Bad debt slide buoys RBS

The earnings recovery was driven by a sliding bad debt charge amid improving economic conditions. That was particularly true at RBS's 'bad bank', where its weakest legacy assets are held. The group bad debt charge collapsed to £269m from last year's £2.15bn, significantly helped by much improved credit conditions at Ulster Bank, where the charge dropped to £57m from £503m. Meanwhile, RBS's bad bank actually wrote back provisions as assets there (weighted for risk) dropped by a third to £44bn.

Downsizing the investment bank also cut risk-weighted assets, which helped bolster capital ratios. RBS's Basel III-basis common equity tier one ratio (comparing highest quality capital with assets, weighted for risk) jumped from a slender 8.6 per cent at the year-end to a solid 10.1 per cent. Having axed the headcount by 8,000 over the past year, RBS is cutting costs, too: underlying operating costs fell 8 per cent.

But don't get too excited. RBS again increased misconduct-related provisions: an extra £150m for PPI and a further £100m for mis-selling interest-rate products. Such redress drags, along with a "slate of legacy issues", will ensure plenty of "bumps in the road ahead", explained chief executive Ross McEwan. Moreover, if you strip out the boost from reduced impairments, the performance of some key divisions remains lacklustre. Ulster Bank's profit before impairment charges, for example, fell 8 per cent, while the group's overall operating profit was broadly flat on the same basis.

Pending upgrades - which look likely - broker Numis Securities was forecasting a full-year loss per share of 6.3p (from an 80.3p loss in 2013), based on net tangible assets (NTA) of 353p.