RBS reports Q3 loss despite 28% rise in mortgage lending

However, excluding the PPI headwind and various other exceptional costs, the bank would still have reported a lower-than-expected operating profit of £1bn.

This is despite gross new mortgage lending reaching £8.6 billion in Q3, up 28% from the £6.7 billion recorded in Q2.

A competitive mortgage market and unfavourable interest rate environment were cited as barriers to growth, alongside a weak result from the investment bank.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, commented: “PPI has checked out with a bang, driving RBS back into the red in the third quarter - the industry will be relieved to see the back of the whole sorry saga. However, it’s not the main culprit in today’s profit miss. RBS’ investment bank, NatWest Markets, delivered a very disappointing result – with core income almost halving in a tougher rates environment.

"Looking past the headline numbers though we see some positive signs. Lending growth continues across the retail and commercial banks and bad loans remain low by historic standards. While the difference between what the bank can earn on loans and has to pay on deposits remains under pressure, the interest margin is holding up reasonably well in our view. Perhaps more importantly, once you take PPI out of the picture, the bank continues to add to its already sizeable capital position. That underpins the sizeable dividend and also the bank’s ability to buy shares back off the UK government – a long term goal but one which the current political turmoil has probably pushed further into the future.

"It’s important not to lose sight of what RBS is though. Banks are bellwethers for the economies they operate in and the outlook for the UK remains uncertain. If things take a turn for the worst demand for new loans will likely dry up and bad loans spike – leaving RBS in a very uncomfortable position.”