Royal Bank of Scotland, which owns Ulster Bank, has warned that bad debts will be higher than expected this year due to weaker economic conditions but it will still meet profit targets. In a trading statement ahead of the end of its financial year, the bank blamed problems in the small business sector in particular for the expected rise in bad debts. In line with other financial institutions the bank has been forced to set aside funds to cover any potential losses arising from the collapse of the US Enron group.

Royal Bank, the UK's second biggest bank, confirmed it had advanced loans to Enron as well as to NTL which recently announced substantial job cuts and mounting debts.

"We will have a higher-than-expected bad debt charge, but the strength of the rest of the business is such that the trend of profit growth will continue" chief executive Mr Fred Goodwin said yesterday. The bank has stressed that the size of the rise in bad debt charges would not cause concern.

Analysts have been expecting higher bad debt charges at the banks particularly after Abbey National's announcement that it had a £115 million sterling exposure to Enron and was forced to write off £95 million.

The markets greeted the bank's statement positively. The bank said it had continued to achieve a strong performance in each of its businesses since June with sustained growth in income and improvements in efficiency as well as substantial progress on the integration of NatWest.

Ulster Bank operates in the Republic and North. It was part of the NatWest group taken over by Royal Bank last year.