REG - Royal Bk Scot.Grp. - Final Results <Origin Href="QuoteRef">RBS.L</Origin> - Part 3
23/02/2018 07:16
- Part 3: For the preceding part double click ID:nRSW7507Fb
69.7
Of which:
Core RWAs 32.3 31.8 35.2
Legacy RWAs ex Alawwal 14.0 16.1 26.6
Alawwal 6.6 7.0 7.9
Segment performance
UK Personal & Business Banking
2017 compared with 2016
● Operating profit was £2,413 million compared with £1,726 million in 2016.
The increase was driven by higher income, lower adjusted operating expenses
and lower litigation and conduct charges, partially offset by higher
restructuring costs, largely relating to the reduction in our property
portfolio and costs associated with the business previously described as
Williams & Glyn, and higher impairments. Return on equity increased to
23.7% from 16.2% in 2016.
● Total income of £6,477 million was £350 million, or 5.7%, higher than 2016,
principally reflecting strong balance growth, savings re-pricing benefits and
a £185 million debt sale gain. Net interest margin declined by 11 basis
points to 2.86% driven by lower mortgage margins, asset mix and reduced
current account hedge yield, partially offset by savings re-pricing benefits
from actions taken in 2016 and following the Q4 2017 base rate increase.
● Adjusted operating expenses decreased by £240 million, or 7.1%, to £3,158
million compared with 2016 driven by a £59 million, or 7.1%, reduction in
staff costs, with headcount down 8.3%, and a £181 million reduction in
operational costs following process and productivity improvements in service
operations and re-integration benefits in respect of the business previously
described as Williams & Glyn((1)). Adjusted cost:income ratio improved to
48.8% in 2017 compared with 55.5% in 2016.
● The net impairment charge of £235 million, or 14 basis points of gross
customer loans, reflected continued benign credit conditions. 2017 had lower
recoveries partly as a result of the debt sales undertaken, compared with
2016. Defaults remained at very low levels across all portfolios compared to
historic trends, although slightly higher than in 2016.
● Net loans and advances increased by £9.0 billion, or 5.9%, to £161.7 billion
as UK PBB continued to deliver support for both personal and business banking
customers. Gross new mortgage lending in 2017 was £31.0 billion with market
share of new mortgages at approximately 12%, resulting in stock share of
approximately 10% at 31 December 2017 compared with 9.7% at 31 December 2016.
Positive momentum continued across business banking lending, with net balances
up 3.0% compared with 31 December 2016, adjusting for transfers((3)).
● Customer deposits increased by £10.6 billion, or 6.2%, to £180.6 billion,
driven by strong personal current account and business deposit growth.
● UK PBB includes commercial income from the business previously described as
Williams & Glyn of approximately £417 million, gross loans and advances
of £8.3 billion and deposits of £14.3 billion. An estimated £70 million of
the commercial income, £1.7 billion of gross loans and advances and £1.8
billion of deposits relates to mid-corporate customers not subject to the
European Commission alternative remedies package. 120,000 of the remaining
approximately 220,000 customers will be subject to the remedies package.
Q4 2017 compared with Q3 2017
● Operating profit decreased by £638 million compared with Q3 2017 principally
driven by higher restructuring and litigation and conduct costs and lower
income, as Q3 2017 included a £168 million debt sale gain whilst Q4 2017
included a charge of £16 million following an annual review of mortgage
customer repayment behaviour.
● Gross new mortgage lending in the quarter was £8.0 billion with market share
of new mortgages at approximately 12%. Mortgage approval share decreased to
approximately 12%, from around 14% in Q3 2017, in part reflecting intense
price competition in the market.
● Net interest margin decreased by 7 basis points to 2.76% driven by the charge
associated with the annual review of mortgage customer repayment behaviour,
asset mix and lower mortgage new business margins, which were 14 basis points
lower in the quarter as a result of intense market price competition. Current
account hedge returns are now stable.
● Adjusted operating expenses increased by £45 million principally due to the
annual UK bank levy charge, £33 million, and other timing and seasonal
factors.
● An impairment charge of £60 million was £18 million lower than Q3 2017
mainly due to higher portfolio provision releases. Default levels remained
stable.
Segment performance
Q4 2017 compared with Q4 2016
● Operating profit decreased by £168 million compared with Q4 2016 primarily
due to an increase in restructuring costs and lower impairment write backs,
partially offset by lower litigation and conduct costs.
● Net interest margin decreased 15 basis points driven by reduced mortgage
margins and lower deposit hedge income, partially offset by savings re-pricing
benefits and higher funding benefits on savings, following the base rate
increase in Q4 2017.
● Adjusted operating expenses decreased by £58 million, or 6.6%, to £816
million compared with Q4 2016 driven by a £51 million reduction in
operational costs reflecting continued operations and re-integrations benefits
in respect of the business previously described as Williams & Glyn. Staff
costs were £7 million, or 3.6%, lower with headcount 8.3% lower.
Ulster Bank RoI
2017 compared with 2016
● An operating loss of €151 million compared with a €24 million profit in
2016 primarily reflecting a €206 million increase in impairment losses,
largely relating to a change in the non performing loan strategy to allow for
further portfolio sales. Adjusted return on equity was 3.6% compared with 8.4%
in 2016.
● Adjusted income of €693 million was €8 million, or 1.1%, lower than 2016
primarily reflecting a €53 million reduction in income on free funds,
partially offset by one off items, higher lending income and reduced funding
costs. Net interest margin of 1.67% was 5 basis points higher than 2016
reflecting a combination of improved deposit and loan margins, one-off income
adjustments and successful deleveraging measures in 2016 which have reduced
the concentration of low yielding loans.
● Adjusted operating expenses of €516 million were 7.7% lower than 2016
primarily due to continued progress in the delivery of cost saving
initiatives, as evidenced by a 12.9% reduction in headcount, and lower pension
costs.
Adjusted cost:income ratio of 74.3% compared with 79.8% in 2016.
● A litigation and conduct provision of €192 million related to customer
remediation and project costs associated with legacy business issues.
