Banking News

RBS allocates £100m Brexit buffer

(27 October 2018 – United Kingdom) RBS has departed from key competitors by formally implementing measures to prepare for the impact from a messy Brexit process. 

The bank reported a £100 million impairment charge to shore up reserves against an expected rise in customers defaulting on their loans due to what the Bank stated was a "more uncertain economic outlook. Ross McEwan, RBS CEO, attributed the £100m impairment to new accounting standards, IFRS9, that force banks to recognise losses ahead of time. "You have to look forward as well as backwards, There is a lot more uncertainty in the marketplace and that's what this is reflecting" RBS's bearish stance puts it at odds with its UK rivals, which appeared relatively sanguine about the health of the economy when reporting third-quarter results earlier in the week. Neither Lloyds Banking Group nor Barclays took a forward-looking impairment like RBS.

RBS has also set aside £2 billion to support SMEs navigate business concerns they are expected to face as a direct result of Brexit. The funds are being made available via NatWest and will support companies with export or import trade with the EU, those with a reliance on the EU labour markets and those exposed to adverse foreign exchange (FX) movements. RBS said the funds will help firms deal with supply chain issues and any financial risks that could potentially arise from the UK's departure from the EU.

RBS took the bearish measures even as it announced Q3 profits and revenue beat expectations. Profit before tax rose ten percent year-on-year to £961 million. Revenues increased eight percent to £3.4 billion, beating the £3.3 billion forecast. Mr McEwan also said the uncertainty was encouraging the bank to be cautious about how much capital it needed, despite its reserves now being well above regulatory requirements. RBS' common equity tier one ratio (CET1) rose more than twice as much as forecast, from 16.1 percent at the end of Q2 to 16.7 percent. However, Mr McEwan stressed that the company was keen to return some of the excess capital to shareholders. RBS recently paid its first dividend since the financial crisis and has started discussions with regulators over carrying out a targeted share buyback to help speed up its reprivatisation. It is also understood to be considering paying special dividends after full-year results.