# Royal Bank of Scotland Sees Near £20 Billion Fall in Customer Deposits in First Quarter
Key Highlights :
The Royal Bank of Scotland (RBS) saw its share price fall sharply this morning as it reported a near-£20 billion fall in customer deposits in the first quarter. NatWest Group, the parent company of RBS, booked an operating profit before tax of £1.8bn for the quarter ended March 31, up 49 per cent on the corresponding period last year and ahead of market expectations.
Chief executive Alison Rose said the performance of the bank had been strong and “underpinned by our robust balance sheet, our high levels of capital and our well-diversified loan book”. However, while the bank increased lending by £5.7bn, or 1.6%, to £352.4bn over the quarter, customer deposits fell to £430.5bn from £450.3bn at December 31. Excluding deposits linked to its exit from Ulster Bank in the Republic of Ireland, deposits fell by 2.6% or £11.1bn.
NatWest said the fall in deposits reflected around £8bn of customer tax payments, competition for deposits, and an overall market liquidity contraction. When asked to elaborate on the fall in deposits during a call with reporters this morning, Ms Rose said some people were using cash balances built up during Covid to pay down higher expensive debt such as mortgages, which she said reflected rational financial management.
Ms Rose highlighted an increase in competition for deposits, which she said the bank was “comfortable” with, adding that there were also “signs of liquidity coming out of the system”, and a seasonal aspect to the drop in deposits. She added that the market volatility in March that followed the collapse of Silicon Valley Bank in the US and the emergency takeover of Credit Suisse by UBS “did not affect our deposits”.
Ms Rose said the bank had a “very robust balance sheet, very well diversified and lots of liquidity”. She noted that customers were behaving rationally around their financial affairs and there was some pay-down of more expensive debt, such as mortgages, which she said was good financial management.
Despite the fall in customer deposits, shares were trading at 255.3p, down more than six per cent, at around 9.25am. The fall in share price could be attributed to investor concerns over the fall in deposits and the overall market liquidity contraction.
Overall, while the performance of the bank has been strong, the fall in customer deposits has raised some concerns. It remains to be seen how the bank will be able to address this issue and return to its previous levels of customer deposits.
