REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 2
24/02/2017 07:07
- Part 2: For the preceding part double click ID:nRSX7681Xa
we will be switching the source of advocacy measurement for Ulster Bank Business in RoI to Red C. Red C is a recognised research agency that will provide more frequent reporting of NPS, as well as additional diagnostic customer feedback to help us improve the customer experience
(6) Source: Charterhouse Research Business Banking Survey (GB), based on interviews with businesses with annual turnover between £2 million and £1 billion. Latest base size: RBSG Great Britain (935). Weighted by region and turnover to be representative of businesses in Great Britain, 4 quarter rolling data.
(7) Source: Populus. Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest, England & Wales (871), RBS Scotland (226).
Capital reorganisation
● It is our intention to implement a capital reorganisation in 2017 in order to increase the distributable reserves of the parent company, RBSG plc, providing greater flexibility for future distributions and preference share redemptions. We intend to seek
shareholder approval to reduce the share premium account by around £25 billion and to cancel the capital redemption reserve, around £5 billion. This will, subject to approval by shareholders and regulators, and confirmation by the Court of Session in
Edinburgh, increase RBSG plc distributable reserves by around £30 billion.
Ring-fenced structure
● As previously announced, on 1 January 2017, RBS made a number of changes to its legal entity structure to support the move towards a ring-fenced structure, with further changes planned prior to 1 January 2019. Our new brand strategy is designed to align
with our business strategy and future ring-fenced structure. NatWest will be our main customer facing brand in England, Wales and Western Europe, and in Scotland, Royal Bank of Scotland will be our core brand. In addition, our Corporate & Institutional
Banking business has been rebranded as NatWest Markets in readiness for our future ring-fenced structure. The ring-fenced banking group is expected to comprise of 80% of RBS risk-weighted assets.(1)
Note:
(1) Based on RBS future business profile business and excludes Capital Resolution.
Highlights
IFRS9
● RBS continues to develop its processes to enable IFRS 9 Financial Instruments to be implemented on 1 January 2018; an estimate of the initial impact will be included in 2017 H1 interim reporting.
Williams & Glyn
● On 17 February 2017, RBS announced that it had been informed by HM Treasury ("HMT") that the
Commissioner responsible for EU competition policy plans to propose to the College of Commissioners to
open proceedings to gather evidence on an alternative plan for RBS to meet its remaining State Aid
obligations. If adopted, this alternative plan would replace the existing requirement to achieve
separation and divestment by 31 December 2017 of Williams & Glyn. As previously disclosed, none of the
proposals to acquire the business received by RBS can deliver a full separation and divestment before
the 31 December 2017 deadline.
● RBS has agreed that HMT will now seek formal amendment to RBS's State Aid commitments to pave the way
for the Commissioner to propose to open proceedings, as described above. In addition to the
Commission's proceedings, HMT will carry out a market testing exercise in parallel. The opening of the
Commission's proceedings does not prejudge the outcome of the investigation.
● The plan envisages that RBS will deliver the following revised package of remedies to promote
competition in the market for banking services to small and medium enterprises ("SMEs") in the UK:
○ A fund, administered by an independent body, that eligible challenger banks can access to increase their business banking capabilities;
○ Funding for eligible challenger banks to help them incentivise SMEs to switch their accounts from RBS paid in the form of "dowries" to eligible challenger banks;
○ RBS granting business customers of eligible challenger banks access to its branch network for cash and cheque handling, to support the measures above; and
○ An independent fund to invest in fintech to support the business banking of the future.
● The 2016 Annual Results include a £750 million restructuring provision as a consequence of this
proposal.
