All five major UK banks return to profit
The UK’s five major banks recorded a profit in the first half of the year, for the first time since 2010, according to a new report from KPMG.
Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered posted combined profits of around £16.5 billion, while modest lending growth and falling impairments all show that the banking sector is starting to get back on track after the financial crisis.
However, the industry is still adjusting to a future in which, KPMG says, bank business models are “unlikely ever to be the same again”, and real threats and uncertainties remain.
Whilst overall lending and customer deposits are up, Return on Equity remains in single digits having roughly halved compared to 2005 levels – average capital ratios have increased from 11.4% to 12% meaning that banks are safer but much less profitable per shareholder £.
Almost 20% of first-half 2013 statutory profits were wiped out by the continuing need to set money aside against Payment Protection Insurance claims (£2.3 billion) and interest rate hedging products (£700 million).
The need to make cost and efficiency savings is also restraining performance with £1.9 billion spent on integration and restructuring costs in the first half of 2013.
Over the last two-and-a-half years, the total costs of remediation and litigation amongst the top five banks equates to 45% of total profit before tax.
KPGM also notes that there has been a move towards a more local and domestic emphasis amongst UK banks.
Barclays is now the only UK bank in the investment banking top ten as the trend appears to be for a smaller, more “vanilla” sector in the UK.
However, if so, the report argues that it will be less able to compete with a resurgent Wall Street.