RBS raises PPI claims bill by a further £400m

Chief executive Stephen Hester says that RBS is "making progress"

Royal Bank of Scotland has set aside a further £400m to cover the cost of claims for mis-sold payment protection insurance (PPI).

It takes the bank's total charges for PPI mis-selling to £1.7bn.

The figures were disclosed as RBS reported a pre-tax loss of £1.26bn for the three months to 30 September, against a £2bn profit a year earlier.

Despite the losses, chief executive Stephen Hester said that RBS was "making progress".

The bank, which is 80%-owned by the UK government, has also set aside another £50m to cover the cost of compensation of the recent computer systems failure that hit customers.

The bank's bill for the computer glitch, which locked many RBS, NatWest and Ulster Bank customers out of their accounts, now totals £175m.

On Wednesday, Lloyds Banking Group revealed a fresh £1bn provision for PPI claims. Along with the RBS provision, the bill for the big UK banks of the PPI scandal is now stands at £10.8bn. According to consumers' association Which? the total figure including other financial firms, such as credit card companies, is now £12.7bn.

RBS also warned on Friday that it could be hit with stiff penalties over any involvement in the alleged manipulation of the Libor inter-bank lending rate.

The bank is being investigated by regulators in the UK, Asia and in the US, with the fraud division of the US Department of Justice also looking into the matter.

RBS bank said it expected to enter into negotiations to settle some Libor investigations in the "near term", and that although the size of any fine was uncertain it could be big enough to have a "material" impact.

The mis-selling and other charges overshadowed underlying progress at the bank. RBS's operating profits for the third quarter were £1bn, up from a £650m profit in the second quarter. Bad-debt losses fell by £159m from the second quarter to £1.2bn.

Staff costs were 5% lower than in the second quarter at £1.9bn, with headcount down by 9,900, or 7%, on a year earlier.

'Reputational issues'

RBS re-stated that its restructuring after a near-collapse during the global financial crisis was on track would be completed in the next 18 months.

Mr Hester said: "The extraordinary challenges which RBS faced following the financial crisis are being worked through successfully.

"The five year restructuring plan is now in its later stages with important work still to do, including an emphasis on dealing with reputational issues now that the bank's safety and soundness has advanced so well."

He said that RBS "too often came to be seen" as putting the short-term interests of shareholders and staff ahead of customers, and promised to reverse the balance.

Analyst Richard Hunter, head of equities at Hargreaves Lansdown, said: "There is no doubting the immensity of the task RBS has faced in executing its turnaround plan, nor indeed the progress made so far."

Despite the furore over bank lending to small and medium sized enterprises (SMEs), RBS maintained that its record was strong.

In the third quarter gross new lending increased by 3% compared with the second quarter. Overall gross new lending for the first nine months of 2012 was £62.9bn to UK businesses, of which £28.6bn was to SME customers.

However, RBS said there was a 25% fall in SME loan applications in the third quarter, compared with the same three months in 2011. This was due, the bank said, to uncertainty over UK economic growth and the effect of the Olympics.

RBS shares, which rose sharply on Thursday, were 1% lower in morning trading.