RBS 'unconcerned' over customer debt

Royal Bank of Scotland yesterday scotched fears that rising interest rates would cripple its customers and the bank, saying that its bad debt levels were steady and its credit quality was strong.

Fred Goodwin, the chief executive, said interest rates were a concern for the industry, but that it would take a "lot more" than a quarter point rise to impact on the ability of customers to service their debts. His comments are in stark contrast to those from a rival bank, Barclays, last week. John Varley, Barclays' finance director, said that the rise in interest rates would come as a "financial nemesis" for some customers as they struggled to pay debts.

However, Mr Goodwin said: "A low proportion of our income comes from UK consumer lending. We don't feel gloomy about prospects for the future. Interest rates will rise, but not dramatically and not quickly." He was speaking as the bank said it was on track to meet market expectations for the year, thanks to strong, organic revenue growth. It said it saw growth across a number of divisions, particularly business banking, general insurance and credit cards.

Analysts expect RBS to bank full-year profits of £6.9bn, up from £6.45bn in 2002. "There may well be some slowdown in consumer spending, but not of an alarming nature," Mr Goodwin said.

He said its bad debt charges would be in line with the growth in its lending book.

Analysts, too, believe that RBS has managed its credit exposure well. "Rising interest rates ... improve its net interest margins," Martin Cross, at Teather & Greenwood, said. "RBS's credit quality looks good. What I am more interested to know is what is RBS's next strategic move?" Mr Goodwin said RBS was looking at further acquisitions in the United States, but declined to comment on speculation linking the group with Sovereign Bancorp. The bank has made eight acquisitions this year, worth more than £2.6bn.