Nat West Group, the Royal Bank of Scotland owner, today became the second banking group to declare profits ahead of expectations but it warned that the full impact of the Covid-19 pandemic is still unclear.
Pre-tax profit was £355m, ahead of expectations of a £75m loss, on total income of £2.46bn as the level of impairments it took from the virus dropped in the third quarter of the year.
Last year the bank made an £8m loss before tax.
The group posted impairment losses of £254 million, below the predicted £628 million in Q3, in a “resilient” quarter.
NatWest Group chief executive Alison Rose said: “These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty.
“Our sector-leading capital position, strong levels of liquidity and consistent approach to risk mean we can continue to provide our customers and communities with the support they need.
“Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear.
“Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.”
The bank reported that it had paid £90m in redundancy costs, £223m in strategic costs, a £21m property charge, and £34m on technology.
Dan Lane, an analyst at Freetrade, said a struggling economy could end up hitting the banks.
On Thursday, the International Monetary Fund (IMF) downgraded its UK economic forecast, expecting it to shrink by 10.4% this year, and only regain 5.7% in 2021.
Lane said: “There have been much lower provisions set aside for bad loans generally in the sector but if unemployment does spike after the Government’s extended support schemes finish, those loans could sour considerably – and take a chunk of the balance sheet with them.
“It could get a lot worse before it gets better.”