Highlights
2017 outlook(1) ● Subject to providing fully for the remaining legacy issues, RMBS exposures in particular, RBS currently expects that 2017 will be its final year of substantive legacy clean up with significant one-off costs. Consequently, we anticipate that the bank will be profitable in 2018. ● We are targeting net loans and advances growth of 3% across PBB and CPB, including taking into account the impact of balance sheet reductions associated with the RWA reduction target. We anticipate that this growth
will be largely within PBB as we expect to see moderate growth in some segments in CPB, whilst at the same time selectively reducing exposures with weak returns and continuing to actively manage certain legacy loan exposures. ● We expect that income in 2017 will continue to be supported by balance sheet growth across PBB and CPB. Within UK PBB, we anticipate that income will increase in 2017 compared with 2016, as we have already absorbed significant margin pressure from the changing mortgage mix and the
impact of the sharp fall in interchange rates. Across CPB, we expect income to be broadly stable with continued competitive pressure on margins, given the interest rate environment. NatWest Markets is expected to continue to benefit from increased market volatility and customer activity and we anticipate that 2017 income will be above previously indicated targets of £1.3 - £1.4 billion. ● RBS plans to reduce adjusted operating expenses by a further £750 million in 2017, in addition to the £3.1 billion
achieved across 2014 to 2016, and we expect that the adjusted cost:income ratio will improve across our combined PBB, CPB and NatWest Markets franchises in 2017 compared with 2016. ● Net impairment charges should remain meaningfully below normalised levels in 2017. However, we expect the level of net impairment charges to be driven by a combination of increased gross charges and a materially reduced benefit from releases. Recent UK economic performance has been better than previous forecasts leading to
improved expectations for the 2017 economic outlook. However, the medium term outlook remains less certain, and together with the increased volatility expected with the introduction of IFRS 9, quantification of future credit losses is more challenging beyond 2017 at this point. We continue to remain mindful of potential downside risks including from single name/sector driven events and lower releases of provisions. ● We continue to expect that cumulative Capital Resolution disposal losses will total
approximately £2.0 billion since the beginning of 2015, with £1,192 million of losses incurred to date (2016; £825 million, 2015; £367 million) with most of the balance expected to be incurred during 2017. Excluding RBS's stake in Alawwal Bank (previously Saudi Hollandi Bank, £7.9 billion at 31 December 2016), we expect Capital Resolution RWAs to be in the range £15-£20 billion by the end of 2017, at which point we plan to wind up Capital Resolution and transfer the assets back into the rest of the bank. ●
Excluding restructuring costs associated with the State Aid obligations relating to Williams & Glyn, we expect to incur restructuring costs of approximately £1 billion in 2017 and approximately a further £1 billion in aggregate during 2018 and 2019. Approximately 40% of this cost is expected to relate to the optimisation of our property portfolio. ● Further to the update on 17 February 2017 in respect of the remaining State Aid obligations regarding the business known as Williams & Glyn, and subject to the
alternative plan being finalised and adopted by the European Commission (EC) and further discussions with the EC and HMT, RBS will assess the timing and manner in which it would reincorporate the business into the RBS franchises. This reintegration would likely create some additional restructuring charges during 2017 and 2018.
● Subject to providing fully for the remaining legacy issues, RMBS exposures in particular, RBS currently expects that 2017 will be its final year of substantive legacy clean up with significant one-off costs. Consequently, we anticipate that the bank will
be profitable in 2018.
● We are targeting net loans and advances growth of 3% across PBB and CPB, including taking into account the impact of balance sheet reductions associated with the RWA reduction target. We anticipate that this growth will be largely within PBB as we expect
to see moderate growth in some segments in CPB, whilst at the same time selectively reducing exposures with weak returns and continuing to actively manage certain legacy loan exposures.
● We expect that income in 2017 will continue to be supported by balance sheet growth across PBB and CPB. Within UK PBB, we anticipate that income will increase in 2017 compared with 2016, as we have already absorbed significant margin pressure from the
changing mortgage mix and the impact of the sharp fall in interchange rates. Across CPB, we expect income to be broadly stable with continued competitive pressure on margins, given the interest rate environment. NatWest Markets is expected to continue to
benefit from increased market volatility and customer activity and we anticipate that 2017 income will be above previously indicated targets of £1.3 - £1.4 billion.
● RBS plans to reduce adjusted operating expenses by a further £750 million in 2017, in addition to the £3.1 billion achieved across 2014 to 2016, and we expect that the adjusted cost:income ratio will improve across our combined PBB, CPB and NatWest Markets
franchises in 2017 compared with 2016.
