Banks’ good news offers hope to us all

BIG bank profits might normally attract a bit of criticism, but surely the pre-tax profit of £1.4 billion that RBS has announced for the first half of the year, almost a complete turnaround from the £1.7bn loss incurred in the same period last year, is good news.

Coupled with the profit announced by Lloyds the previous day, it looks to be welcome confirmation that the banks in which the taxpayer now has a major stake are returning to business health after the years of re-engineering they have undergone to pull them out of the hole into which they fell five years ago and which necessitated the state bail-out.

Analysts, those people paid to look at company results and assess what they mean for the future profitability of the company concerned, thought RBS’ figures were unimpressive. And it is the case that profits at RBS’ core business, the bits the company wants to keep and build, were down.

The incoming chief executive, Ross McEwan, due to complete and build on the impressive jobs that Stephen Hester has done, appears to have his eye firmly on these core activities. Recruited by Mr Hester from the Commonwealth Bank of Australia less than a year ago, he has already moved to make questions about his bonus a non-issue.

And rather encouragingly, some of his initial comments on joining RBS as head of retail banking suggest that he thinks the bank has a long way to go before it is offering a five-star service to its customers, who will certainly be grateful for improvements. He has made a strong entrance and sent all the right signals with his action on his bonus.

He has the good fortune to be taking over when the clouds that have shrouded the economy over the past few years seem to be lifting and clearing, not just in Britain, but in Europe as well. Yesterday came statistics saying that European manufacturing has expanded for the first time in nearly two years. Following a drop in European unemployment earlier this week, it prompted European Central Bank president Mario Draghi, to say that he thinks that a European recovery is under way.

There is still a long way to go, and there may be some bumps in the road yet, but the overall prospect is that Europe’s and Britain’s economies are growing more solidly than they have done since the crisis first struck. Banks, as the main source of finance for expansion, have a critical role to play in this, and if they are becoming healthier, it should mean that they have more money to lend.

The banks’ turnaround is also good news for taxpayers as it brings the prospect of the government being able to sell its shareholding in them a lot closer. Such a sale would cut a big slice from the pile of public debt their failure caused to be built up.

None of this, however, should distract attention to get on with banking regulatory reforms to make sure these disasters don’t happen again.