Slow recovery at RBS

BBC business editor Robert Peston writes:

Assessing the health of Royal Bank of Scotland is always tricky, because of the complicated way it bought the rump of the Dutch bank ABN in 2007, its desire to shed certain low quality assets and the eccentricities of accounting rules.

That said, the semi-nationalised bank does appear to be on the mend - although it's a long way from full strength.

In the first half of this year, it went from more-or-less break-even to a profit of £1.1bn - thanks to a £2.4bn drop in the charge for loans and investments going bad, and a rise in the gap between what it charges for loans and what it pays to borrow.

That said, the bad debt charge in the operations it wants to keep, its so-called core business, hardly fell at all, and remains at £2.1bn (compared with £2.2bn last year).

As for the rise in the so-called interest margin at most of the banks, that may be the next front in politicians' and journalists' attacks on the banks - because it's ammunition for those who complain that banks are charging households and businesses too much for credit.

In RBS's retail operations, for example, the interest margin widened from 3.57% to 3.77% (still a long way from the 2004 peak of 4.7%).

What of the current pre-occupation of many bank critics, that they are not lending enough to small businesses?

Well, RBS - like the other banks - insists that in the current climate it can't lend faster than its customers want to repay their existing debts.

So although it provided £14.4bn of gross new loans to small business, net lending to that important part of the economy fell.

Update 0744: On the widening of the interest margin, RBS would of course point out that regulators are forcing it to hold more capital relative to assets, which forces it to charge relatively more for loans to maintain its return on capital...

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.