● Net impairment charges should remain meaningfully below normalised levels in 2017. However, we expect the level of net impairment charges to be driven by a combination of increased gross charges and a materially reduced benefit from releases. Recent UK
economic performance has been better than previous forecasts leading to improved expectations for the 2017 economic outlook. However, the medium term outlook remains less certain, and together with the increased volatility expected with the introduction of
IFRS 9, quantification of future credit losses is more challenging beyond 2017 at this point. We continue to remain mindful of potential downside risks including from single name/sector driven events and lower releases of provisions.
● We continue to expect that cumulative Capital Resolution disposal losses will total approximately £2.0 billion since the beginning of 2015, with £1,192 million of losses incurred to date (2016; £825 million, 2015; £367 million) with most of the balance
expected to be incurred during 2017. Excluding RBS's stake in Alawwal Bank (previously Saudi Hollandi Bank, £7.9 billion at 31 December 2016), we expect Capital Resolution RWAs to be in the range £15-£20 billion by the end of 2017, at which point we plan
to wind up Capital Resolution and transfer the assets back into the rest of the bank.
● Excluding restructuring costs associated with the State Aid obligations relating to Williams & Glyn, we expect to incur restructuring costs of approximately £1 billion in 2017 and approximately a further £1 billion in aggregate during 2018 and 2019.
Approximately 40% of this cost is expected to relate to the optimisation of our property portfolio.
● Further to the update on 17 February 2017 in respect of the remaining State Aid obligations regarding the business known as Williams & Glyn, and subject to the alternative plan being finalised and adopted by the European Commission (EC) and further
discussions with the EC and HMT, RBS will assess the timing and manner in which it would reincorporate the business into the RBS franchises. This reintegration would likely create some additional restructuring charges during 2017 and 2018.
Highlights
● We are targeting a CET1 ratio of at least 13% at the end of 2017. As part of the 2016 Bank of England stress testing exercise, RBS submitted a revised capital plan, incorporating further capital strengthening actions, which was accepted by the PRA Board.
● RBS issuance plans for 2017 focus on issuing £3-£5 billion MREL-compliant Senior holding company (RBSG) securities. We do not currently anticipate the need for either AT1 or Tier 2 issuances. In addition, and reflecting our strategic progress, we also target a progressive return to other funding markets to support our lending growth.
● RBS continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment and manage conduct-related investigations and litigation, including RMBS. Substantial additional charges and costs may be recognised in the coming quarters which would have an impact on the RBS's level of capital and financial performance and condition.
Medium term outlook(1)
● We now target achieving our sub 50% cost:income ratio and 12% return on tangible equity targets in 2020, one year later than originally planned. Our confidence in achieving the targets is underpinned by our ability to protect income and drive cost reductions whilst managing credit and market risk and driving further capital efficiency.
● We expect to be able to grow volumes faster than market growth rates over the coming years in chosen segments across PBB and CPB.
● We plan to reduce adjusted operating expenses in the order of £2 billion in the next four years with around two thirds of this from the core bank.
● We are targeting a gross RWA reduction of approximately £20 billion across PBB, CPB and NatWest Markets by the end of 2018, with some offsetting volume growth. We expect that the reduction will be largely achieved through improvements in the quality of our risk models, exiting low return, non strategic and risk intensive asset pools, improved risk metrics in certain portfolios and benefits from data clean-up. We estimate that the income loss associated with this reduction will be in the range £250 million -
£300 million on an annualised, pre tax, basis.
● We continue to monitor the ongoing discussions around the potential further tightening of regulatory capital rules and recognise that this could result in RWA inflation in the medium term.
● In view of the significant risks and uncertainties in the external economic, political and regulatory environment, including uncertainties around the resolution of RMBS, the timing of returning excess capital to shareholders through dividends or buybacks remains uncertain.
Note:
(1) The targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in this document and in the "Risk Factors" on pages 432 to 463 of the Annual Report and Accounts 2016. These statements constitute forward looking statements, please see Forward Looking Statements on pages 64 and 65 of this announcement.
Highlights
2017 targets
As we works towards our long-term goals, we have set the following targets for 2017.
