RBS sets aside £100m to cover Brexit uncertainty

"RBS set aside £100m to deal with greater economic uncertainty as the UK prepares to leave the EU; this makes it the first major UK bank to make such a provision linked to Brexit. "

In a speech yesterday, Sam Woods, deputy governor of the Bank of England and chief of the PRA, said banks should boost liquidity before the Brexit deadline in March "just in case things go badly".

Woods said 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".

RBS's share price dropped 4.5% following the announcement in its third quarter trading update, despite rising profits.

The bank posted a £448 million attributable profit for the third quarter, up from £392 million in the same period last year.

It also took a further £200 million PPI hit in the quarter as it deals with higher claims volumes than expected. To date PPI claims have cost the bank £5.3 billion in total.

Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: "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.

"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.

"Meanwhile RBS has taken a Brexit blow of £100 million, an impairment of its assets to reflect what it believes is greater economic uncertainty. This serves as a reminder that the bank’s fortunes are very heavily influenced by the domestic economy, and by extension, so is its share price."

Graham Spooner, investment research analyst at The Share Centre, added: “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.

“RBS set aside £100m to deal with greater economic uncertainty as the UK prepares to leave the EU; this makes it the first major UK bank to make such a provision linked to Brexit. The provision highlights the bank’s concerns that its customers might become less able to pay their debts after the UK’s departure, unsurprisingly leaving a confused and uncertain feeling amongst investors.

"This is particularly true due to the fairly upbeat reports from Barclays and Lloyds earlier this week and 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."