Royal Bank of Scotland Group Plc - Interim Results 2019

RBS reported an operating profit before tax of £2,694 million, an attributable profit of £2,038 million and a return on tangible equity of 12.1% for H1 2019. 

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Excluding items associated with the Alawwal bank merger, as announced on 17 June 2019, H1 2019 return on tangible equity was 7.5%.

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Q2 2019 operating profit before tax was £1,681 million with an attributable profit of £1,331 million and return on tangible equity of 15.8%.

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RBS announces an interim ordinary dividend of 2p and a special dividend of 12p, representing £1.7 billion being returned to shareholders.

 

Supporting our customers through continued lending growth

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UK Personal Banking (UK PB) gross new mortgage lending was £14.3 billion in H1 2019. Commercial Banking grew lending by £1.5 billion across SME & Mid-Corporates, Specialised business and Business Banking, while we continue to see large corporates delay financing reflecting Brexit uncertainty. NatWest Markets (NWM) helped customers raise c.£140 billion in debt capital markets in H1 2019(1).

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We continue to target net lending growth across UK PB, Ulster Bank RoI, Commercial Banking and Private Banking at attractive returns. Net loans to customers increased by 2.5% on an annualised basis, increasing from £283.4 billion to £287.0 billion.

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H1 2019 net impairment loss of £323 million, 21 basis points of gross customer loans, increased by £182 million compared with H1 2018 primarily reflecting a small number of single name charges in Commercial Banking. The cost of risk remains below our view of a normalised long term loss rate of 30-40 basis points.

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Cost reduction of £173 million was achieved in H1 2019.

 

Continuing competitive market

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Income decreased by 1.7% compared with H1 2018 excluding NWM, Central items and notable items.

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Bank net interest margin (NIM) of 2.02% was 5 basis points lower than Q1 2019 primarily reflecting competitive pressures in the mortgage business and the contraction of the yield curve. Commercial Banking NIM remained broadly stable in Q2 2019.

 

Capital generation

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CET1 ratio of 16.0% which, excluding the impact of the Alawwal bank merger and the dividend accrual, represents underlying capital generation of c.15 basis points in Q2 2019.

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RWAs decreased by £2.3 billion in Q2 2019 as a result of a reduction due to the Alawwal bank merger, partially offset by increases in NWM and UK PB.

                      

2019 outlook - unchanged(2)

We retain the outlook we provided in the 2018 Annual Report and Accounts. We anticipate a further £1.2 billion of FX recycling gains in H2 2019 upon the transfer of ownership of NWM N.V. to NWM Plc, subject to regulatory approval, which is capital and TNAV neutral.

 

2020 outlook(2)

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:income ratio of less than 50% in 2020. These remain our strategic targets and we believe they are achievable in the medium term.

 

Business performance summary

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

Performance key metrics and ratios (1)

2019 

2018 

 

2019 

2019 

2018 

Operating profit before tax

£2,694m

£1,826m

 

£1,681m

£1,013m

£613m

Profit attributable to ordinary shareholders

£2,038m

£888m

 

£1,331m

£707m

£96m

Net interest margin (NIM) (1)

1.83%

2.02%

 

1.78%

1.89%

2.01%

Bank net interest margin (RBS NIM excluding NWM) (1)

2.04%

2.13%

 

2.02%

2.07%

2.11%

Average interest earning assets

£440bn

£431bn

 

£445bn

£436bn

£435bn

Cost:income ratio (1)

57.2%

70.4%

 

52.6%

63.4%

80.0%

Earnings per share

 

 

 

 

 

 

  - basic

16.9p

7.4p

 

11.0p

5.9p

0.8p

  - basic fully diluted

16.8p

7.4p

 

11.0p

5.8p

0.8p

Return on tangible equity (1)

12.1%

5.3%

 

15.8%

8.3%

1.1%

Average tangible equity

£34bn

£34bn

 

£34bn

£34bn

£34bn

Average number of ordinary shares

 

 

 

 

 

 

 outstanding during the period (millions)

 

 

 

 

 

 

   - basic

12,058 

11,980 

 

12,069 

12,047 

12,003 

  -  fully diluted (2)

12,096 

12,039 

 

12,104 

12,087 

12,062 

 

 

 

 

 

 

 

 

30 June

31 March

31 December

Balance sheet related key metrics and ratios (1)

2019

2019 

2018

Total assets

£729.9bn

£719.1bn

£694.2bn

Funded assets  (1)

£584.3bn

£585.1bn

£560.9bn

Loans to customers - amortised cost

£310.6bn

£306.4bn

£305.1bn

Impairment provisions

£3.2bn

£3.1bn

£3.3bn

Loan impairment rate (1)

30bps

11bps

2bps

Customer deposits

£361.6bn

£355.2bn

£360.9bn

 

 

 

 

Liquidity coverage ratio (LCR)

154%

153%

158%

Liquidity portfolio

£203bn

£190bn

£198bn

Net stable funding ratio (NSFR) (3)

140%

137%

141%

Loan:deposit ratio (1)

86%

86%

85%

Total wholesale funding

£78bn

£77bn

£74bn

Short-term wholesale funding

£19bn

£19bn

£15bn

 

 

 

 

Common Equity Tier (CET1) ratio

16.0%

16.2%

16.2%

Total capital ratio

20.9%

21.1%

21.8%

Pro forma CET 1 ratio, pre dividend accrual (4)

17.1%

16.3%

16.9%

Risk-weighted assets (RWAs)

£188.5bn

£190.8bn

£188.7bn

CRR leverage ratio

5.2%

5.2%

5.4%

UK leverage ratio

5.9%

6.0%

6.2%

 

 

 

 

Tangible net asset value (TNAV) per ordinary share

290p

289p

287p

Tangible net asset value (TNAV) per ordinary share - fully diluted  (1,2)

289p

288p

286p

Tangible equity

£35,036m

£34,962m

£34,566m

Number of ordinary shares in issue (millions) (5)

12,091 

12,090 

12,049 

Number of ordinary shares in issue (millions) - fully diluted (2,5)

12,124 

12,129 

12,088