Royal Bank of Scotland is to embark on fresh cost-cutting after failing a health check of Britain’s banking sector.
The state-backed lender will have to bolster its balance sheet to the tune of £2 billion as it emerged as the worst performer in tough Bank of England “stress tests”.
We recognise that we have more to do to restore the bank’s stress resilienceEwen Stevenson
RBS – still 72 per cent owned by the taxpayer following its bailout at the height of the financial crisis – said it had now drawn up a plan to bolster its resilience in the event of a fresh economic shock.
Under the “very severe” central bank tests, lenders had to show they would be able to cope with a house price crash in the UK and the impact of a potential global recession.
Barclays and Asian-focused bank Standard Chartered also struggled in the test, but the Bank of England said their existing plans meant they did not have to take further action.
RBS chief financial officer Ewen Stevenson said: “We are committed to creating a stronger, simpler and safer bank for our customers and shareholders. We have taken further important steps in 2016 to enhance our capital strength, but we recognise that we have more to do to restore the bank’s stress resilience, including resolving outstanding legacy issues.”
The Edinburgh-based banking giant, led by chief executive Ross McEwan, said it has agreed a revised capital plan with the Bank of England’s Prudential Regulation Authority (PRA) “in light of the various challenges and uncertainties facing both the bank and the wider economy”, although it is not set to tap markets for extra finance.
Those steps include further reductions in its cost base, the sale of non-core loans and a reduction in assets held by its commercial banking arm.
RBS came close to failing a stress test last year, while a test by the European Banking Authority in the summer revealed it would be the third worst hit in an economic crisis.
Laith Khalaf, senior analyst at financial services firm Hargreaves Lansdown, said: “[RBS] is still in the process of restructuring its business, as well as facing potentially hefty misconduct costs in the US, all of which serve to weaken its hand.”
Britain’s financial stability is ‘challenging’
The outlook for Britain’s financial stability following the Brexit vote “remains challenging” and is dependent on an orderly exit from the European Union, the Bank of England said.
In its Financial Stability Report, the Bank said that as a result of the 23 June vote, risk to financial stability “remains elevated”.
The report said: “It will take time to clarify the UK’s new relationships with the European Union and the rest of the world as well as for the UK economy to adjust to these changes. The orderliness of the adjustment will influence the risk to financial stability.”
Governor Mark Carney said clarity on Brexit would help an orderly transition and that British businesses should know “as much as possible, as early as possible”.