Royal Bank enjoys profits surge

Half-year profits at Royal Bank of Scotland have risen 23% to £4.5bn, but like its UK rivals, it has seen more customers struggle to pay debts.

The firm said charges for individual customers defaulting on debts and loans had risen 19% to £680m.

HSBC, Barclays and Lloyds TSB have all had to set aside more money to cope with customers blighted by rising personal debt levels.

Royal Bank, which owns NatWest, hailed the profit increase as "excellent".

Arrears increasing

Figures published on Friday showed a significant rise in the number of personal insolvencies in the past quarter, with cases up 66% on last year.

The bank said the rise in bad debts among its customers reflected the huge increase in personal borrowing over the past few years.

However, the firm said it believed the cycle of rising debt and subsequent credit squeeze was nearing its peak.

"The results demonstrate the strength of our business model"
Sir Fred Goodwin, Royal Bank of Scotland chief executive

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"There has been a modest increase in arrears, but at a slower rate than the increase reported for the end of 2004 and beginning of 2005," the firm said in a statement.

The bank said its overall credit quality was strong, having increasingly targeted lower-risk customers.

Overall, Royal Bank said it was pleased with its performance, driven by growth in corporate banking and wealth management operations.

Sustainable model

Sales from its UK business rose 7% to £9.8bn, while income from international business rose 17% to £3.8bn.

"The results demonstrate the strength of our business model for market conditions now and its sustainability in the future," said chief executive Sir Fred Goodwin.

Royal Bank's shares were trading marginally up in morning trading in London, with analysts encouraged by strong growth in the US and the focus on organic growth rather than major acquisitions.

"Excellent momentum and strong income growth within the corporate markets divisions supported by low credit costs offset a more subdued performance from retail," commented John-Paul Crutchley, an analyst at Merrill Lynch.

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