RBS Group has released its results for 2017, showing a pre-tax profit for the first time in a decade. The bank recorded a £752m profit, compared with a £6.9bn loss in 2016. However, the failure to settle what is expected to be a substantial fine from the US Department of Justice in 2017 has made today’s results look better than they otherwise would have been, observes GlobalData, a leading data and analytics company.
Despite the impending fine there are some positive signs that RBS is on a path to a sustainable and profitable future.
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Sean Harrison, Financial Analyst at GlobalData, commented, ‘‘Retail banking now accounts for over 40% of RBS income, up from 22% in 2010. For too long the company has been over-reliant on investment and private banking income and other activities. Increasing income from its retail banking division will provide some stability and consistency.’
The retail banking division is performing well, maintaining reasonable margins, reducing impairments, and improving its cost-to-income ratio.’
Another factor here is that RBS has gained the most market share in the UK mortgage market since 2010.’
The group has also narrowed its focus considerably, reducing its international operations from 38 markets to 12 with a clear focus on the UK and Ireland.’‘
Nevertheless, there are still signs that we won’t be seeing consistent profits just yet. RBS has embarked upon one of the most drastic branch closure programs in the UK. While this has improved its bottom line, customer acquisition via branches remains very high. Fewer branches could thus affect its ability to attract new customers.
In addition, RBS failed to meet the January 12, 2018 deadline for the UK’s new open banking regulation, which allows consumers to share their financial data with third-party firms, mainly in the burgeoning fin-tech industry. This delay will give rivals a competitive advantage over RBS – at least in the short term.
Overall, the results present a slightly distorted picture. The underlying figures show a bank that is improving its financial performance, but RBS still faces a multi-billion pound fine from US regulators and stubbornly high group operating costs.