UK’s RBS Bank Sets Aside $128 Million For Brexit Uncertainty

The provision means RBS is concerned that its customers might become less able to pay their debts when Britain leaves the European Union in five months’ time.

While HSBC put aside $245 million at its half-year results to account for greater economic uncertainty, RBS is the first big UK bank to link the move to Brexit.

CEO Ross McEwan said RBS was taking into account the possibility of more negative outcomes from the Brexit negotiations, under new accounting standards that require banks to be better prepared for possible future losses.

“There’s a lot more uncertainty in the marketplace until we get agreement, and that’s what this is reflecting,” McEwan told reporters on a call, referring to the provision.

The fortunes of major lenders like RBS are closely intertwined with the health of UK consumers and businesses.

The bank has been less upbeat about the consequences of Brexit than some of its peers, with McEwan warning recently that Britain could slip into recession if it crashes out of the EU with no deal.

Bank of England Deputy Governor Sam Woods said on Thursday banks in Britain must hold enough cash to withstand any disorderly Brexit hitting financial markets.

RBS’s rival Lloyds said on Thursday it was confident that negotiations between London and Brussels could still deliver a withdrawal agreement, which remains elusive even after years of tense talks.

Both banks said that they had seen no sign borrowers’ ability to service their loans had deteriorated so far.

PROFIT MISS

McEwan said he had participated in a call with Prime Minister Theresa May and executives last week and received an optimistic signal that a Brexit deal could be reached.

But with the March 2019 deadline fast approaching, businesses remain in the dark about how they will interact with EU markets and the impact Brexit will have on the UK economy.

The provision, announced with RBS’s third quarter results, took the bank’s impairments for the period to 240 million pounds, up from 143 million pounds in 2017.

It also reported a pre-tax profit of 961 million pounds and an attributable profit of 448 million pounds. This was below the 507 million pounds expected by analysts, according to a bank-compiled average of their estimates.

RBS, whose shares opened 4 percent lower on Friday, reported a common equity tier one capital ratio of 16.7 percent.

That leaves the bank’s capital well above its target of 13 percent, even after it paid its first dividend in a decade and a hefty fine to U.S. authorities earlier this year.

The bank took another 200 million pound provision for mis-sold payment protection insurance – Britain’s costliest such scandal that has seen RBS alone pay out over 5 billion pounds.

It gave no clue as to its future dividend policy – information shareholders are hungry for after being starved of payouts for 10 years.

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