RBS ends bank season on a high note with £4.5bn profit

The country's five biggest banks made a record £19bn in profits between them in the first six months of this year, it emerged yesterday, after Royal Bank of Scotland became the latest lender to deliver surprisingly strong earnings.

RBS, the owner of NatWest, unveiled interim profits before tax of £4.5bn - a 23 per cent jump on this time last year - driven by its booming corporate bank and a muscular performance overseas.

However, like rivals HSBC, Lloyds TSB and Barclays, the Edinburgh-based bank has seen a sharp increase in bad debts. At £680m, provisions made against defaults on UK unsecured lending and credit card borrowing was 20 per cent higher than a year ago.

RBS, Britain's second-biggest bank behind HSBC, warned that arrears are still on the increase, albeit at a slowing rate. Guy Whittaker, RBS's finance director, said: "It's probably too soon to say the worst is behind us. It's too early to call the peak in terms of unsecured personal lending and our losses." Steeper utility bills and mortgage repayments are leaving an increasing number of Britons struggling to meet other financial obligations.

Unlike HSBC, RBS does not blame soaring defaults on unscrupulous advisers urging borrowers to take advantage of changes in bankruptcy rules to avoid repaying debts. Sir Fred Goodwin, RBS's chief executive, said: "From our business, it does not look like people are being taken advantage of. We take responsibility for the money we lend."

Sir Fred characterised the lacklustre 3 per cent increase in operating profits from retail banking as a "robust" performance in challenging times compared with rivals. "I do not think we should be taking retail banking lessons from anyone else," he said.

Sluggish growth in high street banking and insurance was offset by soaring profits from wealth management, and by the corporate bank run by Johnny's Cameron, which lends to businesses. Operating profits from these divisions grew by 27 and 21 per cent respectively. Savings did well too, and deposit outstripped lending for the first time in RBS's history.

Overall income was 10 per cent greater, while costs remained under tight control. The bank is to pay an interim dividend of 24.2p a share, 25 per cent higher than last time. RBS shares advanced 17 to 1,736p.