RBS profits halve as bank takes £800m coronavirus hit

Profits at Royal Bank of Scotland halved in the first quarter after the taxpayer-owned bank set aside more than £800m to cover a surge of bad debts caused by the Covid-19 crisis.

RBS announced on Friday that pre-tax profits had fallen to £519m in the first three months of 2020, comparedwith just over £1bn a year earlier.

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The UK government has said that these five tests have to be met before they will consider easing coronavirus lockdown restrictions:

  • The NHS has sufficient capacity to provide critical care and specialist treatment right across the UK
  • A sustained and consistent fall in daily deaths from Coronavirus
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Profits were hit by an £802m provision, a sum set aside to cover potential loan losses due to an economic downturn that could make it harder for it retail and business customers to repay their debts. Analysts were expecting a £515m charge, according to consensus estimates compiled by the lender.

The Edinburgh-based bank, which is changing its parent name to NatWest this year, said the group “has significant exposures to many of the commercial sectors that are already being impacted by the Covid-19 pandemic, including property, retail, leisure, travel and shipping”.

It brings the total loan loss charges announced by the five largest UK banks to about £7.4bn for the first quarter.

A provision of £1.4bn nearly wiped out first-quarter profits at Lloyds Banking Group, which fell 95% to £74m. On Wednesday, Barclays reported a 38% drop in pre-tax profits after taking a £2.1bn charge to cover bad debts, which it predicted could soar to £4.5bn by the end of the year.

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This week HSBC warned it could end up setting aside $11bn (£8.8bn) to cover loan losses for 2020, after the pandemic hit its main markets across Asia and Europe. It reported a first-quarter charge of $3bn (£2.4bn). Standard Chartered also revealed a $962m (£776m) loan loss charge on Wednesday that pushed first-quarter pre-tax profits down 29% to $886m.

RBS, which is still 62% owned by the taxpayer after its £45.5bn bailout in 2008, also announced it was winding down its fledgling digital retail bank, Bó, months after its launch in November. It plans to fold the technology into Mettle, its digital bank for small and medium-sized business customers.

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