Which British Bank Has More A Profitable UK Retail Business: RBS Or Barclays?

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

RBS (NYSE: RBS) and Barclays (NYSE: BCS) are two of the largest British banks. The business models of both the banks have changed significantly since the economic downturn, with their paths diverging considerably. RBS, in particular, has shrunk to a fraction of its size. The bank moved away from a business model that was much more diversified to one that depends almost entirely on traditional loans-and-deposits banking in the UK. While Barclays has also cut down on its trading operations, its business model remains much more diversified. But the UK Retail business remains one of its key revenue drivers. Trefis captures detailed trends in the UK Retail banking business for RBS vs. Barclays in an interactive dashboard. We conclude that although Barclays has a more significant retail banking presence in the UK that generates more revenues, RBS is doing exceptionally well to report more profits despite its smaller size.

Barclays has higher revenues, but RBS is closing the gap

  • Barclays’ UK retail business is larger than RBS’s. As of 2018, Barclays’ UK retail revenues stood at £6.6 billion, nearly 4.5% more than RBS’s revenues of £6.3 billion.
  • However, RBS is growing at a much faster rate than Barclays and seems to be closing the gap.
  • RBS’s revenue has grown 4% over 2015-2018, going up from £6 billion to £6.3 billion in 2018.
  • On the other hand, Barclays’ revenue has stagnated over this period at £6.6 billion in total revenue over the same period.
  • Moreover, both the banks saw these revenues fall in 2018 as increased uncertainty over Brexit, and low consumer sentiment adversely impacted their retail banking business in the UK.

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UK Retail contributes nearly 47% to RBS’s Revenues while these operations contribute 31% of Barclays’ Revenues

  • RBS overhauled its business in 2012 when the bank slashed its investment banking activities to focus more on retail banking operations. Conditions imposed on RBS as a part of its bail-out and stricter regulatory changes in the wake of the downturn triggered the large-scale reorganization plan.
  • As a result, RBS’s UK retail business now accounts for nearly half of the bank’s total revenues.
  • On the other hand, Barclays has a more diversified business model, with Barclays UK accounting for about one-third of the bank’s total revenues.

Barclays’ loan balance is nearly 15% higher than RBS’s

  • As of 2018, Barclays had total outstanding loans of £188 billion for its UK retail business, while RBS’s loan figure stood at £162 billion – roughly 15.6% below that for Barclays.
  • Notably, the gap between the loan portfolio for the banks has widened over the years. This metric was just 3% in 2015 and has grown to almost 16% in 2018.

Barclays also comes out ahead in terms of customer deposits

  • As of 2018, Barclays had total deposits of £197 billion, while RBS’s deposits figure stood at £184 billion – 7% less than that of Barclays.
  • Notably, the gap between the customer deposits held by the banks has contracted over the years. This metric was 26% in 2015 and now stands at just 7%.

Also, Barclays has a higher Net Interest Margin

  • Barclays’ average interest margin in 2018 was 3.2% – nearly 40bps ahead of the RBS’s margin of 2.8%.

Additional details regarding how the average interest margin for RBS and Barclays has changed over the years are available in our interactive dashboard.

However, RBS’s UK Retail Business is much more profitable due to its higher operating margin

  • As of 2018, RBS’s operating profit stood at £2.5 billion, nearly 25% higher than that of Barclays’ £2 billion.
  • The primary reason for this is a notable difference in operating margin. Barclays’ operating margin in 2018 was 29.8%, which was well below RBS’s operating margin of 39.1%.
  • However, operating margin for both the banks have steadily increased over the years due to stringent cost-cutting measures taken by the banks, resulting in higher profits.

Conclusion: Barclays’ UK Retail Business Is Larger, although RBS generates more profits

  • Barclays has larger retail operations in the UK, but RBS’s business is more profitable.
  • RBS has been generating higher profits than Barclays due to its better operating margin.
  • To sum things up, there is not much to separate between the banks’ retail operations in the UK. RBS’s continuous focus on the retail operation is helping the bank generate more profits, but Barclays is still the larger bank in terms of revenues, as well as loans and deposits.
  • Although RBS is closing the gap, Barclays has a strong network in the UK, which would enable Barclays to maintain its pole position in the coming years.

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