Daily Management Review

Brexit Uncertainty Forces RBS To Set Aside Provision Of £100m


10/26/2018




Brexit Uncertainty Forces RBS To Set Aside Provision Of £100m
As the first major UK bank to officially announce a Brexit provision, RBS announced that it is setting aside a sum of £100m to counter any eventuality in the face of a ‘more uncertain economic outlook’ as the UK leaves the European Union in about 5 months from now.
 
UK banks should increase their liquidity before the end of the deadline for imposition of Brexit in March "just in case things go badly", said Sam Woods, deputy governor of the Bank of England and chief of the PRA in a speech on Thursday.
 
The Bank of England has been working with firms "to ensure they have in place liquidity sufficient to accommodate a severe dislocation in financial markets", Woods said.
 
And despite an increase in profits in the third quarter, there was a drop of 4.5 per cent in the shares of RBS after the announcement of the Brexit provision.
 
Attributable profit of £448 million was reported by the bank for the third quarter compared to a figure of £392 million that was posted by the bank in the same period last year.
 
And in order to deal with higher claims volumes than expected, the bank also took a one time hit of £200 million PPI hit in the quarter. £5.3 billion have been the total PPI claims of the bank to date.
 
"The latest results from RBS are a bit of a curate’s egg. The headline numbers are ahead of expectations, but this is largely a matter of one-off items toppling onto the right side of the scales. The core business is looking pretty stagnant, at best, and the bank’s interest margin is heading in the wrong direction, despite rising rates”, said Laith Khalaf, senior analyst at Hargreaves Lansdown.
 
"PPI claimants have also shown they’re not done gaining redress from the banking system quite yet, and RBS had to set aside another £200 million to meet its obligations. The banks now have less than a year before the PPI claims window closes, but could face more charges as activity ramps up ahead of that deadline,” he added. .
 
He said that the fact the RBS believes in greater economic uncertainty is reflected by its taking a Brexit blow of £100 million in the form of an impairment of its assets. This shows that Brexit and the domestic UK economy has the potential to significantly impact the bank’s fortunes and as a result its share price too.
 
“A third quarter trading update has left RBS shares down 4.5% in early morning trading which are currently languishing at an 18-month low,” said Graham Spooner, investment research analyst at The Share Centre.
 
The Brexit provisions announced by the RBS clearly reflects the bank’s concerns about the reduced ability of its customers to pay their debts following the imposition of Brexit which has left a more uncertain and confused state of mind among investors, Spooner added.  
 
(Source:www.financialreporter.co.uk)






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