The taxpayer-owned bank took impairment losses of £802mln, including a £628mln charge related to the more uncertain economic outlook from the COVID-19 crisis. This was in addition to £170mln that was already in place due to potential losses arising from Brexit.
Profit before tax for the quarter was £519mln, a 49% decline on this time last year and down 66% on the preceding quarter.
Total income was down 1.6% year-on-year as personal and business income fell 6.5% but NatWest Markets income jumped 9.3%,
Net interest margin, effectively the gap between interest on loans and savings, was 1.89%, down from 1.93% in the fourth quarter of last year and 2.07% in the first quarter of 2019.
RBS’s CET1 capital ratio of 16.6% is the strongest of the FTSE 100 banks, boosted by the cancellation of the dividend at the request of the Bank of England early last month.
Net lending increased by £13.1bn in the quarter, of which £8bn reflected businesses increasing their use of revolving credit facilities in response to COVID-19 uncertainty.
Since March 31, RBS, which remains 62.4%-owned by the government since being bailed out in the last crisis, has provided new lending to business customers of £2bn, approved £1.4bn of loans under the coronavirus business interruption loan scheme (CBILS), processed £3.1bn of COVID-19 corporate financing facilities issuances by the Bank of England for its customers and extended mortgage repayment holidays to over 190,000 households.
The bank’s board said it will continue to review the dividend situation but did not put a date on it.
RBS shares rose more than 3% on Friday morning to 114.44p, where they are down 53% since the start of the year.
UBS noted that income was better than the City expected, driven entirely by non-interest income and costs, but that PBT was 27% below consensus forecasts due to higher than expected impairments.
Analyst Helal Miah at Share Centre said: “Despite seeing its first quarter profits halved, its numbers were reasonably good in comparison to expectations resulting in the shares opening higher by nearly 3% on a day when the rest of the market is retrenching again.
“Given the current crisis conditions it was always going to be loan impairments that would cause a bigger dent to profits. The impairment rate rose to 90 basis points, equivalent to £800m of loans gone bad.
“While its figures compared to its peers earlier this week look reasonably good, this can be explained by its smaller credit card business and these are just the numbers for the first quarter – the impact is expected to be the most severe in the second.
“The outlook is extremely uncertain and management have withdrawn any forward guidance. In the current crisis environment we would be most cautious on banks fixing legacy issues; RBS has gone into another crisis without fully resolving the problems since the financial crisis.”
Richard Hunter at Interactive Investor said: “The bank’s exposure to the SME segment could prove to be a particular challenge, although the group remains committed to increase lending regardless and has already introduced payment holidays across many of its segments in light of the current environment.
“A general slowdown in activity has exacerbated some of those industries which were already in peril, such as retail and leisure, and these sectors have now been joined by casual dining and restaurants.”
He noted that the increase in income alongside a focus on spending has resulted in an “impressive improvement” to the cost/income ratio which, at 57.7% compare favourably to 59.4% a quarter ago and 63% a year ago.
“The scene is therefore set for the battle ahead, and RBS seems well-positioned,” Hunter said.
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