ROYAL Bank of Scotland chief executive Ross McEwan has signalled that stronger trading conditions will not stop his drive to cut costs.

Mr McEwan also spoke of hopes that the bank's conduct and litigation problems would be largely behind it 18 months from now. Shares in RBS rose two per cent yesterday, up 6.8p to 368.2p, after it said charges for bad loans across 2014 are likely to be less than the £1 billion it had originally made provisions for.

In an update on its third-quarter performance, RBS stated there had been fewer large impairments in the period as well as lower levels of new non-performing loans.

There had been notable uplifts at RBS Capital Resolution (RCR), the so-called bad bank, as well as the Ulster Bank operation, which has benefited from rising real estate prices in Ireland.

Provisions in the bad bank are expected to have reduced by around £500m, with Ulster Bank able to release around £300m of loan provisions. Around £4.5bn had been set aside to cover bad loans in RCR.

Mr McEwan suggested further provisions could still be released if market conditions remain favourable, while the running down of RCR, which was formed to dispose of close to £29bn of assets, could be quicker than the originally anticipated end of 2016. He said: "If conditions persist the potential exists for RCR to make only limited future impairments and disposal losses on an accelerated timetable. However, this remains subject to significant potential volatility.

"We have a tremendously experienced team working in this area, with more than 150 deals completed, achieving over 100 per cent price-to-book value, much better than we anticipated when we set this unit up at the end of last year."

Alongside that, RBS, which is around 80 per cent owned by the taxpayer, said it had disposed of around £7bn of debt securities in the period.

However, there was also confirmation that revenue from the corporate and institutional banking division, which includes the shrunken investment banking arm, had been weaker than anticipated in the quarter to the end of September. Speaking at the Bank of America Merrill Lynch banking and insurance conference in London, Mr McEwan, celebrating a year in the job today, said: "We are seeing a decisive turn in the economic cycle washing through the balance sheet of RBS.

"There is plenty more to do. [This] is another turn of the page but not the end of the chapter."

Mr McEwan highlighted the potential volatility of economic conditions as one area which could disrupt the bank's progress.

He also acknowledged that the legacy of conduct-related charges and litigation still has some way to run. Mr McEwan said the bank was mindful of ongoing issues in areas including payment protection insurance, complex interest rate swap loans, residential mortgage-backed securities and foreign exchange. He said: "We bear in mind we will have further conduct and litigation costs to bear. We have always been cautious about the impact this can have as it is out of our control.

"Our approach is to work through these issues as quickly and sensibly as we can.

"I look forward to getting to a point over the next 18 months or so where the past conduct issues are substantially behind us."

The apparently upbeat trading conditions are not likely to see Mr McEwan's cost-cutting drive tapering off any time soon.

At the moment RBS is on track to shave £1bn from its cost base by the end of this year.

Mr McEwan said further reductions remain in the pipeline and restructuring costs were still to be taken. He said: "We then need to find an extra £2.3 billion [of savings] over the [2015] to 2017 period so there will be no let-up on our work on this topic."

Mr McEwan re-iterated that the Williams & Glyn brand is following a timeline for its initial public offering to take place in 2016.

Shailesh Raikundlia, analyst at Espirito Santo, said the trading update means RBS may be in line to increase its full-year profit by up to £500m.