Strategy goal Our long-term targets Our 2017 goals
Strength and sustainability CET1 ratio of 13%RoTE(1,2)≥ 12% Maintain bank CET1 ratio of 13%
Customer experience Number 1 for service, trust and advocacy Significantly increase NPS or maintain No.1 in chosen customer segments
Simplifying the bank Headline cost:income ratio <50% Reduce operating expenses by at least £750 million (3)
Supporting growth Leading market positions in every franchise Net 3% growth in total PBB and CPB loans to customers (4)
Employee engagement Employee engagement in upper quartile of Global Financial Services (GFS) norm Improve employee engagement
Notes:
(1) Calculated using (loss)/profit for the period attributable to ordinary shareholders.
(2) Tangible equity is equity attributable to ordinary shareholders less intangible assets.
(3) Cost saving target and progress 2017 calculated using operating expenses excluding restructuring costs, litigation and conduct costs, write down of goodwill and the 2016 VAT recovery.
(4) Lending growth target is after including the impact of balance sheet reductions associated with the RWA reduction target across PBB, CPB and NatWest Markets as outlined in the outlook statement.
Chief Executive's message
Introduction
In 2016 RBS made an attributable loss of £7.0 billion, mostly reflecting charges for outstanding litigation and conduct,
and costs associated with restructuring of the bank. The financial impact of these issues is a difficult but necessary step
in working through the bank's legacy issues. These costs are a stark reminder of what happens to a bank when things go
wrong and you lose focus on the customer, as this bank did before the financial crisis. The more progress we have made on
clearing these past issues, enables us to sharpen our focus on the core go forward bank.
Our service level and product improvements are already delivering benefits for both customers and the core bank. In 2017
our focus will turn to going even further on reducing costs and faster on digital transformation in order to deliver a more
simple, safe and customer-focused bank.
The bank we were
I joined RBS because I could see that underneath all the troubles it faced, there was a strong bank, with excellent brands
and great colleagues, doing outstanding things for customers each day. This underlying strength is still evident today.
In 2014 I announced a three phase strategy. We are moving to the final phase of this, after delivering much during the
first two phases, which were about building a platform of strength and stripping away unnecessary complexity. Our CET1
ratio has now materially improved to 13.4% from 8.6% at the start of 2014. We have thoroughly reshaped our investment
banking business, now rebranded NatWest Markets. We have sold Citizens in the US, completing the largest bank IPO in US
history in the process, and also sold our international private banking business. We have ended active operations in 26
countries, decommissioned 30% of our IT systems and applications, and almost halved the number of legal entities. We have
also completed the run-down or sale of over three quarters of Capital Resolution legacy and non-core assets. We have
reduced our cost base by over £3 billion, exceeding our target for the third consecutive year, with an operating cost
reduction of £985 million.
The past is not completely behind us, with our dealings on Residential Mortgage Backed Securities (RMBS) and Williams &
Glyn, our residual European Commission State Aid obligations, two significant issues that we still need to resolve. The
recent proposal by HM Treasury on an alternative way to increase competition to allow us to meet our State Aid commitments
would deliver an outcome more quickly, and with more certainty than undertaking a complex sale. We have been able to
provide for both of these in our accounts, though there may still be substantial additional provisions on RMBS.
The bank we are today
We are now in a much better position to focus on our long term aspiration - to transform the bank into the number one for
customer service, trust, and advocacy. While the signs of this transformation have at times been masked by our wider
organisational changes, the core bank has already evolved materially since 2014.
Our decision to refocus on the UK has seen our balance sheet shrink by £229 billon since the start of our plan. This is net
of the continued growth in our Personal and Business Banking and Commercial and Private Banking franchises. We are seeing
the benefits of our service-led strategy in the financial performance of the core bank, generating £4.2 billion in adjusted
pre-tax operating profit for the year, an average of £1 billion per quarter for the last eight quarters and 4% up on 2015.
Chief Executive's message
While Q4 was down from the levels seen earlier this year, our Net Promoter Scores for Commercial and NatWest Personal in
2016 were the highest they have ever been.
With £30 billion of gross new mortgage lending in UK PBB, we helped 320,000 customers with their mortgage in 2016, growing
our market share for the fourth consecutive year without leading on price or risk. We are the largest commercial bank in
the UK, and are ranked joint number one by Net Promoter Score. Our ability to generate value here is shown by the scale of
support we have provided to the economy in the past year, with almost £9 billion of new net commercial lending.
