RBS 2009 Annual Report Download - page 99

97RBS Group Annual Report and Accounts 2009
Business review
2009 compared with 2008
Operating results were in line with expectations but deteriorated during
2009 as economic conditions across the island of Ireland worsened,
with an operating loss for the year of £368 million.
Net interest income declined by 7% in constant currency terms, largely
as a result of tightening deposit margins in an increasingly competitive
market, partly offset by asset repricing initiatives. Net interest margin for
the year at 1.87% remained broadly stable despite the challenging
market conditions.
At constant exchange rates loans to customers decreased by 4% from
the prior year as new business demand weakened. Customer deposits
reduced by 5% in 2009 in constant currency terms, reflecting an
increasingly competitive Irish deposit market and reductions in
wholesale funding during the first quarter. During the second half of the
year the market stabilised and the division recorded strong growth in
customer balances resulting in an improved funding profile.
Non-interest income declined by 12% in constant currency terms due to
lower fee income driven by reduced activity levels across all business
lines.
Total costs for the year were flat on a constant currency basis. Direct
expenses were down 12% in constant currency terms during 2009,
driven by the bank’s restructuring programme, which incorporates the
merger of the First Active and Ulster Bank businesses. The rollout of the
programme has resulted in a downward trend in direct expenses
throughout 2009. The reduction in direct expenses has been offset by a
17% increase in indirect expenses primarily reflecting provisions relating
to the bank’s own property recognised in the fourth quarter.
Impairment losses increased to £649 million from £106 million driven by
the continued deterioration in the Irish economic environment and
resultant impact on loan performance across the retail and wholesale
portfolios.
Necessary fiscal budgetary action allied to the well-entrenched
downturn in property markets in Ireland has fed through to higher loan
losses. Mortgage impairments have been driven by rising
unemployment and lower incomes. Loans to the property sector
experienced a substantial rise in defaults as the Irish property market
declined, reflecting the difficult economic backdrop and the uncertainty
surrounding the possible effect of the Irish Government's National Asset
Management Agency on asset values. Sectors driven by consumer
spending have been affected by the double digit decline in 2009 with
rising default rates evident.
Customer account numbers increased by 3% during 2009, with growth
fuelled by strong current account activity and new-to-bank savings
customers.