RBS predicts hit from coronavirus could reach £800 million

RBS today set aside £802 million to pay for potential losses related to coronvirus as customers struggle to cope with loan repayments.

Operating profits at the bank, still majority owned by the taxpayer after being bailed out in the financial crisis, halved to ££519 million in the first quarter of the year compared with the same period a year earlier as a result. That would have been worse had it not been for a strong performance from its much-shrunken NatWest Markets business which benefited during the covid turmoil as corporate customers fought to hedge themselves against the volatile prices.

As with other lenders who have reported big profit slides this week, the period only covers the first weeks of the covid crisis in the UK.

In the face of the looming crisis, the group today announced it was winding down its trialled Bo digital bank brand, launched only last November. The business will be merged into Mettle, RBS's digital bank for SMEs instead as part of a plan to pare down its investment across the group.

Profitability measured by the industry standard of return on tangible equity plunged from 8.3% a year earlier to 3.6%. RBS has the strongest capital buffers in the UK, protecting it from bad loans, and this actually rose from a ratio of 16.2% to 16.6% measured by the core equity tier one ratio after City regulators forced banks to suspend their dividends..

The figures come in the week chairman Howard Davies said there was no chance of the government selling its 62% stake anytime soon.

RBS repeated its concerns about the economy set out at this week's AGM, describing how the outlook for the economy, and therefore the bank, had "deteriorated sharply".

While banks in general have been criticised over the amount of lending they have done through the Chancellor's coronavirus business interruption loans scheme (CBILS), RBS appears to have been punching above its weight relatively, having approved £1.5 billion, or more than 8000 loans. The figure is just under 40% of the total CBILS approved loans - around double RBS's normal share of the SME market.

The £802 million impairment charge was broadly the same as Lloyds figure earlier this week once underlying factors are included. Lloyds, though, had more one-off hits in the first quarter. Of the RBS number £628 million of it relates to the more uncertain outlook.

RBS should be set fairer to cope than some other banks because it made a conscious decision after the financial crisis to withdraw from much of its unsecured lending activities such as credit cards and scaled down loans to risky sectors such as real estate and oil and gas where it was badly burnt before.