RBS profits beat forecasts

The Royal Bank of Scotland has reported record profits and reassured investors it continues to avoid the damaging level of bad debts that have hurt its rivals.

Operating profits rose 14% in 2006 to £9.4bn, ahead of analysts forecasts. RBS also told investors it would raise its full-year dividend by a quarter to 90.6p.

Chief executive Sir Fred Goodwin said his group was continuing to manage a trade-off between "sustainable growth, risk and return".

"We are expanding our reach and making progress in all the major economies we operate in. We face the future confidently, with momentum and a proven strategy for success," he said.

The Edinburgh-based bank has managed to avoid many of the pitfalls of bad debt that have harmed its rivals as growing numbers of customers apply for individual voluntary arrangements (IVAs) to protect themselves from creditors. RBS stressed again today the benefits of having avoided lending to the "sub-prime" sector - those who are not traditionally targeted by banks.

"We have retained our inherently cautious stance towards higher risk activities such as unsecured consumer lending and sub-prime credit markets more generally," said Sir Fred. The bank said it had grown average customer lending by 14% while impairment losses have increased by 10%.

The insurance division of RBS, which owns Direct Line and Churchill in the UK, posted a 3% rise in operating profit to £750m. It said a rising.....continued below

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price trend for UK car insurance emerged towards the end of last year and it had successfully put through its own increases to reflect that, athough they will take some time to feed through into income.

Its corporate banking division - one of the biggest arrangers of loans for major businesses - had another strong year. At the US operation, Citizens, RBS said it continues "to see opportunities to develop our footprint through supermarket banking".

Guardian Unlimited © Guardian News and Media Limited 2006