NatWest IT disaster to cost £125m

RBS has set aside £125m to cover the cost of its IT debacle in June, which left thousands of its 16.9 million accounts across RBS, NatWest and Ulster banks inaccessible to customers.

The IT systems failure, which stopped consumers from being able to pay bills or access their money, took nearly a week to resolve and was put down to problems with a software upgrade at an IT centre in Edinburgh.

RBS has set out a compensation deal stating that the bank will pay for affected individuals to receive a free credit report by agency Experian. Customers that incurred banking charges because of the systems failure will not be expected to pay, and customers from other banks who may have suffered "knock-on" costs will also be repaid.

RBS group chief executive Stephen Hester today called the incident a "significant blot on RBS' reputation", stating that the bank is working through a "detailed root cause investigation" to ensure the problem is not repeated.

He said: "While we have significantly increased technology spend over the past three years, there is clearly more we need to do to ensure reliability for our customers."

However, RBS has cut back on permanent IT staff in the past two years, as part of its 3,500 job cuts announced in 2010 as a result of its sale of branches to Santander.

The cull included workers in its back office, technology and property operations in a bid to save frontline, or "customer facing" staff.

RBS’s first half revenues fell 8% to £13.2bn, and its pre-tax loss nearly doubled to £1.5bn.

Hester said the first half results were in line with the same period last year however, before the £125m deduction and another £50m set aside for mis-selling interest rate swaps.

Hester said the Libor situation, in which RBS is being investigated over its part in the interest-rate rigging scandal, "is on our agenda", calling it a "stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact".

Rival Barclays has already been fined £290m for its part in fixing the inter-bank lending rate, and last month issued press ads apologising to consumers for the affair, which resulted in the departure of chief executive Bob Diamond.

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