● A net impairment loss of €68 million compared with a €138 million release
in 2016. The movement was driven by a provision relating to a change in the
non performing loan strategy to allow for further portfolio sales, gains
associated with asset disposals in 2016 and refinements to the mortgage
provision models in 2017. REILs were €3.7 billion, 9.8% lower than 2016
reflecting credit quality improvements.
● Ulster Bank RoI gross new lending was €2.6 billion in 2017, up 3.4% compared
with 2016.
● RWAs of €20.2 billion reduced by €0.9 billion, or 4.3%, compared with
2016.
Q4 2017 compared with Q3 2017
● An operating loss of €199 million compared with a profit of €36 million in
Q3 2017. An impairment charge of €92 million, compared with a release of
€11 million in Q3 2017, included a provision for a change in the non
performing loan strategy, partially offset by releases relating to
improvements in the housing market. In addition Ulster Bank RoI recognised a
€153 million conduct and litigation provision in Q4 2017 for customer
remediation and project costs associated with legacy business issues.
● Net interest margin increased by 18 basis points to 1.76% primarily driven by
one off income gains in Q4 2017.
Q4 2017 compared with Q4 2016
● An operating loss of €199 million was €145 million higher than Q4 2016
primarily due to a provision for a change in the non performing loan strategy
and a €60 million increase in litigation and conduct costs, relating to
legacy business issues.
● Adjusted operating expenses reduced by 21.9% driven by one off charges in Q4
2016 and the benefit of transformation activity and lower pension costs.
Notes:
(1) The business previously described as Williams & Glyn was integrated in
to the reportable operating segment UK PBB in Q4 2017 and prior year
comparatives re-presented.
(2) UK PBB Collective Investment Funds (CIFL) business was transferred to Private
Banking on 1 October 2017. CIFL Business transfer included total income of
£33 million and total expenses of £9 million. Comparatives were not
re-presented.
(3) Transfers include £0.4 billion loans and advances transferred from Commercial
Banking to UK PBB during 2017 to better align Business banking customers.
Comparatives were not re-presented.
Segment performance
Commercial Banking
2017 compared with 2016
● Operating profit of £1,108 million compared with £742 million in 2016,
primarily reflecting a reduction in litigation and conduct costs. Adjusted
operating profit of £1,308 million was £35 million, or 2.7%, higher than
2016 reflecting lower adjusted operating expenses and higher income, partially
offset by higher impairments. Adjusted return on equity remained broadly
stable at 8.2%.
● Total income increased by £69 million, or 2.0%, to £3,484 million primarily
reflecting increased volumes in targeted segments and re-pricing benefits on
deposits. Net interest margin decreased by 2 basis points as active re-pricing
of assets and deposits has been more than offset by wider asset margin
pressure in a low rate environment.
● Adjusted operating expenses of £1,814 million were £122 million, or 6.3%,
lower than 2016, reflecting operating model simplification and productivity
improvements, including a 16.4% reduction in front office headcount, and a
£25 million intangible asset write-down in 2016. Adjusted cost:income ratio
improved to 50.0% compared with 54.8% in 2016.
● Net impairment losses of £362 million were £156 million higher than 2016,
reflecting a small number of single name impairments.
● Adjusting for transfers((1)), net loans and advances decreased by £4.9
billion to £97.0 billion, compared with 2016, as growth in targeted segments
has been more than offset by active capital management of the lending book.
● Adjusting for transfers((1)), RWAs decreased by £8.2 billion, or 10.4%, to
£71.8 billion compared with 2016 reflecting active capital management of the
lending book, achieving £12.5 billion of gross RWA reductions.
Q4 2017 compared with Q3 2017
● Operating profit of £114 million was £220 million lower than Q3 2017
principally reflecting increased operating expenses, largely due to the annual
UK bank levy charge, £91 million, and lower income.
● Total income decreased by £122 million to £806 million compared with Q3 2017
reflecting asset disposal and fair value losses of £46 million, compared with
an asset disposal gain of £52 million in Q3 2017, and lower lending volumes.
● Adjusting for transfers((1)), RWAs decreased by £4.3 billion to £71.8
billion compared with Q3 2017 reflecting active capital management of the
lending book.
Q4 2017 compared with Q4 2016
● Operating profit of £114 million compared with a loss of £225 million in Q4
2016, primarily reflecting lower conduct and litigation costs.
● Total income decreased by £61 million, or 7.0%, to £806 million compared
with Q4 2016, principally reflecting asset disposal and fair value losses of
£46 million and lower lending volumes. Net interest margin increased by 7
basis points to 1.75% primarily due to asset and deposit re-pricing activity.
● Adjusted operating expenses decreased by £37 million, or 6.7%, to £519
million reflecting cost efficiencies and reduced headcount.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution, were
transferred from NatWest Markets on 1 October 2017, including net loans and
advances to
customers of £2.6 billion and RWAs of £2.1 billion. Commercial Banking
transferred whole business securitisations and relevant financial
institution's (RFI) to NatWest Markets
during December 2017, including net loans and advances to customers of £0.8
billion and RWAs of £0.6 billion. Comparatives were not re-presented for
these transfers.
Segment performance
Private Banking
2017 compared with 2016
● Operating profit increased by £32 million, or 28.8%, to £143 million
compared with 2016 and return on equity increased from 5.6% to 6.4%. Adjusted
operating profit of £227 million was £78 million, or 52.3%, higher than 2016
primarily reflecting lower adjusted operating expenses and higher income.
Adjusted return on equity increased to 11.3% from 7.8% in 2016.
● Adjusting for transfers((1)),total income increased by £12 million to £678
million due to increased lending volumes and an £8 million gain on a property
sale, partially offset by ongoing margin pressure. Net interest margin fell 19
basis points to 2.47% reflecting the competitive market and low rate
environment.
● Adjusted operating expenses of £445 million decreased by £66 million, or
12.9%, compared with 2016 largely reflecting management actions to reduce
costs, including an 11.8% reduction in front office headcount. Adjusted
cost:income ratio improved to 65.6% compared with 77.8% in 2016.
● Net loans and advances of £13.5 billion were £1.3 billion, or 10.7%, higher
than 2016 principally driven by growth in mortgages.
