14th Feb 2020 07:57
(Alliance News) - Royal Bank of Scotland Group PLC saw profit and net interest income beat expectations in 2019, the lender reported Friday, also announcing its intention to rename itself NatWest Group PLC.
The bank did not offer any further details on the name change, only said that it will happen "later this year".
RBS said it expects 2020 to "challenge" its ability to generate income, with its own economic forecasts predicting a base rate cut in the short term.
In 2019, the state-backed lender's operating pretax profit increased 26% to GBP4.23 billion from GBP3.36 billion in 2018. Operating pretax profit, according to company-compiled consensus, was forecast at GBP3.77 billion.
The bank's attributable profit for 2019 came in at GBP3.13 billion, compared to consensus of GBP2.52 billion. In 2018, when RBS reported its second profit in a decade, the figure was GBP1.62 billion.
Net interest income for 2019 was down 7.0% year on year at GBP8.05 billion from GBP8.66 billion, but outperformed against GBP8.02 billion consensus.
Total income was GBP14.25 billion, compared to 2018's GBP13.40 billion and the market expectation of GBP13.66 billion.
Disposals during 2019 added GBP1.03 billion in income, from zero in 2018, which includes large gains for forex recycling.
"In a challenging market RBS has exceeded all of its 2019 financial targets: cost reduction above target; net lending growth ahead of target; RWAs below guidance; and 22 pence of total distributions to shareholders in 2019, while maintaining a CET1 ratio of 16.2%," the lender said.
The bank declared a final ordinary dividend of 3p and announced a 5p special dividend, taking its total 2019 distribution to 22.0p. The lender paid out a 12p special dividend at the interim stage stage the sale of its stake in Saudi Alawwal Bank.
The lender's cost-to-income ratio improved in 2019 to 65.1% from 71.7% the year before. Operating expenses decreased 3.3% to GBP9.33 billion from GBP9.65 billion.
RBS total loans to customers rose 7.1% over the year, ending 2019 at GBP326.9 billion from GBP305.1 billion at the same point in 2018.
The bank's net interest margin slipped in 2019 to 1.99% versus 2.09% in 2018. The lender's falling margins were blamed on "competitive pressures in the mortgage business" as front book margins remain lower than back book.
Customer deposits grew 2.3% to GBP369.2 billion from GBP360.9 billion.
RBS's CET1 ratio at the end of December was 16.2%, flat on the year. At the end of the first half, RBS's CET1 ratio stood at 15.7%. Consensus predicted 15.4%. Risk-weighted assets dropped 5.0% year on year to GBP179.2 billion.
RBS is targeting a CET1 ratio of around between 13% to 14% in the medium to long-term.
Going forward, RBS said it will look to "refocus" its investment bank arm NatWest Markets. This will result in the unit seeing its assets halved.
"Today we are announcing that we will reduce the size of this business by around half, as measured by risk weighted assets, managing down and optimising low-returning capital and inefficient activities. We will build a much smaller and simpler part of the business which will bring customers closer to the services they need, reduce costs and release capital for shareholders," new Chief Executive Alison Rose said.
NatWest Markets ended 2019 with GBP37.9 billion in RWAs. The investment bank will look to offload GBP6 billion to GBP8 billion in 2020 with GBP14 billion to GBP18 billion being shed in the medium term. The group is expecting to end 2020 with GBP185 billion to GBP190 billion in RWAs.
RBS is targetting an overall cost reduction of GBP250 million in 2019 as part of the restructuring.
Looking towards the group's near term future, RBS said: "RBS, like all companies, continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment. Given the current uncertainties we will continue to actively monitor and react to market conditions."
The lender continued: "In the current environment, and recognising ongoing market uncertainty, we continue to expect challenges on income. In addition, we anticipate that regulatory changes will adversely impact income in our personal business by around GBP200 million."
RBS is targetting a return on tangible equity of 9% to 11% in the medium to long term. The lender also expects to maintain ordinary dividends around 40% of attributable profit.
Shares in RBS closed 0.5% higher in London on Thursday at 229.04 pence each. The UK taxpayer still owns 62% of RBS following its bail out in 2008.
By Paul McGowan; [email protected]
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