RBS (LON:RBS) posted solid full-year figures. Operating profit before tax was £3.35 billion. Operating profit before tax for the fourth-quarter was £572 million, which topped the estimate of £371 million. The bank declared a final dividend of 3.5p, and it also announced a special dividend of 7.5p – its first special dividend since the credit crisis.
Given the government’s stake in the bank, it is due to collect roughly £800 million in the form of a pay-out. On the year, impairment provisions were £3.3 billion, which is an improvement on the £3.8 billion last year. The common equity tier 1 ratio for the year was 16.2%, and that compares with 15.9% a year ago.
One disappointing aspect of the report was that net interest margin dropped from 2.13% to 1.98%, but that is likely to be the case for UK banks across the board. RBS is clearly heading in the right direction, and it is slowly shaking off the negative image it earned during the credit crisis.
The government is still the majority shareholder in the bank, and it plans to sell-off its remaining stake by 2024. The fact that Westminster is unwinding its shareholding and has a strategy to bring its shareholding to zero indicates their belief in the bank’s ability to stand on its own two feet by then. Some banks required government assistance during the credit crisis, and many returned to robust health, and some investors believe that RBS is on that long-term path.
Recently, Mark Carney, the Bank of England cut the growth outlook for the UK, and warned that inflation could slide further in the near-term, and the pushed down the prospect of an interest rate hike. Banks have higher earning potential in higher interest rate environment, and this does not bode well for RBS given the amount of domestic lending it carries out.