● Adjusting for transfers((1)), assets under management were £2.4 billion, or
14.4%, higher than 2016 at £21.5 billion, reflecting both organic growth and
favourable market conditions.
● RWAs of £9.1 billion were £0.5 billion, or 5.8%, higher than 2016 primarily
due to increased mortgage lending.
Q4 2017 compared with Q3 2017
● An operating loss of £5 million in Q4 2017, compared with a profit of £66
million in Q3 2017, principally due to increased litigation and conduct costs
and increased restructuring costs. Adjusted operating profit of £62 million
decreased by £7 million compared with Q3 2017, primarily reflecting higher
adjusted operating expenses partially offset by higher income.
● Adjusting for transfers((1)), total income increased by £16 million to £191
million, compared with Q3 2017, reflecting improved margins and an £8 million
gain on a property sale. Net interest margin increased by 5 basis points to
2.44% due to re-pricing benefits and higher funding benefits on deposits
following the Q4 2017 base rate increase.
● Adjusted operating expenses increased by £27 million to £127 million
principally due to the annual UK bank levy charge, £18 million.
Q4 2017 compared with Q4 2016
● An operating loss of £5 million in Q4 2017 compared with a profit of £10
million in Q4 2016, reflecting increased litigation and conduct costs and
increased restructuring costs, partially offset by increased income. Adjusted
operating profit of £62 million was £39 million higher than Q4 2016
principally due to higher income and lower adjusted expenses.
● Adjusting for transfers((1)), total income increased by £21 million to £191
million compared with Q4 2016 reflecting higher lending volumes, re-pricing
benefits and an £8 million gain on a property sale, partially offset by
margin pressures.
● Adjusted operating expenses decreased by £19 million, or 13.0%, to £127
million reflecting cost efficiencies and reduced headcount.
Note:
(1) UK PBB Collective Investment Funds (CIFL) business was transferred from UK PBB
on 1 October 2017, including total income in Q4 2017of £11 million and assets
under management of £3.3 billion. Private Banking transferred Coutts Crown
Dependencies (CCD) to RBS International during Q4 2017, including total income
of £2 million and assets under management of £1.2 billion. Comparatives were
not re-presented for these transfers.
Segment performance
RBS International
2017 compared with 2016
● Operating profit of £167 million decreased by £23 million, or 12.1%,
compared with 2016 and return on equity decreased to 11.2% from 13.8%,
reflecting increased operational costs associated with the creation of a bank
outside the ring-fence, partially offset by higher income. Adjusted return on
equity decreased to 12.6% from 14.2% in 2016 and adjusted cost:income ratio of
51.9% increased from 45.2% in 2016.
● Total income increased by £15 million, or 4.0%, to £389 million driven by
increased average lending balances in 2017 and re-pricing benefits on the
deposit book.
● Net loans and advances were broadly stable compared with 2016 and customer
deposits increased by £3.8 billion to £29.0 billion primarily reflecting
increased short term placements in the Funds sector.
● RWAs of £5.1 billion reduced by £4.4 billion, or 46.3%, compared with 2016,
reflecting the benefit of receiving the Advanced Internal Rating Based Waiver
on the wholesale corporate book in November 2017, in advance of becoming a
bank outside the ring-fence.
● From 1st Jan 2018 RBS International will include the funds and trustee
depositary business transferred from Commercial Banking, which generated
around £150 million of income and £60 million of costs in 2017.
Q4 2017 compared with Q3 2017
● Operating profit of £31 million was £9 million lower than Q3 2017
principally reflecting the Q4 2017 bank levy charge of £14 million.
● RWAs were £5.1 billion, a decrease of £4.5 billion compared with Q3 2017
reflecting the benefit of receiving the Advanced Internal Rating Based Waiver
on the wholesale corporate book in November 2017, in advance of becoming a
bank outside the ring-fence.
Q4 2017 compared with Q4 2016
● Adjusted operating expenses increased by £2 million, or 3.3%, to £63 million
reflecting increased operational costs associated with the creation of a bank
outside the ring-fence.
NatWest Markets
2017 compared with 2016
● An operating loss of £977 million compared with £1,865 million in 2016. The
core business operating profit increased by £427 million to £41 million
reflecting lower litigation and conduct costs, lower adjusted costs and higher
income, partially offset by increased restructuring costs reflecting back
office restructuring activity. Adjusted operating loss of £264 million,
compared with £1,231 million in 2016, reflecting lower adjusted costs and a
net impairment release of £174 million in 2017, compared with a charge of
£253 million in 2016.
● Total income of £1,050 million compared with £1,212 million in 2016. In the
core business, adjusted income increased by £144 million, or 9.5%, to £1,665
million, principally driven by Rates as the business navigated markets well
despite a lower level of customer activity than in 2016, which benefited from
favourable market conditions following the EU referendum.
● Adjusted operating expenses of £1,528 million were £556 million, or 26.7%,
lower than 2016. In the legacy business, adjusted operating expenses decreased
significantly reflecting a 77.7% reduction in headcount as the business moved
towards closure. In the core business, adjusted operating expenses reduced as
the business continues to drive cost reductions. NatWest Markets adjusted
costs, excluding costs associated with the legacy business, were £1,268
million compared to £1,320 million in 2016.
● RWAs decreased by £15.3 billion, adjusting for transfers((1)), to £52.9
billion primarily reflecting reductions in the legacy business. In the core
business RWAs decreased by £3.1 billion to £32.3 billion reflecting lower
counterparty credit risk through mitigation activities and business
initiatives. At the end of 2017 the legacy business within NatWest Markets had
RWAs of £14.0 billion, excluding RBS's stake in Alawwal Bank, a reduction of
£10.9 billion, adjusting for transfers((1)), over the course of the year.
● Funded assets fell to £118.7 billion, a reduction of £7.3 billion, adjusting
for transfers((1)), mainly reflecting disposal activity.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution, were
transferred to Commercial Banking on 1 October 2017, including total funded
assets of £3.3 billion, net loans and advances to customers of £2.6 billion,
and RWAs of £2.1 billion. Whole business securitisations and relevant
financial institutions (RFI) were transferred from Commercial Banking during
December 2017, including net loans and advances to customers of £0.8 billion,
and RWAs of £0.6 billion. Comparatives were not re-presented for these
transfers.
