A Lack Of Competition Is Great News For Royal Bank Of Scotland Group plc

Having only a handful of competitors could help Royal Bank Of Scotland Group plc (LON: RBS). Here’s why.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Despite shares in RBS (LSE: RBS) (NYSE: RBS.US) being down 5% already in 2014, it could be worse. Indeed, the events at The Co-Operative bank show that, while RBS has some way to go before it can be considered a very healthy bank, it is on the right path and is taking the right steps to regain its status as a financially sound business.

In the meantime, RBS is benefiting from The Co-Op’s struggles, as well as the lack of competition in the UK banking sector. Here’s why that could be great news in the long run for RBS.

A Lack Of Competition

Despite there being new entrants to the UK banking sector in recent years, the same old faces still appear to dominate. One of those is RBS and, although new entrants such as Metro Bank and Virgin Money have provided some competition, they arguably haven’t made the impact that many had hoped. This lack of competition could mean higher profit margins for incumbents such as RBS, as reduced competitive pressure to cut mortgage rates and increase savings rates should benefit the bank’s bottom line.

rbsIndeed, improvements in the bank’s bottom line are set to be seen in 2014, with RBS forecast to move from loss to profit this year. In addition, the size of the bank’s balance sheet has shrunk by 60% in the last five years, as it has sought to de-risk and improve efficiencies. This puts it in much stronger shape for the medium to long term and, it could be argued, this process has been made simpler and easier by there being a lack of competition. For instance, were RBS under more severe pressure to cut mortgage rates and increase savings rates, it may have taken longer to turn the bottom line around.

Looking Ahead

The lack of competition could also be aiding growth prospects for RBS. For example, it is expected to increase earnings per share (EPS) by 12% in 2015, which is around twice that of the FTSE 100. This shows that, while a lack of new entrants and competition has helped to get the bank back on its feet in recent years, they could now help RBS to deliver the level of profits that its balance sheet merits. As such, it could prove to be a strong performer going forward.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter owns shares in RBS.

More on Investing Articles

Investing Articles

Is Nvidia stock set for a massive crash?

Nvidia stock is up 3,500% in five years. So has AI fever sent it ridiculously high now, or are we…

Read more »

Investing Articles

Turning a £20k ISA into a stunning £38,023 a year passive income

Harvey Jones says investing regular sums in a Stocks and Shares ISA is a brilliant way of building up a…

Read more »

Growth Shares

Growth stock YouGov just fell 46%. Time to buy?

YouGov’s share price just fell from 820p to 440p after a poor trading update. Is now a good time to…

Read more »

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »