24th Oct 2019 08:24
(Alliance News) - Royal Bank of Scotland Group PLC on Thursday reported a third-quarter loss on increased payment protection insurance provisions.
In the three months to September 30, RBS recorded an operating pretax loss of GBP8 million compared to a GBP961 million profit a year before.
The loss was attributed to a GBP900 million PPI provision.
In September, the lender warned of a "spike" in PPI claims in the days leading up to the Financial Conduct Authority's deadline of August 29.
In August, the Competition & Markets Authority said it took action against RBS over its failure to send PPI reminders to almost 11,000 of its customers for up to six years. The regulator required the bank to appoint an independent director to audit its PPI process.
To September 30, RBS has made provisions totalling GBP6.2 billion for PPI claims, of which GBP5.0 billion had been paid out.
The bank's loss attributable to shareholders totalled GBP315 million, compared to a GBP448 million profit in the third quarter last year and a GBP1.33 billion profit in the second quarter of this year.
Net interest income declined 6.5% to GBP2.01 billion from GBP2.15 billion. RBS said its group was hurt from a "particularly challenging" quarter from investment bank NatWest Markets.
NatWest Markets saw its core income fall 44%. RBS explained: "Rates income in particular was impacted by a deterioration in economic sentiment for the global economy and a fall in bond yields. This, together with legacy items culminated in a loss of GBP193 million for the quarter."
Litigation and conduct costs rose to GBP750 million from GBP389 million the year before.
As a result, the lender's cost-to-income ratio significantly worsened to 92.9% in the quarter compared to 66.7% the year before.
Net interest margin slipped to 1.97% versus 2.04% the year before. The lender recorded a NIM of 2.02% in the second quarter.
The NIM dip reflected the contraction of the yield curve and competitive pressures in the mortgage business as front book margins, whilst higher than the second quarter, remain lower than back book margins, RBS said.
It wasn't all doom and gloom for RBS, however.
The lender reported a rise in gross new mortgage lending in its UK Personal Banking unit. At the end of the quarter, new mortgage lending totalled GBP8.6 billion compared to GBP6.7 billion at the end of the second quarter. As a result, the unit's loan book added GBP2.7 billion to total GBP154.6 billion.
Commercial Banking net lending grew by GBP100 million in the quarter to total GBP101.5 billion.
CET1 ratio at September 30 stood at 15.7% compared to 16.0% at June 30 and 16.2% at December 31.
RBS ended the quarter with GBP189.5 billion in risk-weighted assets, up from GBP188.5 billion at June 30, but in line with expectations of between GBP185 billion to GBP190 billion.
In the nine month to the end of September, RBS's group operating pretax profit slipped 3.6% year on year to GBP2.69 billion from GBP2.79 billion. Net interest income decreased 7.3% to GBP6.01 billion from GBP6.48 billion.
RBS retained its outlook for 2019 and 2020 provided at the time of its interim results.
For 2020, RBS previously said: "Given current market conditions, continued economic and political uncertainty and the contraction of the yield curve, it is very unlikely that we will achieve our target return on tangible equity of more than 12% and cost-to-income ratio of less than 50% in 2020. These remain our strategic targets and we believe they are achievable in the medium term."
Shares in RBS were 3.0% lower in early trade in London on Thursday at 226.40 pence each.
By Paul McGowan; [email protected]
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