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RBS reveals £3.3bn loan losses - 06/11/2009

Royal Bank of Scotland has revealed losses of £3.3bn against bad debts and investments for the third quarter, a drop from the £4.7bn charge it suffered in the previous three months.

RBS published the figures today in an interim statement which reveals these losses included £404m in its UK retail business and £187m across its UK corporate division. The statement also shows the group made a pre-tax loss of £2.2bn for the three months up until 30 September.

The bank has forecast losses to remain well into next year and it also warned that the number of companies failing, and the number of unemployed people across the UK, would not peak until next year.
The group’s core banking activities made an operating profit of £1.2bn, despite reducing its lending by £5.3bn to £588bn during the third quarter.

As a condition of joining the government’s Asset Protection Scheme, whereby some of its risky loans are party insured by the state, RBS agreed to make to make available an additional £25bn of lending to businesses and individual borrowers. This comprised £9bn of mortgage lending and £16bn of business lending to creditworthy customers on commercial terms, and subject to market demand, over the ensuing 12 months and a similar amount over the following year.

The bank’s interim statement said "RBS is unambiguous in its view that these commitments are being met. However, as is normal in recessions, our customers are generally seeking to repair their balance sheets, not to increase borrowing. As a result, the demand for our lending is muted, especially from business customers."

RBS said repayments from small and medium-sized enterprises have accelerated as many businesses and commercial customers seek to deleverage. Term loan repayments were up 37 per cent in the first nine months of 2009.

Gross new lending to mid and lage corporates totalled £5.4bn in the third quarter, a drop of 13 per cent from the second quarter.

Gross lending in the mortage market by RBS totalled £13.9bn in the first nine months of 2009, including more than £2.3bn to first-time buyers.

RBS chief executive Stephen Hester said: "We owe it to everyone to be realistic and transparent. Economic recovery is likely to be slow and the pain of economic adjustment will take years to subside. Our business will reflect these issues.

"Profitability in our core businesses will recover fully only when our own actions are also complemented by more normal interest rates and bad debt experience. Finally, regulatory pressures on all banks will continue to increase the cost of doing business and require higher margins and more capital than previously."