Segment performance
Q4 2017 compared with Q3 2017
● An operating loss of £357 million compared with £435 million in Q3 2017
reflecting higher income partially offset by higher restructuring costs.
Adjusted income in the core business decreased by £117 million to £284
million, reflecting seasonally lower customer activity and more challenging
market conditions in Q4 2017.
● Adjusted operating expenses increased by £23 million to £390 million
principally due to the annual UK bank levy charge, £28 million.
● Adjusting for transfers((1)), RWAs decreased by £0.5 billion to £52.9
billion and funded assets decreased by £13.7 billion to £118.7 billion
principally reflecting ongoing reductions in the legacy business and
seasonally lower balances in the core business.
Q4 2017 compared with Q4 2016
● Adjusted income of £165 million was £136 million higher than Q4 2016 largely
reflecting lower legacy business disposal losses. In the core business,
adjusted income of £284 million was £30 million, or 9.6%, lower than Q4 2016
primarily due to lower levels of customer activity.
● Legacy disposal losses, other adjustments and impairments decreased by £83
million to £112 million.
● Adjusted expenses decreased by £124 million to £390 million driven by
headcount reductions in the legacy business.
Central items
2017 compared with 2016
● Central items not allocated represented a charge of £483 million in 2017,
compared with a £5,006 million charge in 2016, and included litigation and
conduct costs of £589 million, compared with £4,088 million in 2016.
Treasury funding costs were a charge of £58 million, compared with a charge
of £94 million in 2016. Restructuring costs in the year included £94 million
relating to the former Williams & Glyn business, compared with £1,399
million in 2016. In addition to a VAT recovery of £86 million, compared with
£227 million in 2016, a £156 million gain on the sale of Vocalink and a
£135 million gain in relation to the sale of EuroClear((2)).
Q4 2017 compared with Q3 2017
● Central items not allocated represented a charge of £414 million in the
quarter, compared with a £25 million charge in Q3 2017, and included
litigation and conduct costs of £315 million, compared with £12 million in
Q3 2017. Q4 2017 Treasury funding costs were a charge of £129 million,
compared with £61 million in Q3 2017, and included a £173 million IFRS
volatility charge.
Q4 2017 compared with Q4 2016
● Central items not allocated represented a charge of £414 million in the
quarter, compared with a £3,202 million charge in Q4 2016, and included
litigation and conduct costs of £315 million, compared with £2,849 million
in 2016. Q4 2017 Treasury funding costs were a charge of £129 million,
compared with a gain of £465 million in Q4 2016, and included a £173 million
IFRS volatility charge and an FX loss of £8 million, compared with a £308
million IFRS volatility gain and a £140 million FX gain in Q4 2016.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution, were
transferred to Commercial Banking on 1 October 2017, including total funded
assets of £3.3 billion, net loans and advances to customers of £2.6 billion,
and RWAs of £2.1 billion. Whole business securitisations and relevant
financial institutions (RFI) were transferred from Commercial Banking during
December 2017, including net loans and advances to customers of £0.8 billion,
and RWAs of £0.6 billion. Comparatives were not re-presented for these
transfers.
(2) The total gain in relation to the sale of Euroclear was £161 million, of
which £135 million central items and £26 million NatWest Markets.
Condensed consolidated income statement for the period ended 31 December
2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Interest receivable 11,034 11,258 2,754 2,818 2,770
Interest payable (2,047) (2,550) (543) (514) (562)
Net interest income (1) 8,987 8,708 2,211 2,304 2,208
Fees and commissions receivable 3,338 3,340 846 826 821
Fees and commissions payable (883) (805) (231) (204) (213)
Income from trading activities 634 974 (198) (52) 590
(Loss)/gain on redemption of own debt (7) (126) - - 1
Other operating income 1,064 499 429 283 (191)
Non-interest income 4,146 3,882 846 853 1,008
Total income 13,133 12,590 3,057 3,157 3,216
Staff costs (4,676) (5,124) (1,100) (1,129) (1,142)
Premises and equipment (1,565) (1,388) (524) (363) (382)
Other administrative expenses (3,323) (8,745) (1,587) (528) (5,511)
Depreciation and amortisation (808) (778) (178) (119) (249)
Write down of other intangible assets (29) (159) (17) (4) (70)
Operating expenses (10,401) (16,194) (3,406) (2,143) (7,354)
Profit/(loss) before impairment
(losses)/releases 2,732 (3,604) (349) 1,014 (4,138)
Impairment (losses)/releases (493) (478) (234) (143) 75
Operating profit/(loss) before tax 2,239 (4,082) (583) 871 (4,063)
Tax (charge)/credit (824) (1,166) 168 (265) (244)
Profit/(loss) for the period 1,415 (5,248) (415) 606 (4,307)
Attributable to:
Non-controlling interests 35 10 14 (8) (27)
Preference share and other dividends 628 504 150 222 161
Dividend access share - 1,193 - - -
Ordinary shareholders 752 (6,955) (579) 392 (4,441)
Earnings/(loss) per ordinary share (EPS)
Earnings/(loss) per ordinary share (2) 6.3p (59.5p) (4.9p) 3.3p (37.7p)
Notes:
(1) Negative interest on loans and advances is classed as interest payable.
Negative interest on customer deposits is classed as interest receivable.
(2) There is no dilutive impact in any period.
