RBS 2008 Annual Report Download - page 13

RBS Group Annual Report and Accounts 200812
Divisional review continued
UK Corporate & Commercial Banking
Total income increased by 5% to £3,161 million, with growth
slowing in the second half of the year as the economy
deteriorated. Direct expenses increased by 13% to £1,015
million, principally as a result of a 26% rise in operating lease
depreciation to £401 million reflecting both higher volumes and
lower than expected residual values in the Lombard vehicle
leasing business. Excluding this item, direct expenses increased
by 6% to £614 million as additional relationship managers were
recruited. Impairment losses increased from the historically low
level of 2007, by 273% to £671 million. Operating profit fell by
30% to £1,116 million.
Support for customers is evident in the 18% growth of average
loans and advances. Average deposit balances increased by
3% despite volatility and acute competition in that market.
RBS enjoys leading positions in the corporate and commercial
markets. Customer satisfaction in corporate is strong and
increased in 2008 over 2007, both overall and in the key area
of the quality of relationship managers. Almost 19 out of 20
customers surveyed said that they would advocate RBS to other
businesses. These are strong foundations on which to build
enduring profitability.
UK Wealth
Total income grew robustly, by 9% to £859 million. Direct
expenses increased by 13% to £324 million. This figure
included one-off cost provision items resulting from economic
conditions. Operating profit increased by 5% to £403 million.
UK Wealth generates earnings from both private banking and
investment services. This balanced income base allowed it to
maintain robust organic growth, despite market conditions.
Coutts & Co performed particularly well, with contribution up 15%.
Our UK wealth businesses have strong brands and are well
positioned in their markets. Adam & Company is number one in
Scotland, with RBS International also number one in the Channel
Islands and the Isle of Man. Coutts & Co is number two across
the UK. In addition to their profit contribution, they generate
deposits for the Group. We believe that attractive opportunities
exist for further sustainable, profitable development of our UK
wealth businesses, building on these existing strengths.
Strategic review
UK Retail and Commercial Banking retains an extremely strong
franchise and represents the core of the RBS Group. However,
the external environment over the next few years will present
significant challenges with pressure on income as a result of
very low interest rates, lower fee income, and impairment costs,
which are likely to increase further.
The business plans to respond to this environment by reducing
cost and increasing productivity through investment in online
service channels, automation of activities and re-design of end-
to-end processes. The business will tailor the cost of service for
different client segments more closely to their value generation.
Wealth management remains a strong growth opportunity and
the business plans to pursue a more consolidated approach to
the market through more co-ordination across the multiple
brands with which it currently faces the market, whilst investing
in additional Relationship Managers and platform functionality.