RBS Group’s ratings reflect its strong franchises in UK retail and commercial banking. These core businesses have demonstrated resilience throughout the group’s restructuring and provide a solid basis for future earnings. Various investments, totalling GBP 7bn over the last five years, have resulted in improved operational resilience, simplified technology platforms and customers journeys as well as reduced costs.

The group’s profitability continues to strengthen, however, weakness in the UK economy would pose a headwind. Due to challenging market conditions, management recently communicated that the group is unlikely to achieve the target RoTE of more than 12% and a cost income ratio below 50% in 2020. They remain, however, strategic targets for the medium term.

Management has successfully re-focused the group and several major legacy issues have been addressed, reducing uncertainty about the group’s financial soundness. Further, prudential metrics are at reassuring levels. As of 30 June 2019, the group’s fully loaded CET1 capital ratio was 16% while the LCR and NSFR were at 156% and 140%, respectively.

As a largely domestic bank with over 85% of loan exposure to the UK, Scope cautiously regards the still unknown consequences of the UK’s exit from the EU. However, considering the significant steps that have been taken to restructure and de-risk the group, Scope considers RBS to be in a much better position to withstand potential challenges.

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