Royal Bank of Scotland has unveiled higher profits and said its merger with Nat West is proceeding more smoothly than expected.

The bank said on Thursday that pre-tax profits for 2001 came in at �4.3bn ($6bn), up by nearly a third from �3.3bn the year before.

The profits figure for 2000 has been adjusted to take account of the merger that year between Royal Bank of Scotland and NatWest.

The company said all its divisions managed to boost sales, with total income for 2001 rising 18% on the year to �14.5bn, and added that it is well-placed to continue growing.

"I am confident that the... strength, diversity and flexibility of the group will enable us to continue to build value," said RBS chairman Sir George Mathewson.

Merger costs and benefits

RBS, the UK's second biggest bank, added that it now expects its merger with NatWest to yield �5.5bn in profits by the end of 2003, up from its previous estimate of about �4.1bn.

It has also revised its estimate of the total cost of the merger from �1.4bn to �2.3bn.

Last year, the cost of integrating the two businesses widened to �847m, up from �434m in 2000, the bank said.

RBS took over Nat West in March 2000 after seeing off a rival bid from Bank of Scotland, now merged with Halifax under the name HBOS.

Bad debt woes

However, the global economic downturn forced the company to set aside an extra �230m to take account of bad debts, bringing the total to just over �1bn.

RBS blamed "a deterioration in the short-term economic outlook combined with the impact of a small number of specific customer situations."

In the City, RBS shares were marked 26p lower at 1,708p in early trade on Wednesday.

The bank had carried out 17,000 of a planned 18,000 job cuts stemming from the Nat West merger by December 2001.

But RBS's total employee headcount rose by more than 11,000 to 105,700 during the year.