The bank we are becoming
We still have more work to do. In part, that means finishing the restructuring of RBS, resolving the remaining legacy
issues, and preparing the bank for ring-fencing. In the main, however, it is about adapting to the changing nature of the
UK and Irish banking sectors, and investing to meet our customers' evolving needs.
Digital innovation means customers are doing more of their transactions online. We interact with our customers over 20
times more through digital channels than physical ones. 35% of all new products were taken out digitally in UK PBB, and
this is rising steadily. A fifth of our customers now solely use mobile and digital to interact with us. As customers
change the way they bank with us, we must change the way we serve them. This means continuing to simplify for our
customers, and accelerating our deployment of digital and mobile capabilities. The role of the branch is fast moving to an
advice and service centre, away from transactions. While the branch will still be a core part of our offering to customers,
inevitably some branches will have to close.
We're working to blur the line between traditional and digital banking channels. We are investing in a video sales and
service proposition that will connect customers, no matter where they are, to the right specialist.
This shift isn't only in personal banking. We are aiming to service 95% of our commercial customers' needs through mobile
and online by 2020, up from nearly 80% today, by introducing a new digital banking service that will greatly improve
experience. We're also responding to customer preferences for more innovative lending platforms and products.
We are investing heavily in technology in our NatWest Markets business. Hundreds of separate product databases will be
replaced with a single, scalable platform, which will help reduce costs significantly and dramatically increase the speed
at which we can deploy new capabilities for our customers. We are also introducing a single dealer platform, an electronic
front door, through which we can provide FX and Rates solutions to our clients. These are the kind of changes that will
lower costs while protecting revenue and delivering even better customer service at the same time.
We are committed to running the bank as a more sustainable and responsible business, serving today's customers in a way
that also helps future generations, generating long term value for all of our stakeholders and society. In 2016, we
improved on our position in a number of rankings, including achieving our highest ever score in the Dow Jones
Sustainability Index. We continued with our commitment to manage our impacts on climate change and support our customers to
move towards the transition to a low-carbon economy. We continue to support financial education and our goal is to help a
further one million more young people understand all about money by the end of 2018.
Chief Executive's message
Our commitment to sustainability is also evident in our annual results, where we have replaced our annual Sustainability
Report with a more integrated approach. You will see a number of new elements in the Strategic Report that explain the key
influences on our operating environment, and some of the impact we have had over the past year. This is an important step
towards fully integrated reporting over the coming years.
Delivering our strategy
The decision last summer by UK voters to leave the EU will have wide-reaching consequences. In light of this, we reviewed
our plan to ensure that it remained valid in a changed macro and political environment. Following that review, I want to
re-iterate our commitment to the strategy we have been pursuing since I became CEO - we firmly believe that our aspiration
to reach no.1 for customer service, trust and advocacy will maximise value for our shareholders.
This year we have met all our operating financial targets, though the results of some of our customer NPS and employee
engagement surveys show we still have work to do. After the EU referendum result, we promised an update on our targets. We
are targeting an unadjusted 12% or greater return on tangible equity, and a below 50% cost to income ratio by 2020, one
year later than envisaged when we first set out our plan in 2014.
Our service levels are improving and we believe we can meet our 2020 aspirational customer and colleague targets. Our focus
on capital strength remains a cornerstone of our plan. In 2017, we will continue to reduce legacy RWAs, and we will target
a CET1 ratio of at least 13%.
This has also been another tough year for our colleagues. I am grateful for their determination in serving our millions of
customers every day, despite many negative headlines. Our colleagues are the face of the bank for our customers, and their
engagement is critical to our success. One of our five key targets in 2017 is to improve employee engagement.
We no longer have global aspirations and we need to go further still on our operating costs. We expect to take out an
additional £750 million of operating costs in 2017 through our focus on simplification and digital transformation.
A simpler bank is a more profitable bank and a bank that delivers a better customer experience. Where we can make it easy
for our customers, the more business they will do with us and the more sustainable our earnings will become.
