'Own credit' charge is sign of progress, says RBS

What the bank terms 'clean up losses' from its non-core businesses and Ulster Bank continue to blight the performance of Royal Bank of Scotland (RBS), though impairments remain on a downward trend.

RBS's operating profit in the first half of 2012 was £1,834m, down from £1,966m the year before, after a £125m provision for costs arising from the technology incident in June 2012 and a £50m provision for interest rate swap mis-selling.

Operating profit for the core business - the bits RBS wants to focus on in the future - was £3,185m, down from £3,927m in the first half of last year.

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Group impairment losses totalled £2,649m, down £1,562m(37%) from the corresponding period of 2011. Core impairments were down £172m, or 10%, with favourable trends particularly in the UK Retail and US Retail & Commercial units. The Non-Core division saw a significant reduction in impairment charges on the Ulster Bank portfolio.

In keeping with many other banks, RBS had to take a hit on the rising value in the market of its issued debt, effectively taking into account how much more it will now take to buy back in the debt; the adjustment for "own credit" soared to £2,974m from £236m in the first half of last year and meant that the group made a loss before tax of £1,505m, versus a loss of £794m the year before.

RBS's Chief Executive Officer, Stephen Hester, said the rising value of the group's debt was "an indicator of RBS's recovery as our debt now trades at tighter margins."

"Despite the tougher economy, these results show our ongoing businesses to be more resilient than before with many further improvements underway," claimed Hester.

"We know that in a difficult moment for banks it is more essential than ever to drive through these changes. 30 million customers worldwide rely on our services. We have the obligation to show that their interests consistently come first. I am determined that RBS should be a leader as we remodel this bank to better serve society and all those who rely on us," Hester said.

JH