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Royal Bank of Scotland profits up 15%

The Royal Bank of Scotland Group has reported a 15% increase in profit in its half-year results, although bad debt provisions soared 77% compared to the first six months of 2001.

Nonetheless, the group&#39s results are solid overall and went some way to ease fears about bad debts in the UK banking sector.

RBoS profits increased £400m to £3,151m from £2,751m in the first half of 2001. All divisions contributed to the profits rise. Under the retail banking division, average mortgage lending grew by 11% or £2.9bn to £29bn.

The group continued to achieve strong growth in income, which is up 20%, or £1,360m, to £8,182m. Excluding acquisitions, total income was up by 15%.

Performance improved across a number of key indicators. Net interest margin increased to 3.1% from 3%, the cost income ration improved to 45.7%, capital ratios also improved and customer numbers grew across all divisions.

During the last six months provisions remained essentially flat in line with expectations. Earnings per share, adjusted for goodwill amortisation and integration costs, increased by 12% from 62.6p to 69.8p.

RBoS declared an interim dividend of 12.7p per ordinary share, an increase of 15%.

Sir George Mathewson, chairman of the RBoS group, says: “Strong income growth and improved efficiency are key factors in these results. Our focus on satisfying customers continues to reap rewards with increased customer numbers across the group and in particular in Citizens, Direct Line, Retail Banking and Retail Direct.

“Provisions remain at a level consistent with the second half of 2001, influenced both by growth in our book and particular corporate situations. Overall credit quality remains strong.

“The strength, diversity and flexibility of our group has enabled us to grow our profit before tax, goodwill amortisation and integration costs by 15% and the board is pleased to increase the interim dividend, also by 15%.”

Fred Goodwin, group chief executive, says: “Despite the challenging economic environment we continue to make good progress across all areas of the group, and I am particularly pleased with the level of income generation and the improvement in efficiency.

“We set stretching benefit targets for the NatWest integration. The original plans were reassessed in February and the level of benefits increased; we are well on target to deliver the new enhanced plan.

“The Mellon integration is going faster and better than originally planned.”

Operating expenses, excluding goodwill amortisation and integration costs, rose by 14%, or £456m, to £3,740m. Excluding acquisitions, operating expenses were up 8% in support of the corresponding 15% growth in income.

Overall credit quality remains strong, with no material change to the distribution by grade of the group&#39s lending portfolio compared with the position at 31 December 2001. The profit and loss charge for provisions was £652m in the first half of 2002, against £622m in the second half of 2001.

Commenting on the future, Mathewson says: “As ever, the outlook for the economies in which we operate is difficult to predict with any certainty. However, as our interim results have demonstrated, the strength, diversity and flexibility of our group enables us to adopt a cautious stance relative to market conditions, whilst still being able to deliver superior business performance through the provision to our customers of the support, products and services which they want and need.”

Compared with the first half of 2001, the divisional contributions were as follows:


  • Retail Direct, which includes the group&#39s cards business as well as Tesco Personal Finance, Virgin Direct Personal Finance, Direct Line Financial Services and Lombard Direct, increased its total income by 19%, or £120m to £756m, and its contribution by 37%, or £89m to £330m.
  • Corporate Banking and Financial Markets is the largest provider of banking services to medium and large businesses in the UK. It increased its total income by 15%, up £392m to £2,934m, and its contribution by 3%, or £45m to £1,554m.
  • Retail Banking provides a wide range of banking, insurance and related financial services to individuals and small businesses through its network of RBoS and NatWest branches. It increased its total income by 8%, or £148m to £2,037m and its contribution by 8%, or £111m to £1,488m.
  • Manufacturing supports customer-facing businesses, mainly Corporate Banking and Financial Markets, Retail Banking, and Retail Direct, with technology, account management, money transmission, property and other services. Its costs were £850m, up 9%. This increase in costs reflects support for growth in business volumes arising from new customer accounts opened, mortgage applications, new personal loans and ATM transactions, and for initiatives to enhance customer service, particularly in NatWest telephony.
  • Wealth Management, which includes Coutts Group, Adam & Company, and the offshore banking businesses, saw a small reduction in income of 2%, or £8m, to £464m. Its contribution was up £1m to £235m.
  • Direct Line Group sells and underwrites retail and wholesale insurance on the telephone and the internet. It increased its total income by 46%, or £310m to £989m, including strong growth of 47% to £885m in premium income.
  • Ulster Bank provides a comprehensive range of retail and wholesale financial services in Northern Ireland and the Republic of Ireland. It increased its total income by 11%, or £25m to £257m and its contribution by 9%, or £10m to £125m.
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