Lloyds and RBS - less than thrilling Look through the murk and the mess, past the charges for payment protection insurance and Libor manipulation, the technology glitches and the banker-bashing. Beyond all those, how are the UK's banks doing and are they worth investing in? Royal Bank of Scotland and Lloyds Banking Group have both reported numbers for the first nine months of the year. The good news is that, after years of restructuring, the non-core businesses are fading from the overall picture. Non-core loans are now only 7 per cent of the total book at RBS, and 20 per cent at Lloyds. The proportion is even lower when it comes to income. The bad news is that the overall picture is not thrilling. Core income fell 4 per cent at RBS, and 9 per cent at Lloyds. Net interest margins at both were also down, to 2.2 per cent at RBS and 2.3 per cent at Lloyds, reflecting the difficulties of operating with low interest rates. At least RBS has some respite from the margin pressure: fee income makes up 56 per cent of total income (against 45 per cent at Lloyds) thanks to its trading activities - politicians should bear that in mind next time they have a pop at investment banks. Lloyds talks hopefully of reaching an "inflection point" when it can stop deliberately reducing market share in mortgages and start growing again. The third quarter was an improvement on the second, but it is too early to tell if that is noise or a sustainable trend. Investors have shown faith, though - Lloyds shares are up 61 per cent this year, well ahead of the other UK-listed banks. That rise has been enough to open up a valuation premium. Lloyds trades at 0.7 times book value, against 0.6 for RBS and Barclays, reflecting good news on impairments and more strategic certainty than the others can offer. But the underlying picture remains just as grim, making the premium look optimistic.