ROYAL Bank of Scotland has made a loss of £1.5 billion ($A2.2 billion) in the first six months of 2012 as chief Stephen Hester warned of a ''grim period'' for the British banking industry.
Mr Hester indicated the British taxpayer-backed lender was still being hit by toxic assets, but had ''achieved an important milestone'' by repaying all the government loans given to it during the credit crisis.
In its half-year report, RBS said it has set aside £135 million for the mis-selling of Payment Protection Insurance - taking its total bill to £1.3 billion - and £125 million to cover costs related to the significant IT problems that rocked the bank in June. The computer glitch left millions of customers unable to access their accounts. It earmarked £50 million for compensation over the interest rate swaps scandal.
With UK banks under fire for the recent rate-rigging that has rocked Barclays, Mr Hester said RBS - 82 per cent owned by the British government - had dismissed staff for misconduct in relation to the Libor scandal. Warning of a ''chastening'' period for the sector, he said RBS was still dealing with ''past actions'' and ''it is no comfort that many are shared across the industry''.
''All companies make mistakes and have individual cases of wrongdoing,'' Mr Hester said. ''Most things that had gone wrong in the industry as a whole had also been present within RBS … The nature of financial services tends to magnify the impact of these.
''The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact. This is the subject of ongoing regulatory investigation but our customers and shareholders should be in no doubt that we are taking it seriously. These issues together are hard to deal with but just as necessary a part of change from the past as the restructuring of our balance sheet. We have continued to make the bank safer and stronger as we clean up problems of the past. In a difficult moment for banks it is more essential than ever to drive through these changes.''
The high street banking arm ''faced headwinds'' and operating profits fell 12 per cent to £2 billion, with profits at the investment banking division dropping 21 per cent to £1 billion.
RBS lost 5700 staff during the first half, principally in investment banking as Mr Hester attempts to restructure the lender to be more retail-focused.
Mr Hester has cut assets by more than £800 million, eliminated 36,000 jobs and scaled back RBS' securities and Irish units since he took over from Fred Goodwin when the bank was rescued in 2008. RBS shares have increased 1.3 per cent this year in London trading after sinking 48 per cent last year. The shares fell 5 per cent to 204.5 pence in London trading yesterday for a market value of about £23 billion. The taxpayer owns 82 per cent of the lender after paying the equivalent of 502 pence a share.