Will RBS See Continued Loan Portfolio Declines In Q1?

RBS: Royal Bank of Scotland Group logo
RBS
Royal Bank of Scotland Group

Royal Bank Of Scotland (NYSE: RBS) is expected to publish its Q1 2019 results on April 26. RBS’ pre-tax profits jumped by 50% in 2018 as the bank continued to make deep cuts in costs and saw a reduction in bad loans. We expect the bank’s revenue to decline by 1.6% year-over-year to £3.3, billion and EPS is expected to come around £0.05 as compared to £0.06 reported in the prior-year quarter. Earnings declined sharply from Q3 into Q4 and we forecast modest increase in earnings in the coming quarter.

We have summarized our full year expectations for RBS based on the company’s guidance and our own estimates, in our interactive dashboard How is RBS expected to fare in Q1 2019? You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see more Trefis Financial Services Data here. Below we highlight some of the key historical trends and factors that are likely to impact RBS’ future performance:

How Have RBS’ Revenues Trended, And What Can We Expect In Q1?

  • RBS’ revenue has fluctuated considerably over recent quarters. RBS is expected to report revenue of £3.3 billion in Q1 2019, a figure 1.6% lower than what it reported a year ago as low consumer confidence, poor investment sentiment, uncertainty over Brexit continue to impact the bank’s revenues across all operating segments.
Relevant Articles
  1. Beating S&P500 BY 11% YTD, What To Expect From Travelers Stock?
  2. Up 50% Over The Last 12 Months, Is Hyatt Stock Still Attractive?
  3. Capital One Stock Gained 44% In The Last 6 Months, What’s Next?
  4. Up 8% Year To Date As 5G Gains Traction, What’s Next For Verizon Stock?
  5. Up 32% In The Last 12 Months, Where Is BNY Mellon Stock Headed?
  6. Rallying 30% YTD, What’s Spurring The Rally In Applied Materials’ Stock?

How Have RBS’ Expenses Trended, And What Can We Expect In Q1?

  • One of RBS’ primary objectives over the recent years has been to reduce its non-interest expenses. RBS has largely been successful in accomplishing this objective, with non-interest expense falling from £16.3 billion in 2015 to £9.6 billion in 2018 (CAGR: -16.1%). This has reduced its cost/income ratio from 127% in 2015 to 72% in 2018.
  • Non-interest expense fell from £3.4 billion in Q4 2017 to £2.4 billion in Q4 2018, representing a decline of 28% y-o-y.
  • We expect total expenses to remain flat at current levels in Q1 2019, while provisions for loans are likely to increase.

Key Factors To Watch In Q1

Impact of Brexit

  • Uncertainty surrounding Brexit is adversely impacting client activity in the U.K. This in turn is likely to impact RBS’ U.K. revenues across segments as continued uncertainty keeps investment activity suppressed.
  • Moreover, an uncertain outlook for the direction of monetary policy, the U.S.-China trade conflict, slowing global growth and political concerns in the U.S. and Europe (including Brexit) are all likely to weigh on RBS’ profits in Q1.

Low Interest Rate Environment Likely To Continue

  • Since U.K. economic growth remained below its long-term average in 2018, the low interest rate environment is likely to persist in the foreseeable future to sustain economic growth.
  • This in turn may adversely impact the bank’s net interest income, which constituted more than 65% of total revenues in 2018.

Lending Growth Likely To Remain Fragile

  • RBS’s total loan portfolio declined from approximately £327 billion in 2017 to £323 billion in 2018, and this declining trend is likely to carry over into Q1. Economic uncertainty over Brexit has led to reduced consumer confidence and investment activity, which is adversely impacting the bank’s loan portfolio.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs
For CFOs and Finance Teams | Product, R&D, and Marketing Teams
All Trefis Data
Like our charts? Explore example interactive dashboards and create your own