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Morningstar | New RBS Company Report

While there are signs of green shoots in Royal Bank of Scotland's revenue generation, challenges regarding litigation and restructuring costs, as well as revenue generation, remain to be dealt with in the short term. RBS posted 2018 full-year annual net income of GBP 1.6 billion versus GBP 752 million in 2017. While operationally somewhat better than the previous year, significantly lower restructuring costs were the biggest supportive factor in 2018. Although it is rather slower than peers, it seems RBS' management has found a good path to resolve outstanding issues and to operationally catch up with other banks on digitalisation. Restructuring is not completed just yet, however. The group has about GBP 1.5 billion remaining in its targeted strategic spending plan, which it plans to finish by the end of 2019.A continuously competitive mortgage market and prolonged uncertainty over Brexit keep a lid on top-line growth in the short term. Additionally, credit costs are expected to rise from the current benign economic environment. By 1Q 2019, impairment provisions are still at a comfortable 11 basis points, although in the medium term we expect provisions to eke closer to a midcycle level of about 30 basis points.