Condensed consolidated statement of comprehensive income for the period ended
31 December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Profit/(loss) for the period 1,415 (5,248) (415) 606 (4,307)
Items that do not qualify for reclassification
Gain/(loss) on remeasurement of retirement benefit schemes 90 (1,049) 116 - (2)
Loss on fair value of credit in financial liabilities
designated at fair value through profit or loss
due to own credit risk (126) - (19) (30) -
Tax (10) 288 (5) 3 3
(46) (761) 92 (27) 1
Items that do qualify for reclassification
Available-for-sale financial assets 26 (94) (11) 8 68
Cash flow hedges (1,069) 765 (86) (372) (750)
Currency translation 100 1,263 18 (21) (13)
Tax 256 (106) 19 76 191
(687) 1,828 (60) (309) (504)
Other comprehensive (loss)/income after tax (733) 1,067 32 (336) (503)
Total comprehensive income/(loss) for the period 682 (4,181) (383) 270 (4,810)
Total comprehensive income/(loss) is attributable to:
Non-controlling interests 52 121 22 (19) (36)
Preference shareholders 234 260 79 70 68
Paid-in equity holders 394 244 71 152 93
Dividend access share - 1,193 - - -
Ordinary shareholders 2 (5,999) (555) 67 (4,935)
682 (4,181) (383) 270 (4,810)
Condensed consolidated balance sheet as at 31 December 2017
31 December 30 September 31 December
2017 2017 2016
£m £m £m
Assets
Cash and balances at central banks 98,337 88,210 74,250
Net loans and advances to banks 16,254 16,671 17,278
Reverse repurchase agreements and stock borrowing 13,997 12,905 12,860
Loans and advances to banks 30,251 29,576 30,138
Net loans and advances to customers 323,184 324,650 323,023
Reverse repurchase agreements and stock borrowing 26,735 23,767 28,927
Loans and advances to customers 349,919 348,417 351,950
Debt securities 78,933 87,860 72,522
Equity shares 450 507 703
Settlement balances 2,517 8,528 5,526
Derivatives 160,843 171,720 246,981
Intangible assets 6,543 6,484 6,480
Property, plant and equipment 4,602 4,777 4,590
Deferred tax 1,740 1,637 1,803
Prepayments, accrued income and other assets 3,921 4,046 3,713
Total assets 738,056 751,762 798,656
Liabilities
Bank deposits 39,479 36,186 33,317
Repurchase agreements and stock lending 7,419 7,047 5,239
Deposits by banks 46,898 43,233 38,556
Customer deposits 367,034 359,879 353,872
Repurchase agreements and stock lending 31,002 33,245 27,096
Customer accounts 398,036 393,124 380,968
Debt securities in issue 30,559 31,700 27,245
Settlement balances 2,844 9,094 3,645
Short positions 28,527 31,793 22,077
Derivatives 154,506 164,394 236,475
Provisions for liabilities and charges 7,757 7,109 12,836
Accruals and other liabilities 6,402 6,925 7,006
Retirement benefit liabilities 129 152 363
Deferred tax 583 516 662
Subordinated liabilities 12,722 14,248 19,419
Total liabilities 688,963 702,288 749,252
Equity
Non-controlling interests 763 746 795
Owners' equity*
Called up share capital 11,965 11,906 11,823
Reserves 36,365 36,822 36,786
Total equity 49,093 49,474 49,404
Total liabilities and equity 738,056 751,762 798,656
*Owners' equity attributable to:
Ordinary shareholders 41,707 42,105 41,462
Other equity owners 6,623 6,623 7,147
48,330 48,728 48,609
Condensed consolidated statement of changes in equity for the period ended 31
December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Called-up share capital
At beginning of period 11,823 11,625 11,906 11,876 11,792
Ordinary shares issued 142 198 59 30 31
At end of period 11,965 11,823 11,965 11,906 11,823
Paid-in equity
At beginning of period 4,582 2,646 4,058 4,491 4,582
Redeemed/reclassified (1) (524) (110) - (433) -
Additional Tier 1 capital (2) - 2,046 - - -
At end of period 4,058 4,582 4,058 4,058 4,582
Share premium account
At beginning of period 25,693 25,425 739 - 25,663
Ordinary shares issued 235 268 92 47 30
Redemption of debt preference shares (5) 748 - 56 692 -
Capital reduction (3) (25,789) - - - -
At end of period 887 25,693 887 739 25,693
Merger reserve
At the beginning and end of period 10,881 10,881 10,881 10,881 10,881
Available-for-sale reserve
At beginning of period 238 307 260 259 188
Unrealised gains 202 282 53 49 69
Realised gains (176) (376) (64) (41) (1)
Tax (9) 25 6 (7) (18)
At end of period 255 238 255 260 238
Cash flow hedging reserve
At beginning of period 1,030 458 298 575 1,565
Amount recognised in equity (277) 1,867 141 (178) (471)
Amount transferred from equity to earnings (792) (1,102) (227) (194) (279)
Tax 266 (193) 15 95 215
At end of period 227 1,030 227 298 1,030
Foreign exchange reserve
At beginning of period 2,888 1,674 2,962 2,984 2,898
Retranslation of net assets 111 1,470 13 (26) (40)
Foreign currency (losses)/gains on hedges
of net assets (6) (278) (2) 4 35
Tax (1) 62 (2) (12) (6)
Recycled to profit or loss on disposal of businesses (4) (22) (40) (1) 12 1
At end of period 2,970 2,888 2,970 2,962 2,888
Capital redemption reserve
At the beginning of period 4,542 4,542 - - 4,542
Capital reduction (3) (4,542) - - - -
At end of period - 4,542 - - 4,542
For the notes to this table refer to the notes on page 38.
