LONDON – The Royal Bank of Scotland said Friday that its first-quarter profit tripled as the lender benefited from a reduction in loan impairments in its Irish business and several one-time gains.
Shares of R.B.S. jumped 11.5 percent to 341.80 pence in trading in London on Friday morning.
For the first three months of the year, R.B.S., based in Edinburgh, posted profit of 1.19 billion pounds, or about $2.01 billion. That compares with profit of £393 million in the same period a year ago.
Impairments on bad loans declined 65 percent to £362 million in the quarter from the previous year, including an improvement in its Ulster Bank unit, which operates primarily in Ireland and Northern Ireland.
R.B.S., which is 81 percent owned by the British government, was plagued by charges on bad loans last year, taking an impairment charge of £5.1 billion in the fourth quarter. The lender posted a larger-than-expected pretax loss of £8.2 billion in 2013 and said that it could be three to five years before it had fully recovered.
The profit surge in the first quarter was a positive development for Ross McEwan, the chief executive of R.B.S. Mr. McEwan is trying to change the bank’s focus from becoming an investment banking behemoth to being a smaller institution concentrated on the British market.
“Today’s results show that in steady state, R.B.S. will be a bank that does a great job for customers while delivering good returns for our shareholders,” Mr. McEwan said in a statement. “But we still have a lot of work to do and plenty of issues from the past to reckon with. Everyone at R.B.S. is focused squarely on doing everything we can to earn the trust of our customers and in the process change the banking sector for the benefit of the U.K.”
In the quarter, R.B.S. also benefited from a £200 million gain on sales of government bonds and a £191 million profit on the sale of its remaining stake in Direct Line Insurance Group.
Net interest income – the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities – rose slightly to £2.69 billion in the first quarter. Over all, revenue was down 2 percent to £5.05 billion.
Expenses were down 6 percent in the quarter to £3.19 billion, and the bank said that it remained on track to reduce its costs by £1 billion this year.
The bank warned, however, that revamping costs were likely “to be considerably higher for the remainder of the year” than they were in the first quarter.
The lender is preparing to spin off its Citizens Financial Group banking business in the United States and its Williams & Glyn branch network in Britain.
The transition to what Mr. McEwan calls “a smaller, simpler and smarter bank” has not been easy.
The bank was recently forced to drop a plan to pay its bankers bonuses of up to two times their annual salaries because United Kingdom Financial Investments, which oversees the government’s stake in the bank, refused to back the plan.
The move puts R.B.S. at a disadvantage to its competitors, who have adopted compensation plans that allow them to pay the maximum bonuses permitted under European rules.
Salaries and bonuses at R.B.S. have been a politically sensitive issue after the bank received £45 billion from the British government during the financial crisis.
The bank’s common equity Tier 1 capital, a measure of its ability to absorb losses, was 9.4 percent at the end of the first quarter, up from 8.6 percent at the end of 2013.
European banks are required to have a minimum of 4 percent common equity Tier 1 capital under the so-called Basel III regulatory scheme, but larger banks are required to maintain a higher minimum capital level, which is set by regulators.