RBS swings into profit

The change marks the bank's first profit in three years.

However regulatory costs are likely to push the bank into a loss for the full year.

Last month RBS agreed a £3.75bn settlement with an arm of the US government over the mis-selling of mortgage products in the years prior to the financial crisis.

Part of the cost of that agreement is reflected in the numbers released today (4 August), the remainder, alongside other expected regulatory actions in the US is likely to mean RBS posts a loss for the full year.

The government owns a 73 per cent share in RBS, after taxpayers were forced to step in during the financial crisis to prevent the bank from collapsing.

On wider business conditions, Chief Executive Ross McEwan said that lending had grown by 4 per cent, with demand continuing to be strong from personal borrowers, but a slowdown was apparent in the business lending market.

Rob James, banks analyst at Old Mutual said that RBS has a significantly greater market share of the UK business banking market than of consumer banking, and as margins tend to be lower in business banking, he feels this is a long-term negative for the shares.

Mr James principally works on the £2.2bn Old Mutual UK A lpha fund, which has significant investments in each of the other FTSE 100 UK-focused banks, but not in RBS.

RBS shares are 3.5 per cent higher at 8.30am today (August  4). 

In July RBS reached an agreement that will see it commit £835m to new lending instead of selling off part of its branch network as planned.

The deal satisfies a state aid penalty relating to its 2008 bailout.

Originally it had been agreed between the European Union and the Treasury that RBS would either float or sell its 300 branches making up the Williams & Glynn brand.

But this requirement was dropped after it was decided to be too difficult and could negatively impact customers.

David.Thorpe@FT.com