Condensed consolidated statement of changes in equity for the period ended 31
December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Retained earnings
At beginning of period (12,936) (4,020) 17,669 18,184 (8,500)
Profit/(loss) attributable to ordinary shareholders
and other equity owners 1,380 (5,258) (429) 614 (4,280)
Equity preference dividends paid (234) (260) (79) (70) (68)
Paid-in equity dividends paid, net of tax (394) (244) (71) (152) (93)
Capital reduction (3) 30,331 - - - -
Dividend access share dividend - (1,193) - - -
Redemption of debt preference shares (5) (748) (56) (692) -
Redemption of equity preference shares (5) - (1,160) - - -
Gain/(loss) on remeasurement of the retirement
benefit schemes
- gross 90 (1,049) 116 - (2)
- tax (28) 288 (8) - 3
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss
- gross (126) - (19) (30) -
- tax 18 - 3 3 -
Shares issued under employee share schemes (5) (10) - - -
Share-based payments
- gross (22) (9) 4 8 4
Redemption/reclassification of paid-in equity (196) (21) - (196) -
At end of period 17,130 (12,936) 17,130 17,669 (12,936)
Own shares held
At beginning of period (132) (107) (45) (45) (136)
Shares utilised for employee share schemes 161 41 5 - 7
Own shares acquired (72) (66) (3) - (3)
At end of period (43) (132) (43) (45) (132)
Owners' equity at end of period 48,330 48,609 48,330 48,728 48,609
Condensed consolidated statement of changes in equity for the period ended 31
December 2017
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
£m £m £m £m £m
Non-controlling interests
At beginning of period 795 716 746 844 853
Currency translation adjustments and other
movements 17 111 8 (11) (9)
Profit/(loss) attributable to non-controlling interests 35 10 14 (8) (27)
Dividends paid (25) - (5) (20) -
Equity withdrawn and disposals (59) (42) - (59) (22)
At end of period 763 795 763 746 795
Total equity at end of period 49,093 49,404 49,093 49,474 49,404
Total equity is attributable to:
Non-controlling interests 763 795 763 746 795
Preference shareholders 2,565 2,565 2,565 2,565 2,565
Paid-in equity holders 4,058 4,582 4,058 4,058 4,582
Ordinary shareholders 41,707 41,462 41,707 42,105 41,462
49,093 49,404 49,093 49,474 49,404
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS
Capital Trust D in March 2017 (redeemed in June 2017) and the call of US$564
million and CAD321 million EMTN notes in August 2017 (redeemed in October
2017).
(2) AT1 capital notes totalling £2.0 billion issued in August 2016.
(3) On 15 June 2017, the Court of Session approved a reduction of RBSG plc capital
so that the amounts which stood to the credit of share premium account and
capital redemption reserve were transferred to retained earnings.
(4) Nil tax impact.
(5) During 2017, non-cumulative US dollar preference shares recorded as debt were
redeemed at their original issue price of US$1.1 billion. The nominal value of
£0.3 million has been credited to the capital redemption reserve; share
premium increased by £0.7 billion in respect of the premium received on
issue, with a corresponding decrease in retained earnings. During 2016,
non-cumulative US dollar preference shares were redeemed at their original
price of US$1.5 billion. The nominal value of £0.3 million was transferred
from share capital to capital redemption reserve and ordinary owners equity
was reduced by £0.4 billion in respect of the movement in exchange rates
since issue.
Condensed consolidated cash flow statement for the period ended 31 December
2017
Year ended
31 December 31 December
2017 2016
£m £m
Operating activities
Operating profit/(loss) before tax 2,239 (4,082)
Adjustments for non-cash items (5,125) (7,810)
Net cash outflow from trading activities (2,886) (11,892)
Changes in operating assets and liabilities 42,147 8,413
Net cash flows from operating activities before tax 39,261 (3,479)
Income taxes paid (520) (171)
Net cash flows from operating activities 38,741 (3,650)
Net cash flows from investing activities (6,482) (4,359)
Net cash flows from financing activities (8,208) (5,107)
Effects of exchange rate changes on cash and cash equivalents (16) 8,094
Net increase/(decrease) in cash and cash equivalents 24,035 (5,022)
Cash and cash equivalents at beginning of year 98,570 103,592
Cash and cash equivalents at end of year 122,605 98,570
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction
with RBS's 2017 Annual Report and Accounts which were prepared in accordance
with International Financial Reporting Standards issued by the International
Accounting Standards Board (IASB) and interpretations issued by the IFRS
Interpretations Committee of the IASB as adopted by the European Union (EU)
(together IFRS).
Accounting policies
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018 RBS has
adopted the provisions in respect of the presentation of gains and losses on
financial liabilities designated as at fair value through profit or loss from
1 January 2017. Accordingly, a loss of £126 million has been reported in
the consolidated statement of other comprehensive income in 2017 instead of in
the consolidated income statement. Comparatives have not been restated,
however, in 2016 a gain of £154 million was included in the consolidated
income statement. Own credit adjustments on financial liabilities
held-for-trading will continue to be recognised in the consolidated income
statement, a loss of £69 million was reported in 2017 (2016 - gain of £26
million).
Apart from the above RBS's principal accounting policies are as set out on
pages 251 to 259 of the 2017 Annual Report and Accounts. Other amendments to
IFRS effective for 2017 have not had a material effect on RBS's 2017 results.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to
the portrayal of RBS's financial condition are those relating to goodwill,
provisions for liabilities, deferred tax, loan impairment provisions and fair
value of financial instruments. These critical accounting policies and
judgements are described on pages 259 to 261 of RBS's 2017 Annual Report and
Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the
directors have a reasonable expectation that RBS will continue in operational
existence for the foreseeable future. Accordingly, the results for the period
ended 31 December 2017 have been prepared on a going concern basis.
2. Pensions
As at 31 December 2017, the Main scheme had an unrecognised surplus reflected
by a ratio of assets to liabilities of c.120% under IAS 19 valuation
principles. The surplus is unrecognised because the trustee's power to
enhance member benefits could consume that surplus meaning that RBS does not
control its ability to realise an asset. The existence of the asset, albeit
unrecognised, limits RBS's exposure to changes in actuarial assumptions and
investment performance. See Note 4 on the 2017 Annual Report and Accounts for
further details.