Looking ahead
The progress of the last three years positions us well to achieve our vision for the future. We have the right strategy,
and it is starting to deliver results. Now, we need to go further on cost reduction and faster on digital transformation.
We aren't alone in searching for efficiency gains and investing in digital capability, but the unique strength of this bank
lies in the fact that we have a diverse business profile, with scale in all of our chosen markets. Investment in our market
leading brands and better customer service will deliver steadier, higher quality earnings. Our focus on service rather than
price has also shown that we can continue to grow in areas of strategic opportunity, such as mortgages, without
compromising on risk. All of this will deliver a sustainable competitive advantage and a compelling investment case in the
longer term.
This is a bank that has been on a remarkable journey. We still have further to go. But the next three years will not be
the same as the past three. Legacy issues will take up a decreasing amount of our time and focus. Our customers, our cost
base and the measures we plan to implement to return the bank to sustainable headline profits will be where we focus our
efforts. Assuming we can conclude our issues on RMBS this year and resolve our residual State Aid obligations, we aim to
have RBS back into profit in 2018 representing a significant step towards being able to start repaying UK taxpayers for
their support.
Summary consolidated income statement for the period ended 31 December 2016
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2016 2015 2016 2016 2015
£m £m £m £m £m
Net interest income 8,708 8,767 2,208 2,167 2,162
Own credit adjustments 180 309 (114) (156) (115)
(Loss)/gain on redemption of own debt (126) (263) 1 3 (263)
Strategic disposals 164 (157) - (31) (22)
Other operating income 3,664 4,267 1,121 1,327 722
Non-interest income 3,882 4,156 1,008 1,143 322
Total income 12,590 12,923 3,216 3,310 2,484
Restructuring costs (2,106) (2,931) (1,007) (469) (614)
Litigation and conduct costs (5,868) (3,568) (4,128) (425) (2,124)
Write down of goodwill - (498) - - (498)
Other costs (8,220) (9,356) (2,219) (2,017) (2,525)
Operating expenses (16,194) (16,353) (7,354) (2,911) (5,761)
(Loss)/profit before impairment (losses)/releases (3,604) (3,430) (4,138) 399 (3,277)
Impairment (losses)/releases (478) 727 75 (144) 327
Operating (loss)/profit before tax (4,082) (2,703) (4,063) 255 (2,950)
Tax (charge)/credit (1,166) (23) (244) (582) 261
Loss from continuing operations (5,248) (2,726) (4,307) (327) (2,689)
Profit from discontinued operations, net of tax - 1,541 - - 90
Loss for the period (5,248) (1,185) (4,307) (327) (2,599)
Attributable to:
Non-controlling interests 10 409 (27) 7 20
Other owners 504 385 161 135 121
Dividend access share 1,193 - - - -
Ordinary shareholders (6,955) (1,979) (4,441) (469) (2,740)
Memo:
Total income - adjusted (1) 12,372 13,034 3,329 3,494 2,884
Operating expenses - adjusted (2) (8,220) (9,356) (2,219) (2,017) (2,525)
Operating profit - adjusted (1,2) 3,674 4,405 1,185 1,333 686
Notes:
(1) Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(2) Excluding restructuring costs, litigation and conduct costs and write down of goodwill.
Details of other comprehensive income are provided on page 49.
Summary consolidated balance sheet as at 31 December 2016
31 December 30 September 31 December
2016 2016 2015
£m £m £m
Cash and balances at central banks 74,250 69,254 79,404
Net loans and advances to banks (1) 17,278 19,741 18,361
Net loans and advances to customers (1) 323,023 326,736 306,334
Reverse repurchase agreements and stock borrowing 41,787 45,955 39,843
Debt securities and equity shares 73,225 80,512 83,458
Assets of disposal groups (2) 13 13 3,486
Other assets 22,099 27,118 22,008
Funded assets 551,675 569,329 552,894
Derivatives 246,981 283,049 262,514
Total assets 798,656 852,378 815,408
Bank deposits (3) 33,317 32,172 28,030
Customer deposits (3) 353,872 358,844 343,186
Repurchase agreements and stock lending 32,335 36,408 37,378
Debt securities in issue 27,245 28,357 31,150
Subordinated liabilities 19,419 19,162 19,847
Derivatives 236,475 275,364 254,705
Provisions for liabilities and charges 12,836 9,021 7,366
Liabilities of disposal groups (2) 15 15 2,980
Other liabilities 33,738 38,707 36,619
Total liabilities 749,252 798,050 761,261
Non-controlling interests 795 853 716
Owners' equity 48,609 53,475 53,431
Total liabilities and equity 798,656 852,378 815,408
Contingent liabilities and commitments 150,691 151,394 153,752
Notes:
(1) Excludes reverse repurchase agreements and stock borrowing.
