of £800bn of non-core assets to downsize the balance sheet, there would be about £40bn of unwanted assets left over which represented a small sum for a bank of its size. These included some property loans, but none of these assets were holding back the bank or its ability to lend. “Yes, there is more to go, but it is a much more manageable task,” he said.

Chairman Sir Philip Hampton said the FLS had been “terrific” for banks and borrowers in kick-starting lending.

The bank has drawn down £750m from the FLS since its launch last summer, but said it did not have to tap into it further in the first quarter.

Hampton said the bank was now showing strong liquidity and reserves, reflected in a core tier one ratio up from 10.3 per cent to 10.8 per cent. It had been the best quarterly performance “for some time”, he said.

However, the figures showed the difficulties still facing RBS as its core operating profit fell to £1.3bn against £1.6bn a year earlier after its investment banking division saw earnings more than halve to £294m from £826m a year ago.

The bank preferred to point to a pre-tax profit of £826m from a £1.5bn loss a year earlier. But the latest figure was flattered by the absence of compensation for payment protection insurance and other liabilities. Investors expressed disappointment by marking the shares down 5.7 per cent to close at 289.8p.

Hester said the shrinking of the investment bank would not restrict its performance. He also vowed not to take any more taxpayer support.

He said the bank was still open to talk to interested parties about the sale of 316 branches, but a flotation was also being prepared. “There are no other banks wanting to expand in the UK,” he said.

Hester expects to make an announcement on management changes, but gave no clear guidance on speculation that finance director Bruce van Saun would return to the US to run Citizens Bank.