Improving economy boosts RBS as bad loan losses cut

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Stronger economic conditions are boosting the recovery at Royal Bank of Scotland after it cut the amount of money set aside to cover bad loans.

The taxpayer-backed bank issued an unscheduled trading update today in which it said it expects to significantly beat its previous guidance for around £1bn of loan impairments in the current financial year.

This has been driven by improved performances at Ulster Bank and RBS Capital Resolution, which contains the bank’s troublesome assets.

However, the bank warned it still faced many bumps on the road to recovery, particularly relating to conduct and litigation matters. RBS will release a fuller update on October 31, but following the statement, shares continued their recent recovery with a rise of four per cent.

The improved economic picture means the bad bank operation will no longer require debt provisions worth £500m in the third quarter.

Rising Irish residential property prices as well as pro-active debt management have resulted in lower arrears in Ulster Bank, meaning the division has been able to release £300m of loan provisions in the three-month period. The potential exists for further releases in future, if market conditions continue to improve.

The wider RBS business has also been helped by an absence of large one-off impairments and lower levels of new non-performing loans in the quarter.

This has been offset by a warning that corporate and institutional banking revenues have been weaker than anticipated.

RBS is among six banks set to receive a record fine from the City regulator in order to settle an investigation into the manipulation of currency markets.

Graham Spooner, investment research analyst at The Share Centre, said: “RBS now expects to outperform its previous guidance for the year. However, uncertainties remain and we continue to recommend the bank as a ‘sell’.”

RBS employs 6,000 staff in Yorkshire and it has 80,000 business customers in the region.