Royal Bank profits hammered by £630m virus charge

The Edinburgh-based bank booked net impairment losses of £802 million for the period, which included a provision of £628 million against the worsening economic outlook. The provisions, which follow similar moves by Barclays, Lloyds Banking Group and HSBC, caused first quarter profits at the bank to plunge by 60 per cent to £288m.

Royal Bank chief executive Alison Rose said the institution had yet to see large numbers of defaults, with customers taking advantage of government schemes and support from the bank to protect their positions. But she said it is braced for failures to increase “as the crisis plays out”.

“Our prudent risk appetite has supported us well for many years now,” Ms Rose said in a call with reporters. “Coming into the crisis, our book was well diversified. We are comfortable with the level of risk in our books, including the new lending from the government scheme.

“Of course, we will suffer losses on our books as the crisis plays out, but we think it is too early to estimate the shape and scale of the economic impact of Covid-19. There is no consensus among forecasters on the impact of lockdown, or the effectiveness of the government response.

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“What we have done at this stage is make a considered judgment on our books through the impairment line, and we will do so through Q2 and beyond.”

While noting that the circumstances created by Covid-19 were not the same as the conditions at the time of the financial crisis, Ms Rose said the bank was in a stronger capital and liquidity position than it was a decade ago, when it was bailed out by the UK Government.

As of April 23, the bank had approved £1.4 billion of loans under the government’s Coronavirus Business Interruption Loan Scheme (CBILS), with a minimum loan size of £5,000. It noted that the bank had received requests for more than 42,000 capital payment holidays for up to six months.

Net lending increased by £13bn over the quarter across the bank’s retail and commercial businesses. This was driven by an increase in mortgage lending and an £8bn rise on the commercial side as customers drew down on revolving credit facilities in response to Covid-19 uncertainty.

Ms Rose said the bank has seen customers increase savings and cut back on spending to protect their cash positions as the crisis has unfolded. Customer deposits increased by £15.6bn compared with the fourth quarter of 2019, which included a rise of £8.9bn in commercial banking.

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Ms Rose said: “At this stage we are not seeing a shift in defaults, and we are not seeing more stress coming through our book at this point. Largely, businesses and customers are managing the situation using the support that is available across government and from the bank.”

Ms Rose noted that Royal had mobilised more quickly than any other bank to “operationalise” and deliver CBILS. Asked if the bank was worried about the level of risk it was taking as a result of its participation in CBILS, Ms Rose replied that, while not every business while survive, its lending under the scheme would be to existing customers and to viable businesses, within the bank’s “existing risk appetite”.

The bank, meanwhile, announced the end of Bo, its personal digital account, as a customer-facing brand. The technology developed by Bo will be integrated into Mettle, its digital bank for SMEs (small and medium-size enterprises).

Responding to a question from The Herald, Ms Rose said the bank’s plans to change its parent group name to NatWest Group from Royal Bank of Scotland would not be derailed by its focus on Covid-19. Asked what the reaction to the change has been like in Scotland, she said there had been a “very supportive” response. “Royal Bank of Scotland is a very important business and brand for us in Scotland, and that doesn’t change it all,” she said.

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