Notes
3. Provisions for liabilities and charges
Payment Other Residential Litigation
protection customer mortgage and other
insurance (1) redress backed securities regulatory Other (2) Total
£m £m £m £m £m £m
At 1 January 2017 1,253 1,105 6,752 1,918 1,808 12,836
Currency translation and other movements - (1) (114) (13) 10 (118)
Charge to income statement - - - 32 204 236
Releases to income statement - (2) - (3) (39) (44)
Provisions utilised (78) (99) - (950) (164) (1,291)
At 31 March 2017 1,175 1,003 6,638 984 1,819 11,619
Currency translation and other movements - 5 (237) (17) 38 (211)
Charge to income statement - 55 222 59 182 518
Releases to income statement - (38) - (4) (96) (138)
Provisions utilised (81) (114) (44) (113) (209) (561)
At 30 June 2017 1,094 911 6,579 909 1,734 11,227
Currency translation and other movements - 1 (159) (4) (14) (176)
Charge to income statement - 1 - 105 118 224
Releases to income statement - (1) - (2) (1) (4)
Provisions utilised (3) (115) (84) (3,588) (221) (154) (4,162)
At 30 September 2017 979 828 2,832 787 1,683 7,109
Currency translation and other movements - (1) (31) 3 1 (28)
Charge to income statement 175 172 492 84 499 1,422
Releases to income statement - (13) (50) (147) (73) (283)
Provisions utilised (101) (116) - (86) (160) (463)
At 31 December 2017 1,053 870 3,243 641 1,950 7,757
Notes:
(1) To reflect the increased volume of complaints following the FCA's introduction
of an August 2019 PPI timebar as outlined in FCA announcement CP17/3 and the
introduction of new Plevin (unfair commission) complaint handling rules, RBS
increased its provision for PPI by £175m in 2017.
(2) The Group recognised a £750 million provision in 2016 as a consequence of the
announcement that HM Treasury is seeking a revised package of remedies that
would conclude its remaining State Aid commitments. An additional charge of
£50 million was taken in Q2 2017 following further revisions to the package,
taking the total provision to £800 million.
(3) Q3 2017 utilisation includes the $4.75 billion payment made following the
settlement reached between RBS and the Federal Housing Finance Agency in
relation to RBS's issuance and underwriting of RMBS in the US.
There are uncertainties as to the eventual cost of redress in relation to
certain of the provisions contained in the table above. Assumptions relating
to these are inherently uncertain and the ultimate financial impact may be
different from the amount provided.
Notes
4. Material developments in litigation, investigations and reviews
RBS and certain members of the Group are party to legal proceedings and the
subject of investigation and other regulatory and governmental action
("Matters") in the United Kingdom (UK), the United States (US), the European
Union (EU) and other jurisdictions. Note 31 in the RBS 2017 Annual Report and
Accounts, issued on 23 February 2018 and available at rbs.com/results
(http://www.rbs.com/results) ("Note 31"), discusses the Matters in which RBS
is currently involved and developments to those matters. Other than the
Matters discussed in Note 31, no member of the Group is or has been involved
in governmental, legal, or regulatory proceedings (including those which are
pending or threatened) that are expected to be material, individually or in
aggregate. Recent developments in the Matters identified in Note 31 that have
occurred since the Q3 2017 results were issued on 27 October 2017, include,
but are not limited to, those set out below.
Litigation
Interest rate hedging products litigation
As previously disclosed, RBS is dealing with a large number of active
litigation claims in relation to the sale of interest rate hedging products
(IRHPs). In general claimants allege that the relevant interest rate hedging
products were mis-sold to them, with some also alleging RBS made
misrepresentations in relation to LIBOR. Property Alliance Group (PAG) v The
Royal Bank of Scotland plc was the leading case before the English High Court
involving both IRHP mis-selling and LIBOR misconduct allegations. The amount
claimed was £34.8 million and the trial ended in October 2016. In December
2016, the court dismissed all of PAG's claims. PAG appealed that decision, and
the appeal hearing closed on 8 February 2018. The judgment is awaited. The
decision
- More to follow, for following part double click ID:nRSW7507Fd 4) 446 1,121
Total income - adjusted (2) 1,556 137 867 161 96 29 483 3,329
Own credit adjustments - - - - - (37) (77) (114)
Gain on redemption of own debt - - - - - - 1 1
Total income 1,556 137 867 161 96 (8) 407 3,216
Direct expenses - staff costs (196) (57) (130) (39) (12) (87) (504) (1,025)
- other costs (76) (23) (69) (12) (4) (10) (1,000) (1,194)
Indirect expenses (602) (65) (357) (95) (45) (417) 1,581 -
Operating expenses - adjusted (4) (874) (145) (556) (146) (61) (514) 77 (2,219)
Restructuring costs - direct (1) (6) (12) (6) (1) (24) (957) (1,007)
- indirect (50) 2 (34) (8) (1) (30) 121 -
Litigation and conduct costs (214) (77) (407) 1 (1) (581) (2,849) (4,128)
Operating expenses (1,139) (226) (1,009) (159) (64) (1,149) (3,608) (7,354)
Operating profit/(loss) before impairment (losses)/releases 417 (89) (142) 2 32 (1,157) (3,201) (4,138)
Impairment (losses)/releases (27) 47 (83) 8 1 130 (1) 75
Operating profit/(loss) 390 (42) (225) 10 33 (1,027) (3,202) (4,063)
Operating profit/(loss) - adjusted (2,4) 655 39 228 23 36 (355) 559 1,185
Additional information
Return on equity (5) 15.1% (5.8%) (9.1%) 1.6% 8.8% (27.0%) nm (48.2%)
Return on equity - adjusted (2,4,5) 26.2% 5.4% 5.3% 4.5% 9.8% (10.3%) nm 8.6%
Cost:income ratio (3) 73.2% 165.0% 117.1% 98.8% 66.7% nm nm 230.2%
Cost:income ratio - adjusted (2,3,4) 56.2% 105.8% 62.6% 90.7% 63.5% nm nm 66.3%
Total assets (£bn) 181.4 24.1 150.5 18.6 23.4 372.5 28.2 798.7
Funded assets (£bn) (6) 181.4 24.0 150.5 18.5 23.4 128.5 25.4 551.7
Net loans and advances to customers (£bn) 152.7 18.9 100.1 12.2 8.8 30.2 0.1 323.0
Risk elements in lending (£bn) 2.4 3.5 1.9 0.1 0.1 2.3 - 10.3
Impairment provisions (£bn) (1.5) (1.2) (0.8) - - (0.8) (0.2) (4.5)
Customer deposits (£bn) 170.0 16.1 97.9 26.6 25.2 17.9 0.2 353.9
Risk-weighted assets (RWAs) (£bn) 42.3 18.1 78.5 8.6 9.5 69.7 1.5 228.2
RWA equivalent (£bn) (5) 45.8 19.5 82.6 8.6 9.5 74.7 1.7 242.4
Employee numbers (FTEs - thousands) 21.6 3.1 5.5 1.7 0.8 1.6 43.5 77.8
Notes:
(1) Central items include unallocated transactions which principally comprise volatile items under IFRS and balances in relation to international private banking for Q1 2016.
