LONDON — The Royal Bank of Scotland said Tuesday its outlook continues to improve as the British lender benefits from further declines in charges for bad loans.
The bank, which is 81 percent owned by the British government, said it expected to “significantly outperform” its previous guidance for the 2014 fiscal year. The bank had expected to record about $1.6 billion in charges for bad loans this year. It did not provide an updated figure.
“There has been an absence of large one-off impairments and lower levels of new nonperforming loans in the rest of RBS’s business” during the third quarter, the bank said in a news release.
RBS is expected to release its third-quarter results Oct. 31.
In July, RBS reported its second-quarter results a week early as its better-than-expected pretax profit nearly doubled on lower loan impairments and an improved economic outlook.
The lender said economic conditions continued to improve in the third quarter, which helped bolster the performance of its internal “bad bank,” known as RBS Capital Resolution. The internal bank was formed last year to hold and dispose of illiquid and underperforming assets.
RBS said it expected the improved outlook in the third quarter would allow it to release about $810 million in reserves that had been set aside for the bad bank.
That said, revenue in its corporate and institutional banking business was weaker than expected in the quarter, RBS said.
RBS, which is based in Edinburgh, also tempered its outlook somewhat by again warning Tuesday that litigation and other legacy issues could drag down its results in future quarters.
“Previously disclosed uncertainties remain, particu-larly relating to conduct and litigation matters,” the bank said.
The improving outlook is another positive sign for Ross McEwan, the RBS chief executive, as he tries to change the lender’s focus from being a global investment bank to becoming a smaller institution concentrated on the British market.
As part of the reshaping of its business, the lender is spinning off its Citizens Financial Group banking business in the United States.
It is also planning an initial public offering for its Williams & Glyn branch network in Britain, which must be completed by the end of 2017 as a condition of its government bailout during the financial crisis.
Shares of RBS rose 3.6 percent to 3.74 pounds in trading in London on Tuesday morning.