* Attributable Q1 profit before tax 792 mln stg
* Conduct and litigation charges only 19 mln stg
* Net interest margin squeezed by competition
LONDON: Royal Bank of Scotland on Friday reported a much stronger than expected attributable pre-tax profit of 792 million pounds ($1.10 billion) in the first quarter, as costs from legal fines and restructuring fell.
Analysts had expected the state-backed bank, which returned to annual profit for the first time in a decade last year, to deliver 319 million pounds in profit before tax.
Even after ten years of restructuring following the financial crisis, RBS is still not entirely back to normal. An outstanding multi-billion pound fine from the U.S. Department of Justice (DOJ) is expected to put the bank back into the red at full-year results this year.
RBS said on Friday it had no news on concluding the DOJ talks, which it has said are a prerequisite for it to resume paying dividends and for the British government to start to sell its 71 percent stake in the bank.
Restructuring costs for the first quarter fell to 209 million pounds from 509 million in the same period a year ago, while conduct and litigation charges were just 19 million pounds, down from 764 million pounds a year ago.
RBS also reported a common equity tier one capital ratio of 16.4 percent, up from 15.9 percent in February. That did not include the impact of a 2 billion pound payment into the bank's group pension fund that will be booked in the second quarter.
While the bank's headline profit figure showed a healthy business emerging from its years of restructuring and legal costs, the bank also showed some signs that increasingly competitive British banking market is squeezing its returns.
RBS's net interest margin, a measure of the gap between what it pays savers and charges borrowers, fell by 0.2 percentage points from the same period a year ago amid competitive pressure on loan margins.
A long period of low interest rates in Britain and competition from upstart new lenders have combined to squeeze rates on mortgages and business loans in recent years, eroding bank profit margins.
($1 = 0.7182 pounds) (Reporting by Lawrence White and Emma Rumney; editing by Carolyn Cohn and Jane Merriman)