Lloyds and RBS on track for recovery

Standard & Poor’s says it is encouraged by the progress made by Lloyds Banking Group and the Royal Bank of Scotland on their recovery plans, despite shares in the two banks taking an almost 6% hit yesterday.

The ratings agency has affired the credit ratings for the two state-backed banks and awarded them a ’stable’ outlook, and has raised their stand-alone credit profile for the banks’ core brands from ’BBB’ to ’BBB+’.

Nigel Greenwood, credit analyst at S&P, says: “The affirmations reflect our view of the early progress made by Lloyds and RBSG regarding their respective turnaround plans.”

“The stable outlooks on Lloyds group and RBS reflect our view that these groups will continue to make progress against their strategic targets.”

A statement from S&P says that although the two banks have much more to do and that the external environment continues to pose challenges, it says they have “laid the foundations to improve their performance and further strengthen their balance sheets.”

Lloyds group and RBS are both in the process of overhauling their businesses following the unprecedented support from the taxpayer in 2008 which saw the government end up with a 41% stake in Lloyds group and an 83% stake in RBS.

S&P says their progress to date is ahead of the rating agency’s expectations, particularly in terms of impairment losses, reflecting less fragile economic trends in the UK thanit had forecast.

Lloyds group put out a trading statement in May that said the bank had returned to profit during Q1 this year, though did not disclose the figure, from a loss of £6.3bn in 2009.

RBS reported a operating profit of £713m for the first three months of the year, compared to £1.35bn in Q4 last year.