Operating profits before tax for 2019 came out at £4.2bn, up 25% on the previous year, as interest income fell but significant foreign currency gains led to total income growing 6% to £14.3bn.
The UK personal banking business increased net loans to customers by 3.7% but the fierce level of competition amid the low interest rate environment led to the net interest margin (NIM) decreasing by 10 basis points to 1.99%, including a tightening in the fourth quarter of the year.
Litigation and conduct costs were down 30%, mostly from the additional provisions for the historical misselling of payment protection insurance (PPI) after the government set a final deadline for claims last summer.
Looking forward to the rest of 2020, RBS said it continued to expect “challenges on income” and that regulatory changes will adversely impact income in personal banking business by around £200mln.
Capital and dividends
The FTSE 100 group said it expects to maintain ordinary dividends of around 40% of attributable profit, with new chief executive Alison Rose saying she will target a return on tangible equity (ROTE) of 9-11% from a CET-1 capital ratio of 13-14% in the "medium to long-term".
Along with the NatWest rebranding, she also set out new strategic "aims", including stating that RBS will be "climate positive" by 2025 and will stop lending to energy companies that fail to align with the Paris climate agreement goals by next year.
Rose's Valentine's day gift of a 5p special dividend made up for a cut to the ordinary dividend to 3p from the 3.5p seen a year ago, though the total dividend for the year was 22p.
With the government owning a 62.4% stake in RBS after the crisis bail-out, this means £2.6bn will have been returned to UK taxpayers since in the past two years.
Analysts at UBS noted however that the combined final dividend was 16% below consensus forecasts, though CET1 level of 16.2% was a "significant" beat to market expectations.
RBS shares fell 6% to 215p on Friday morning.
This was not helped by BoA Merrill Lynch cutting its target price to 205p from 233p, noting that the results only beat consensus forecasts due to one-offs from the NatWest Markets division.
It was also to do with the “pretty gloomy guidance” that suggests new boss Ross will have her work cut out, said Nicholas Hyett, analyst at Hargreaves Lansdown.
“Currency gains are flattering these results, and beneath the surface the numbers are less easy on the eye,” he added. “Bad loans have spiked and the bank reckons that could get worse. Meanwhile a highly competitive mortgage market is squeezing the turn the bank can make on lending and some fairly impressive loan growth is failing to make up the shortfall. Restructuring costs remains substantial as well and look set to stay so.”
Hyett said the good news is the bank looks to have room for significant cost savings going forwards, boosting profits, and remains awash with capital.
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