Good afternoon everyone, and thank you for joining us here today for our Annual General Meeting.
When we set out our strategic plan in 2014, our ambition was to create a UK and Republic of Ireland focused bank that was strong financially, would give good returns to its shareholders, but most importantly, was focused on our customers’ needs.
Although we have more to do, 2017 represented a year of significant progress towards this ambition.
In February, we reported a profit before tax of £2.2 billion and our first full year bottom line profit in ten years, of £752 million. We’ve built on this performance this year and reported a first quarter bottom line profit of £792 million, which is more than three times that of Q1 2017. Our operating profit of £1.2 billion was up 70% on the same quarter last year.
We have achieved this through growing our income, whilst reducing costs. Four years ago, we set cost reduction targets which many deemed unachievable. With the commitment of all colleagues we in fact beat those targets, taking our total cost reduction since 2014 close to £4 billion. The cost base has now improved with a cost to income ratio of 60.5% at Q1 2018 – although this is still higher than it should be.
This strong financial performance is supported by lending growth in key markets. In 2017, we grew net lending across our PBB and CPB franchises by £6 billion.
This lending helped many of our customers achieve their home ownership ambition, while our commercial bank’s lending supports hundreds of thousands of jobs throughout the UK.
In the first three months of 2018, our growth has slowed as our Commercial Bank exits some exposures which don’t deliver acceptable returns for shareholders, and our Personal Business reacts to the intense competition currently underway in the UK Mortgage Market. To be clear - we will grow in 2018, but we will do so safely, within our risk appetite, at levels which generate sustainable returns. And we will continue to improve our financial strength.
After the additional funding for the main scheme pension fund, and the agreement in principle with Department of Justice, our pro forma Q1 2018 common equity tier 1 capital ratio was 15.1%, up 390 basis points on 2014.
Taken all together, 2017 was a very strong year. We are firmly putting the past behind us – and this is most evident in the substantial progress in resolving our legacy issues.
Howard has already mentioned the significant milestone we have reached in our settlement in principle with the DOJ.
In recent weeks we’ve also moved a step closer to reaching a final deal on our stake in the Saudi Bank, Alawwal. Once this is complete it will strengthen our capital position even further.
This is in addition to a number of other legacy issues we have dealt with:
• We’ve divested of Citizens, the largest US bank IPO in history.
• We’ve repaid the Dividend Access Share, thereby normalising our capital structure.
• We’ve reshaped NatWest Markets to focus on rates, currencies and financing.
• Sold the non-core part of our International Private Banking business, and wound up Capital Resolution.
• And, received approval for an alternative remedies package for the business that was formerly known as Williams & Glyn.
I’m proud of the teams who have worked tirelessly to resolve these issues - equally, I’m all too aware that they act as a very stark reminder of what happened to this bank before the financial crisis.
I would like to reiterate Howard’s comments in relation to our past activity in GRG and once again apologise to those customers for whom we were not there when they needed us most.
Any financial services business must always hold two things – its financial strength and its reputation. We lost both of these – we fell the furthest – but we have also changed the most.
We are a different bank now.
Looking ahead to 2018/19, the outlook for UK GDP growth is subdued, relative to the rate achieved in previous years. With forecast UK GDP growth at or around 1.5%, we expect our balance sheet growth to follow a similar trend.
Against this economic backdrop, we are confident our strategy remains the right one. A key pillar of this is responding to the way customers choose to bank with us.
The pace of change here is most evident in our Personal and Business Banking business. Since 2014, we have seen total payment volumes grow by 5%, yet during this time:
• Branch transactions are down 36%
• ATM transactions are down 35%
• Cheques are down 39%
All of the growth in our payments volumes has come from digital platforms. Customers are using our digital channels at an unprecedented rate and this has meant that we have had to take the hard decision to close a number of branches.
We realise this is difficult for our customers, it is difficult for our colleagues, and for the communities who have grown up with these branches. But we must respond to changing customer trends.
Here in Scotland, for example, we have 1.75 million personal customers and 120,000 businesses. We value all of them. This is why we will continue to invest in our 94 branches in Scotland, our online services and our mobile van stops. There’s telephony, Video Bankers, Community Bankers, Business Growth Enablers, ATMs, and we partner with 1,400 Post offices. Every community where we are closing a branch will be served by at least one of our face-to-face services. Our offer to customers is now better and more diverse than it has ever been.
Banking is changing and we need to rise to the challenge. If we don't we will fail – and that isn’t good for our customers, and certainly not good for our long term future.
2018 will be another big year for us on our path to achieving our 2020 goals. On these we have retained our cost:income ratio target of sub 50% and return on equity of +12%. These are critical to driving returns for you, our shareholders.
As well as our financial goals, we have retained our stretching ambition to be No.1 for customer service, trust and advocacy.
We will achieve this through delivering innovative solutions to our customers. Making their banking simpler and safer – with a lower cost, technology-led operating model. Our innovation agenda is, and will remain, front and centre - and we have made some really good progress.
In Personal and Business Banking we’ve eliminated paper from our mortgage process. With this, we are now able to complete the offer process in less than half the time than before, from 23 working days to 11 on average. And we can still do better than this.
We have transformed our business lending approvals process. Business customers can now self-serve and get a loan of up to £50,000 unsecured, within our risk appetite, in 24 hours.
Finally, in our Commercial Banking business, more than 90 percent of our new commercial customers can now access our self-service account opening processes – saving significant time compared to applying over the telephone.
These are just a few examples of the innovation underway across the organisation. With all of our focus now on 2020 and beyond, we will deliver more innovative solutions for our customers as we strive to be the no.1 bank.
2017 was a year of substantial change for the bank, particularly as we become a smaller, more efficient organisation. Despite this, our latest employee engagement scores have shown we have improved in 7 out of 9 categories since our previous survey, and remain above the global financial services norm in all main categories. This ten year high for staff engagement is testament to our resilient and determined colleagues – every day they are focused on rebuilding the bank and putting our customers first.
Our culture is changing for the better as well. I’m proud of the external recognition we received in 2017 as we strive to be an organisation where our colleagues are able to bring their whole selves to work each day.
We are committed to having more women in senior positions – in 2015 we set a target to have at least 30% of roles at the three most senior levels in the organisation filled by women, by 2020. We’re now at 37% and we’re on track to achieve 40% by 2020 – ahead of many other organisations. We’ve still got a way to go, particularly on our gender pay gap and our targets on senior positions held by our Black, Asian, and minority Ethnic colleagues - but myself and the Board, remain steadfast to bringing further balance to RBS.
Before I conclude, I would like to add my own thanks to Ewen Stevenson for his contribution over the last few years. He has played an important role in delivering much of the progress I have outlined today, and has been a fantastic CFO for this bank.
It has been a significant year in our story.
We still have more to do, but;
• Our strategy is working.
• The balance sheet is stronger, our financial performance improved, and colleague engagement at an all time high.
• And the path to sustainable profits and rewarding you, our shareholders, is getting much clearer and much closer.
Thank you.
