The chief executive of part-nationalised Royal Bank of Scotland says it is nearing the point of becoming "recovered", and will complete a major restructuring by next year.
The bank, which is 81 per cent-owned by the taxpayer following its near-collapse in 2008, has been selling businesses and scaling back its investment banking operation in an attempt to become profitable once again. In a banking and insurance conference in London, chief executive Stephen Hester gave his most upbeat assessment yet of the bank's prospects.
"RBS is nearing the point of becoming a recovered bank and well on the way to being a good bank," Mr Hester said. "I hope by 2013 the restructuring phase should be largely complete and I hope that our ongoing businesses should be largely retooled and performing at least in line with competitors, with robust, enduring and valuable franchises at that point."
But he was clear that the bank was not yet completely out of the woods, with the UK economy mired in recession. "There are important execution challenges to get to this recovered bank status still remaining," he said.
One of these seems to be the potential fallout from the Libor fixing scandal, over which the bank is currently being investigated.
Mr Hester said: "We have to accept that the pendulum has swung, that society has a different attitude and determination to make sure that banks behave in a different way and improve their reputation.
"We have to all deal with the issues from the past and reduce the chance of them recurring. That will take a lot of time and sadly a lot of money as well, in terms of past restitution, I suspect."
RBS is likely to be one of the chief beneficiaries of the Bank of England's Funding for Lending scheme, designed to help banks and building societies lend more to business and individuals.
Paul Fisher, the key BoE rate-setter Paul Fisher, yesterday revealed more details of the scheme. He said 13 banks and building societies – 73 per cent of the lending market – had signed up, which could see institutions being able to borrow up to the equivalent of 5 per cent of their total loan book as of June, plus any expansion of its lending until the end of 2013.
At current levels, the amount of funds available through the scheme is estimated at £60bn but it could climb to £80bn if other banks and building societies join in, and lending increases over the next 18 months. Banks will pay a minimum fee of 0.25 per cent of the amount borrowed provided they maintain lending levels or increase them. They will have four years to repay the loans, and the facility is expected to operate for 18 months.
Mr Fisher said the scheme was designed to avert a second credit crunch: "I am confident that the FLS [Funding for Lending Scheme] will help the supply of credit," he added. "Before its introduction, it was more likely than not that the stock of credit would contract further over the next 18 months."
But this may not be enough to bring sustained economic growth, and Mr Fisher added that either the economic data was "so far wrong" or the supply side of the economy "has shifted to a degree that is unprecedented".
However, recession-haunted consumers seem more focused on repaying their existing debts than taking on new ones. Repayment of unsecured loan and credit-card debt exceeded new borrowing in August by £351m, according to the British Bankers' Association.
Mortgage approvals were up for the fourth month in a row but historically loans for house purchase are at a very low level.
Libor system set for overhaul
The British Bankers' Association has cleared the way for radical reforms to the way Libor interest rates are calculated.
Under the current system, banks submit to Reuters the rates at which they expect to borrow from other banks. Libor is then calculated under the BBA's auspices.
Martin Wheatley, Britain's chief financial regulator, is expected to call for a system based on what banks actually pay, to be overseen by another body when he unveils his Libor review on Friday. The move follows revelations that Barclays traders tried to fix the rates.
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