uSwitch.com comments on RBS profit announcement

Following the Royal Bank of Scotland’s Group profit announcement of £9.414 billion (a 14% increase of £1.16 billion since 2005), Nick White, Director of Financial Services at independent price comparison and switching website uSwitch.com, comments:

Less than a week from the end of the banking reporting season and so far we have seen profit announcements totalling £27.1 billion for Barclays, Alliance and Leicester, Lloyds TSB, HBOS and now RBS. Total write off’s stand at £7.4 billion for all these banks, representing 27% of their profits. The RBS Group has reported the highest profits to date, although they are the second largest banking group in the UK, the percentage increase in profit in one year is still strong. In conjunction with this profit announcement, the RBS Group also wrote off £1.8 billion, an increase of 10% since 2005.

“For the retail banking division, the figures most consumers can relate to, profits went up by just 1.5% to £2.3 billion compared to write off’s which increased by 14.5% to £1.3 billion. This is 69% of the overall group write off and clearly shows the RBS Group, as with all the other UK retail banks, still have some way to go to deal with the issue of consumer debt.

“The level of write off’s are being managed carefully with the RBS Group’s strategy for both credit cards and personal loans moving away from the sub-prime market and less emphasis is being placed on generating new business through direct marketing. Both of these factors should reduce exposure to bad debt going forward.

“However, all of the write off figures reported to date fully support our recent campaigns which highlighted the issue of irresponsible lending within both the credit card and personal loans market. Our research found that 89% of credit card applicants in the UK did not have to prove their income in the past year and £11.9 billion was advanced in personal loans without any income checks.

“With one of the largest joint market shares in the current account market, RBS will really feel the financial impact should the OFT decide to decrease current account fees in 2007. As with each of the other big banks in the UK, we expect that RBS will continue to claw back this revenue from other changes throughout the next year in anticipation of the loss revenue from these fees.

“More now than ever before, consumers should be keeping a very close eye on the small print and the correspondence they receive from their bank. With the impending OFT investigation into current account charges, banks will continue to claw back any lost revenue streams in anticipation of the outcome of the investigation. By voting with their feet, customers can make sure they are not being ripped off by underhanded revenue generating tactics which simply add to these profits."