The Royal Bank of Scotland (RBS) saw its profit nearly halve in the first quarter of 2020 due to the ongoing uncertainty caused by the coronavirus outbreak.
Despite the fall, the bank insisted it was in a “strong positon” to deal with a significant economic downturn.
Shares in the bank rose 1.6 per cent in early trading as investors reacted positively to the announcement.
Profit before tax plunged from £1.01bn to £519m in the quarter, a fall of 49 per cent.
RBS’ net interest margin, a measure of the income it generates on products like loans and mortgages, dropped four basis points from 2019 to 1.89 per cent.
Meanwhile, the bank saw its expected credit loss (ECL) rise by £557m, which it said was due to the uncertainty of the pandemic.
RBS’ return on tangible equity (RoTe) dropped from 8.3 per cent to 3.6 per cent in the quarter.
The bank’s CET1, a core measure of financial resilience, rose 40 basis points from the end of last year to 16.6 per cent.
Earnings per share likewise halved from 5.8p to 2.4p.
Why it’s interesting
The bank also said it would take a net impairment charge of £802m, almost 10 times larger than it faced in the same period last year.
RBS also said that it would shut its Bó, digital banking brand, which it only launched in November.
The bank said it would integrate the Bó platform with Mettle, Natwest’s digital business bank.
In terms of supporting the UK’s small businesses through the economic uncertainty of the pandemic, RBS said it had given out £1.4bn in CBILS loans, 40 per cent of the total.
It also said it had helped businesses raise £3bn through the Bank of England’s Covid Corporate Finance Facility (CCFF), a third of the total issuance thus far.
Hargreaves Lansdown analyst Nicholas Hyett said that the results showed RBS was in “robust health despite the current economic turmoil”:
“RBS went into the current crisis with a balance sheet loaded up to the gunwales with capital.
“Cancelling the dividend has strengthened the balance sheet still further and as a result RBS looks in robust health despite the economic turmoil currently sweeping the market, shaking off a significant increase in lending in the first quarter almost without blinking.
Interactive Investor analyst Richard Hunter said that RBS is “well positioned for the battle ahead”:
“The bank has clarified its strategy for the difficulties ahead, and a recently improved market consensus of the shares to a buy is a reflection that RBS is seen as a rather stronger proposition to the one which limped out of the financial crisis over a decade ago.”
What RBS said
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.
“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.”