Royal Bank of Scotland sees profits halve amid pandemic

Royal Bank of Scotland is bracing itself for further financial pain after an impairment charge of more than £800 million saw its first-quarter profits halve.

Edinburgh-headquartered Royal Bank of Scotland has become the latest big British bank to lay bare the impact of the coronavirus crisis on its finances, and City analysts have warned of further potential fallout.

The Edinburgh-headquartered lender became the latest big British bank to lay bare the impact of the coronavirus crisis on its finances, and City analysts have warned of further potential fallout.

Its results showed that operating profit before tax came in at £519 million for the three month to 31 March, ahead of the £415m that analysts had expected, but down 49 per cent from the same period last year.

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RBS took a net impairment loss of £802m, noting that £628m of this was down to the uncertain economic outlook.

Chief executive Alison Rose said: “Every person, family and business has been affected by the current situation and normal business activity has been severely impacted.

“We are putting our purpose into action and I am proud of how we have responded, providing our customers, communities and colleagues with the support they need.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that RBS looked in “robust health” despite the economic turmoil but warned of “challenges ahead”.

He said: “The bank generates a higher proportion of revenues from interest payments than rival Barclays and that makes the recent cut to base rates is painful as well as increasingly the likelihood of further provisions for bad loans if economic conditions deteriorate.”

RBS, which also owns NatWest, has managed to keep nine in ten branches open, even while sending some 60,000 members of staff to work from home.

Providing an update on lending figures released earlier this week as its “virtual” annual shareholder meeting, the bank said it had approved more than 8,000 loans, worth £1.5 billion, to small firms under the UK government’s coronavirus business interruption loan scheme, designed to help companies through the crisis.

As of 23 April, RBS has extended repayment holidays to more than 190,000 of its mortgage customers.

The bank said it would be “inappropriate” to provide the markets with a medium-term outlook as the economy faces “unprecedented levels of uncertainty”.

Rose added: “Although the outlook remains extremely uncertain, we approach the crisis from a position of strength, with confidence in our balance sheet and focus on our strategic priorities.”

Donald Brown, senior investment manager at Brewin Dolphin, said: “RBS had gone a long way down the road to recovery following the last major crisis, but the economic impact of Covid-19 has set it back a few steps.

“The bank has put aside £802m to cover the potential cost of bad debts; profits have been put under pressure; and it is scrapping its digital Bo brand – only recently launched.”

Russ Mould, AJ Bell investment director, said: “One of the very few things that RBS’ first-quarter results have going for them is that it was the last bank of the Big Five to report, so their ability to shock or surprise was much more limited.”

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