LONDON (Dow Jones) - Europe's second-largest bank, The Royal Bank of Scotland, on Thursday said its 2005 profit would meet market expectations, but shares declined as the prediction compared negatively with those of rival U.K. banks recently.

The Edinburgh-based bank, which analysts polled by Thomson First Call have been expecting to make a profit of 5.3 billion pounds ( $9.25 billion ) for 2005, said it expects "good" growth in income, in particular from overseas activities.

The Royal Bank of Scotland added that its profitability is part due to a focus on efficiency, which allowed it to maintain a low cost-to-income ratio for the full year.

But it noted the group's full year net interest margin is expected to be slightly lower than for the first half of 2005, reflecting higher growth in large corporate and mortgage lending and a slowdown in unsecured lending, the company said.

RBS added Citizens Financial Group, its U.S. banking arm, is continuing to perform well despite a reduction in margin caused by further flattening of the U.S. yield curve.

Provisions for bad debt have been in line with market expectations, it added.

Shares declined 1.4% in London, with the bank being pressured by comparisons with rival HBOS and Alliance & Leicester within the last week, both of which predicted that their results would come in ahead of market forecasts.

"While the margin, capital and unsecured lending are positives, merely being in line with market expectations at the group level may see some profit taking," said Mark Thomas, an analyst at Keefe, Bruyette & Woods.

(END) Dow Jones Newswires

12-08-05 0514ET Copyright (c) 2005 Dow Jones & Company, Inc. Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.