(2) Primarily consists of international private banking business at 31 December 2015.
(3) Excludes repurchase agreements and stock lending.
Analysis of results
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2016 2015 2016 2016 2015
Net interest income £m £m £m £m £m
Net interest income (1)
RBS 8,708 8,767 2,208 2,167 2,162
- UK Personal & Business Banking 4,287 4,152 1,093 1,085 1,030
- Ulster Bank RoI 409 365 105 106 85
- Commercial Banking 2,143 1,997 542 534 512
- Private Banking 449 436 111 112 108
- RBS International 303 303 77 75 78
- NatWest Markets 104 87 29 32 28
- Capital Resolution 239 365 44 27 6
- Williams & Glyn 658 658 170 164 165
- Central items & other 116 404 37 32 150
Average interest-earning assets (IEA)
RBS 399,598 413,345 401,548 397,345 407,061
- UK Personal & Business Banking 142,458 130,702 147,703 145,649 134,687
- Ulster Bank RoI 25,193 23,232 26,259 26,026 23,195
- Commercial Banking 121,677 106,429 128,174 123,817 111,600
- Private Banking 16,887 15,835 17,679 16,978 16,025
- RBS International 22,254 20,518 22,793 23,332 20,773
- NatWest Markets 12,387 16,552 14,085 11,960 10,190
- Capital Resolution 25,468 60,656 19,696 22,352 39,875
- Williams & Glyn 24,321 22,940 25,145 24,597 23,327
- Central items & other 8,953 16,482 14 2,634 27,389
Yields, spreads and margins of the banking business
Gross yield on interest-earning assets
of the banking business (2,3) 2.80% 2.88% 2.72% 2.78% 2.78%
Cost of interest-bearing liabilities of banking business (2) (0.94%) (1.11%) (0.82%) (0.92%) (1.00%)
Interest spread of the banking business (2,4) 1.86% 1.77% 1.90% 1.86% 1.78%
Benefit from interest-free funds 0.32% 0.35% 0.29% 0.31% 0.32%
Net interest margin (1,5)
RBS 2.18% 2.12% 2.19% 2.17% 2.10%
- UK Personal & Business Banking (6) 3.01% 3.18% 2.94% 2.96% 3.03%
- Ulster Bank RoI (6) 1.62% 1.57% 1.59% 1.62% 1.45%
- Commercial Banking (6) 1.76% 1.88% 1.68% 1.72% 1.82%
- Private Banking (6) 2.66% 2.75% 2.50% 2.62% 2.67%
- RBS International (6) 1.36% 1.48% 1.34% 1.28% 1.49%
- NatWest Markets 0.84% 0.53% 0.82% 1.06% 1.09%
- Capital Resolution 0.94% 0.60% 0.89% 0.48% 0.06%
- Williams & Glyn 2.71% 2.87% 2.69% 2.65% 2.81%
Third party customer rates (7)
Third party customer asset rate
- UK Personal & Business Banking 3.83% 4.13% 3.64% 3.79% 4.00%
- Ulster Bank RoI (8) 2.19% 2.27% 2.20% 2.17% 2.19%
- Commercial Banking 2.77% 2.93% 2.65% 2.74% 2.84%
- Private Banking 2.90% 3.13% 2.76% 2.86% 3.06%
- RBS International 3.04% 3.10% 2.93% 2.95% 3.09%
Third party customer funding rate
- UK Personal & Business Banking (0.45%) (0.66%) (0.28%) (0.44%) (0.63%)
- Ulster Bank RoI (8) (0.50%) (0.88%) (0.42%) (0.46%) (0.74%)
- Commercial Banking (0.33%) (0.38%) (0.27%) (0.32%) (0.36%)
- Private Banking (0.18%) (0.26%) (0.12%) (0.18%) (0.25%)
- RBS International (0.14%) (0.31%) (0.08%) (0.10%) (0.24%)
Refer to the following page for footnotes.
