British government-backed Royal Bank of Scotland will release £800m (€1.03bn) from provisions it had set aside to cover losses on bad loans after an improvement in economic conditions, especially here in Ireland.
RBS said yesterday it also expected losses from bad loans to be “significantly” lower than its previous guidance of £1bn this year, helped by improving asset prices.
Its shares jumped 4.2%, to 376.5p in early trading yesterday, the strongest performer in a flat European bank index.
RBS, 80% owned by the UK government, is selling assets from its bad bank quicker than it had expected, and at better prices than expected.
That means it does not need to set aside as much for the assets in its RBS Capital Resolution unit, which was set up this year to sell off or run down some £29bn of assets it no longer wants.
It will release about £500m of the money it had set aside for RBS Capital Resolution in the third quarter, much of it related to commercial real estate assets in Ireland.
RBS had set aside £4.5bn to cover losses in RBS Capital Resolution.
Its Irish unit, Ulster Bank, will also release about £300m in provisions in the same quarter.
RBS said that if market conditions remain favourable, it could cut its provision pot further and accelerate the wind-down of RBS Capital Resolution assets.
It had planned to run it down by the end of 2016.
RBS said revenues in its corporate and institutional banking unit, which includes its shrunken investment bank, had been weaker than expected in the third quarter.
The state-backed bank, which will release its third-quarter results on October 31, said there remained uncertainties relating to conduct and litigation matters.
It is one of six banks holding talks with Britain’s financial regulator to settle allegations of collusion and manipulation in the foreign exchange market, sources familair with the matter have said.
Each bank could have to pay out more than £200m in a settlement that could come in the fourth quarter.