Royal Bank of Scotland (RBS) reported a total pre-tax profit of £1.27 billion ($2.03 billion) in the third quarter, thanks to previously underperforming loans in Ireland being revalued.
The bank, which is 80 percent owned by the U.K. taxpayer, has set aside £400 million to cover expected fines related to allegations its traders conspired to rig foreign exchange rates. A further £380 million provision has been made to cover other overhanging scandals, like payment protection insurance (PPI) mis-selling.
Rival Barclays on Thursday announced it had set aside £500 million for the same purpose. The two banks are just two of several currently negotiating a settlement with U.K. authorities.
During the same quarter last year, RBS made a pretax loss of £634 million.
The improvement in performance has happened partly because of improved economic performance in the U.K. and Ireland. Assets of RBS's Ulster Bank, once viewed as a likely candidate for sale, have been revalued and debts which were previously seen as write-offs seem to be more viable.
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Ross McEwan, chief executive of RBS, confirmed: "Ulster Bank remains a core part of our bank."
RBS recorded a total net loan impairment release (a measure of loans which have been written down, then revalued upwards) of £803 million, in the third quarter, £714 million higher than in the three months to June 30.
The bank has also embarked on a program of selling off or spinning off assets, including the initial public offering of U.S. retail business Citizens in September, which should help raise its ratio of capital to riskier assets.
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Its leverage ratio, under the Basel banking regulations, improved to 3.9 percent - but this is slightly less than the anticipated 4 percent which the Bank of England is expected to want from its stress tests later in the year.
RBS passed euro zone stress tests earlier this week.