Analysis of results
Notes:
(1) For the purpose of net interest margin (NIM) calculations, no decrease for 2016 (2015 - £15 million) and no decrease for Q4 2016 (Q3 2016 - nil; Q4 2015 - £3 million) was made in respect of interest on financial assets and liabilities designated as at fair value through profit or loss. Related average interest-earning assets and average interest-bearing liabilities have also been adjusted.
(2) For the purpose of calculating gross yields and interest spread, interest receivable and interest payable have both been decreased by £76 million in respect of negative interest relating to financial assets that attracted negative interest.
(3) Gross yield is the interest earned on average interest-earning assets as a percentage of average interest-earning assets.
(4) Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.
(5) Net interest margin is net interest income as a percentage of average interest-earning assets.
(6) PBB NIM for the year ended 2016 was 2.80% (year ended 2015 - 2.93%; Q4 2016 - 2.74%; Q3 2016 - 2.76%; Q4 2015 - 2.80%). CPB NIM for the year ended 2016 was 1.80% (year ended 2015 - 1.92%; Q4 2016 - 1.72%; Q3 2016 - 1.75%; Q4 2015 - 1.87%).
(7) Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.
(8) Ulster Bank Ireland DAC manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.
Key points
2016 compared with 2015
· Net interest income of £8,708 million reduced by £59 million compared with 2015 principally driven by a £126 million reduction in Capital Resolution, in line with the planned shrinkage of the balance sheet.
· NIM was 2.18% for 2016, 6 basis points higher than 2015 as the benefit associated with reductions in low yielding 'non-core' assets has been partially offset by modest asset margin pressure and mix impacts across PBB and CPB.
· Average interest earning assets across the combined PBB and CPB increased by 11% on 2015, compared with a 3% decline for RBS total, and represented 82% of total average interest earning assets (2015 - 72%). NIM across PBB and CPB was 2.31%, 13 basis points lower than 2015.
· UK PBB NIM decreased by 17 basis points to 3.01% reflecting the impact of the overall portfolio mix being increasingly weighted towards secured lending and mortgage customers switching from standard variable rate (SVR) to lower rate products. During the second half of 2016 SVR balances stabilised at approximately 12% of mortgage balances.
· Ulster Bank RoI NIM increased by 5 basis points to 1.62% driven by a continued reduction in the cost of deposits and a reduced volume of low yielding liquid assets, partly offset by reduced income on free funds.
· Commercial Banking NIM fell by 12 basis points to 1.76% driven by asset margin pressure in a competitive market and low rate environment.
· Private Banking NIM reduced by 9 basis points to 2.66% principally driven by asset margin pressure.
· RBSI NIM fell by 12 basis points to 1.36% reflecting asset and liability margin pressures, partially offset by mitigating pricing actions.
· Structural hedges of £123 billion generated a benefit of £1.3 billion through net interest income for the year. Around 73% of these hedges are part of a five year rolling hedge programme (with around 27% as part of a ten year hedge) that will progressively roll-off over the coming years.
Q4 2016 compared with Q3 2016
· Net interest income of £2,208 million increased by £41 million compared with Q3 2016 principally driven by a £16 million increase across PBB and CPB and a £17 million increase in Capital Resolution.
· NIM for Q4 2016 was 2.19%, 2 basis points higher than Q3 2016. NIM for the combined PBB and CPB franchises was 2.24%, 3 basis points lower than Q3 2016.
· UK PBB NIM reduced by 2 basis points to 2.94% and Commercial Banking NIM reduced by 4 basis points to 1.68% driven by asset margin pressure.
Q4 2016 compared with Q4 2015
· Net interest income of £2,208 million increased by £46 million compared with Q4 2015 principally driven by a £115 million increase across PBB and CPB.
· NIM was
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