ROYAL Bank of Scotland is on track to post a return to profits finally drawing an end to a decade of losses that have already exceeded £50 billion since the financial crisis.
The Edinburgh-based lender, which is 72 per cent backed by the taxpayer, is poised to report a ninth consecutive net annual loss at the end of this week, which analysts estimate could reach £6bn.
It comes after the bank was forced to set aside a $3.8bn provision to cover a looming fine from US authorities for mis-selling mortgage securities, and more restructuring expenses.
But despite the latest painful losses, RBS chief executive Ross McEwan believes the bank is now on course to return to profit and it will deliver a good deal for the taxpayer.
He said: “In the next two years you’re going to see a great bank emerge out of this and I think the public in the UK will be very pleased with it. I want to see it through. It’s hard operating a business when the wind is constantly in your face.
“It’s like cycling. You cycle in the wind, it is difficult, but when you turn the corner and get a little sense of that wind behind your back, it makes it a lot easier.
“I don’t think we’re that far away from that turn,” he added.
The bank has boosted capital, stripped out costs, and sold vast swathes of assets since Mr McEwan took charge in 2013, but is still making heavy losses.
It faces a potential demand for up to $13bn from US authorities and record-low interest rates are squeezing UK banks’ margins, which has forced it to delay profitability targets and embark on a fresh round of cost cutting. RBS has also closed 52 of its Scottish branches over the past year and has announced that it is shutting nine more by the end of May. It came after RBS was last year identified by the Bank of England as being the worst-prepared of the UK’s biggest lenders to cope with another financial crisis.
The results forced RBS to devise plans to bolster its balance sheet by £2bn through cost cuts and shedding assets.
Under the “very severe” tests, banks had to be able to handle a house price crash in the UK and a global recession. RBS said it had “agreed a revised capital plan… to improve its stress resilience”.
But Mr McEwan received a boost last Friday by a provisional deal with the EU that may end RBS’s obligation to offload Williams & Glyn as a separate bank in return for spending £750m on measures to boost small business banking.
Analysts still expect RBS to unveil a fresh plan to shed about £800m this year and a similar amount in 2018.
Mr McEwan said costs are still “far too high” in its core retail and commercial business, and he aims to cut the share of every pound in revenue that is spent on operating expenses from 60p to 50p.
He said the key to cutting costs without losing revenues was shifting to digital services and “simplifying” the business.
RBS has reduced the number of savings products it offers from seven to two, and rationalised its mortgage offers.
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