The chairman of the Royal Bank of Scotland (RBS) has told chancellor George Osborne that the bank's position following the vote to leave the European Union was 'not so bad', despite a slowdown in the property market and that it had hedged against the sterling to protect itself.
Speaking to the BBC, Sir Howard Davies said he had told the chancellor: "The position is not so bad, but there is some slowdown particularly in the property market, particularly where you have overseas investors and particularly in London."
Davies added the lender, which is still 73%-owned by taxpayers, had performed like most UK banks following the EU referendum.
He explained that British banks could not avoid the repercussions from the referendum. "If you are a major UK bank you cannot hide from what's going on in the UK economy."
"Indeed if you did, you'd make it worse because if we then pulled in lending in the UK to protect ourselves from losses, that would make it worse."
Among the consequences of the referendum, the RBS chairman admitted the pro-Brexit vote has "probably" changed the timescale for the sale of the government's stake.
"When we get a new government, they will have to look at the phasing," he explained.
"They were planning to sell down most of their stake between now and the next election, which is what George Osborne said.
"But obviously the government cannot ignore the price and it would not be a great time to sell a large piece of a bank at the moment, into a falling market. So I think one can deduce that is likely to be later rather than sooner."
On Tuesday (5 July), Bank of England governor Mark Carney said the organisation would postpone demands for £5.7bn ($7.4bn, €6.6bn) in extra financing to be held by commercial banks' balance sheets – known as the countercyclical capital buffer – in light of the economic uncertainty triggered by the Brexit vote.
Furthermore, he said the UK central bank would reduce the level of the buffer – pencilled in for 2017 – from the planned 0.5% of a bank's lending exposure to 0%.
"The governor did say quite rightly that the key is what the demand for lending is," said Davies, adding the move would, in theory, create more room to lend.
"The last time we had a problem in that the demand for lending fell but also the supply [fell] because the banks had too little capital and so they were trying to build up their reserves in order to survive. That is not the position today."
On the subject of currency hedging, Sir Howard said the bank had acted to protect itself in the event the dollar strengthened against the pound. "I can't tell you for how much, but yes we did notice that, and we bought some protection."