RBS: Covid-19 Impact Partly Offset By Growth in NatWest Markets and Tight Cost Control
In 1Q 2020 The Royal Bank of Scotland Group plc (RBS or the Group)'s statutory profit before tax was GBP 519 million, declining by 49% YoY. Profit attributable to ordinary shareholders was GBP 288 million, corresponding to 3.6% return on tangible equity. The decline in RBS' profits reflected a significant increase in the cost of risk. However, this was largely offset by an increase in revenues and a decline in operating expenses, which combined led to a 20% increase in Income Before Provisions and Taxes.Net impairment losses were GBP 802 million (90bps of gross customer loans), increasing substantially from GBP 86 million in 1Q 2019. This included a GBP 628 million charge due to a more uncertain economic outlook. Commercial Banking was the largest contributor to YoY growth in impairments at the Group level.
Revenues remained resilient with statutory total income up 4% to GBP 3.2 billion. Excluding notable items and own credit adjustments, total income decreased by 1.6%. Statutory Group revenues were boosted by strong performance in NatWest Markets where income more than doubled YoY, offsetting declines in some of the other business lines. Net Interest Margin remained resilient declining by only 4 bps during the quarter to 1.89%.
Overall operating expenses remained under good control, declining by 5% to GBP 1.8 billion. Within this, litigation and conduct costs benefited from a GBP 100 million PPI release offset by other charges. Strategic costs were GBP 131 million, driven by technology spend and NatWest Markets restructuring.
As a result of the Covid-19 pandemic, the Group increased its economic uncertainty overlay provisions to GBP 798 million during the quarter. At end-2019 the overlay provisions were GBP 170 million, mainly reflecting the uncertainty related to Brexit.
Capital and leverage ratios remained relatively well positioned. The CET1 ratio strengthened by 40bps QoQ to 16.6%, reflecting the the release of the foreseeable dividend and pension contribution capital deductions (+75bps), which was partially offset by RWA growth. The UK leverage ratio was 5.8% (flat QoQ). The Liquidity Coverage Ratio remained strong at 152% and the loan-to-deposit ratio was 91%.
Royal Bank of Scotland Group is a banking and financial services company. Co.'s activities are organized in franchise basis; Personal and Business Banking (PBB) comprising UK PBB and Ulster Bank RoI segment, which serve individuals and small businesses in the U.K. and the Republic of Ireland; Commercial & Private Banking comprising, Commercial Banking and Private Banking segment, which serve commercial, corporate and private banking in the U.K. and Western Europe; RBS International, which serves retail, commercial and financial institution in Jersey, Luxembourg and London; and NatWest Markets, which provides risk management and financing solutions through its trading and sales operations.
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