LONDON (Reuters) – Royal Bank of Scotland will pay investors, including the British government, a bigger-than-expected dividend after it more than doubled its profit in 2018, but warned that Brexit could drive businesses under and curtail cost-cutting.

Although the dividend means a nearly 1 billion pound ($1.28 billion) windfall for the British government, it is still expected to suffer heavy losses overall on the 45 billion pound state rescue of RBS at the height of the financial crisis.

RBS, which is still majority state-owned, said it would pay investors an annual dividend of 3.5 pence and a special dividend of 7.5 pence, taking its total payout, including an earlier interim dividend, to 13 pence per share.

Shares in RBS rose 1.1 percent, with gains capped by a warning from chief executive Ross McEwan that it faced a possible spike in bad loans from business failures due to economic uncertainty over Britain’s withdrawal from the European Union.

“The area where we have seen a slowdown is in the large corporates. They are pausing investment and waiting to see what the outcome on Brexit will be,” he told reporters.

And more than 50 billion euros of cross-border payments had been put at risk by a potentially chaotic EU exit.

“The political uncertainty around Brexit has gone on far too long,” he said after RBS reported a net profit of 1.6 billion pounds, above expectations of 1.4 billion pounds, according to a company-provided average of analyst forecasts and up from 752 million pounds in 2017.

RBS also said political turmoil over Brexit means it will struggle to hit its target of cutting its cost-to-income ratio to less than 50 percent as planned by 2020.

PAINFUL DECADE

The RBS dividend payout follows a painful decade of massive misconduct and restructuring costs following its 2008 bailout and investors will be looking for returns to rise further in the coming years, with the bank’s core capital ratio giving it room to manoeuvre at 16.2 percent.

Although analysts have warned any economic shock triggered by Brexit could slow increases in payouts, McEwan said RBS was in a strong position to ramp them up further and keep its capital ratio over its medium term target of 14 percent.

RBS’s second consecutive year in the black will likely intensify speculation Britain’s Treasury will swiftly sell more of its stock, which is 62 percent owned by taxpayers.

Despite its caution, impairments on bad loans fell 19 percent to 398 million pounds in 2018 and RBS did not make any further provision for Brexit on top of the 100 million pound charge in the third quarter.

The bank’s net interest margin – a closely-watched measure of underlying profitability – increased two basis points to 1.95 percent quarter on quarter, which Goodbody analysts said would “settle some nerves” amid investor concerns.

McEwan’s total pay package for the year increased slightly to 3.6 million pounds, up from 3.5 million the previous year, while the gender pay gap at RBS fell slightly to 36.6 percent, from 37.2 percent the previous year.

RBS said income at its investment banking business Natwest Markets fell 24 percent due to challenging market conditions for fixed income, currencies and commodities in the fourth quarter.

($1 = 0.7798 pounds)