Royal Bank of Scotland yesterday said it expects profits this year to be ahead of current market expectations due to strong organic income growth and a buoyant corporate markets unit.

The Edinburgh-based lender said its Irish Ulster Bank unit - acquired in March 2000 - was delivering strong income growth against a buoyant economic backdrop, with healthy lending and deposit volumes partially offset by tighter margins. Credit metrics in the region remain stable, its parent said.

In the statement RBS said total profit before tax and one-off items should be "slightly ahead" of the consensus forecast of £9.16 billion (€13.6 billion), up 11 per cent from £8.25 billion in 2005. "The statement further underlines this bank operationally continues to deliver and will continue to deliver the numbers," said Sanford Bernstein analyst Antony Broadbent. RBS said 2006 profit growth would be underpinned by an improvement in efficiency, good health of loans on its books and stable returns, while margin trends were in line with previous guidance. The bank said its bad debt charges are expected to represent a slightly lower proportion of all loans this year. Bad debts on UK unsecured loans continued to rise but the rate of growth was moderating and impairments were within expectations, Fred Goodwin, RBS chief executive, told reporters.

The bank's retail bad debts rose 19 per cent in the first half of this year. RBS said demand for consumer credit was likely to remain weak, but its retail markets achieved good growth and had seen stronger mortgage lending in the second half. The group's shares rose more than 4 per cent to end at £19.16.