Property & Mortgages

RBS mortgage lending down by £900m

Royal Bank of Scotland has posted profits for the first time in a decade but its mortgage lending fell by £900m

RBS mortgage lending has slipped by £900m as the bank reported falls in gross new mortgage lending and market share of new mortgages. Otherwise, the bank has posted profits for the first time in a decade. The gross new mortgage lending for UK Personal and Business Banking (UK PBB) was £31.0bn compared with £31.9bn in 2016.

UK PBB accounts for the main bulk of lending for RBS in the UK. Market share of new mortgages fell from 13% in 2016 to 12% in 2017 during the same period, with stock share rising from 9.7% to 10%. Net lending for UK PBB increased by £9.0bn, or 5.9%, to £161.7bn. Meanwhile, customer deposits increased by £10.6bn, or 6.2% to £180.6bn.

Overall, gross new mortgage lending across the major lenders such as UK PBB, Ulster Bank RoI, Private Banking and RBS International (RBSI) dropped from £35.8bn in 2016 to £33.9bn in 2017. RBS posted a statutory profit of £752m for 2017 – the bank’s first full year of profitability in a decade. Total income for 2017 rose 4.3% to £13.1bn compared to £12.6bn. However, there were falls in litigation and conducts costs from £5.9bn in 2016 to £1.3bn in 2017 as operating expenses fell 36% to £10.4bn.

RBS also plans to invest heavily in technology since it sees technology as one of the biggest risks to its business apart from brexit and continued economic uncertainty in the UK. The report said that developments in UK financial services may impact its market share and profitability. It said that the introduction of disruptive technology in particular, may impede the group’s ability to grow or retain its market share and impact its revenues and profitability, particularly in its key UK retail banking segment. In line with this projection, the bank’s chief executive Ross McEwan announced plans to invest £1.5bn in efficiency-related projects, with £800m on innovation and digital.

RBS also plans to improve upon Cora, the AI-based digital teller, to provide better services to clients.

McEwan said that the opportunities created by greater simplification and automation, in terms of improved controls, cost reduction and a better customer experience, are significant for the bank. He added that, through digital innovation the bank will serve customers more efficiently, be more responsive to their needs and at the same reduce costs in the business and build a more solid control environment. He further said that, as the number of the bank’s legacy issues reduces, and its business performance improves, the investment case for this bank is clearer, and the prospect of rewarding its shareholders gets closer.

Senior analyst at Hargreaves Lansdown, Laith Khalaf said that RBS has broken its ten year duck and managed to squeeze out a profit in 2017, mainly due to a big fall in litigation and conduct costs. He said that this is a stay of execution rather than a pardon however. But, he said that two very big shadows still loom over RBS which are – the impending fine from the US Department of Justice, which is going to take a big slice out of the bank’s 2018 profits and the other, is the large taxpayer stake, which has to be sold off at some point. He added that all in all, it’s been a tricky but momentous year for RBS, in which the bank has put to bed many of the legacy issues which have hampered performance since the financial crisis.

RBS reported £764m provision in Q4 2017 for litigation costs, which included £442m for US mortgage suits, and £175m towards UK payment protection insurance mis-selling.

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