(2) Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(3) Operating lease depreciation included in income (year ended December 2017 - £142 million; Q4 2017 - £35 million; year ended 31 December 2016 - £152 million, Q3 2017 - £35 million and Q4 2016- £37 million).
(4) Excluding restructuring costs and litigation and conduct costs.
(5) RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by average
notional equity allocated at different rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 16% (RBS International - 12% prior to November 2017) and 15% for all other segments, of
the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). RBS's Return on equity is calculated using profit/(loss) for the period attributable to ordinary shareholders.
(6) Funded assets exclude derivative assets.
(7) On 1 January 2017 4.5 thousand employees on a FTE basis were transferred from Central items to NatWest Markets in preparation for ring-fencing. On 1 October 2017 0.8 thousand employees on a FTE basis were transferred from Central Items to RBS
International, also in preparation for ring-fencing.
Segment performance
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
Total income by segment £m £m £m £m £m
UK PBB
Personal advances 998 1,010 247 251 260
Personal deposits 841 732 198 207 184
Mortgages 2,641 2,560 657 674 658
Cards 743 653 145 310 159
Business banking 781 737 197 198 185
Commercial (1) 417 415 108 103 104
Other 56 20 (4) 14 6
Total 6,477 6,127 1,548 1,757 1,556
Ulster Bank RoI
Corporate 187 176 54 45 34
Retail 415 392 107 104 101
Other 2 8 - 1 2
Total 604 576 161 150 137
Commercial Banking
Commercial lending 1,880 1,875 404 515 503
Deposits 508 474 133 127 109
Asset and invoice finance 662 712 158 169 175
Other 434 354 111 117 80
Total 3,484 3,415 806 928 867
Private Banking
Investments 119 97 39 29 23
Banking 559 560 152 137 138
Total 678 657 191 166 161
RBS International 389 374 97 97 96
NatWest Markets
Rates 985 837 144 236 125
Currencies 470 551 102 112 157
Financing 456 344 99 119 89
Revenue share paid to other segments (246) (211) (61) (66) (57)
Core income excluding OCA 1,665 1,521 284 401 314
Legacy (575) (415) (119) (376) (285)
Total income - adjusted 1,090 1,106 165 25 29
Own credit adjustments (66) 187 9 (5) (37)
Strategic disposals 26 (81) 26 - -
Total income 1,050 1,212 200 20 (8)
Central items & other 451 229 54 39 407
Total RBS 13,133 12,590 3,057 3,157 3,216
Notes:
(1) Commercial income relating to business previously described as Williams & Glyn.
Segment performance
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
Impairment losses/(releases) by 2017 2016 2017 2017 2016
segment £m £m £m £m £m
UK PBB
Personal advances 167 105 40 47 46
Mortgages (42) (20) (8) (1) (41)
Cards 82 36 23 26 21
Business banking 4 (11) (6) 3 (3)
Commercial 24 15 11 3 4
Total 235 125 60 78 27
Ulster Bank RoI
Mortgages 72 29 83 (12) (30)
Commercial real estate
Investment (6) (24) (6) (2) (1)
Development (3) (20) - 3 (1)
Other lending (3) (98) 4 1 (15)
Total 60 (113) 81 (10) (47)
Commercial Banking
Commercial real estate 29 4 29 1 8
Asset and invoice finance 57 35 19 10 21
Private sector services (education,
health etc) 22 8 8 - 7
Banks & financial institutions - 2 - (1) -
Wholesale and retail trade repairs 59 15 48 - 6
Hotels and restaurants 1 27 (1) - 7
Manufacturing 5 3 - 1 1
Construction 187 18 35 152 13
Other 2 94 (21) (12) 20
Total 362 206 117 151 83
Private Banking 6 (3) 2 (3) (8)
RBS International 3 10 - (2) (1)
NatWest Markets (174) 253 (26) (71) (130)
Central items & other 1 - - - 1
Total RBS 493 478 234 143 (75)
Segment Performance
31 December 30 September 31 December
2017 2017 2016
Loans and advances to customers (gross) by segment £bn £bn £bn
UK PBB
Personal advances 7.1 7.0 6.9
Mortgages 136.8 135.7 128.0
Cards 4.0 3.9 4.2
Business banking 6.8 6.9 6.3
Commercial 8.3 8.6 8.8
Total 163.0 162.1 154.2
Ulster Bank RoI
Mortgages 15.4 15.4 15.3
Commercial real estate
Investment 0.9 0.9 0.7
Development 0.1 0.1 0.2
Other lending 4.2 4.2 3.9
Total 20.6 20.6 20.1
Commercial Banking
Commercial real estate 15.4 15.7 16.9
Asset and invoice finance 16.1 15.0 14.1
Private sector services (education, health etc) 6.9 7.0 6.9
Banks & financial institutions 7.1 8.3 8.9
Wholesale and retail trade repairs 7.8 7.9 8.4
Hotels and restaurants 3.5 3.6 3.7
Manufacturing 5.6 5.8 6.6
Construction 2.0 2.1 2.1
Other 33.8 32.0 33.3
Total 98.2 97.4 100.9
Private Banking
Personal advances 2.3 2.2 2.3
Mortgages 8.2 8.0 7.0
Other 3.0 3.1 2.9
Total 13.5 13.3 12.2
RBS International
Corporate 5.7 6.6 6.2
Mortgages 2.7 2.7 2.6
Other 0.3 - -
Total 8.7 9.3 8.8
NatWest Markets 22.9 25.6 31.0
Central items & other 0.1 0.3 0.3
31 December 30 September 31 December
2017 2017 2016
Analysis of NatWest Markets RWAs £bn £bn £bn
Total risk-weighted assets 52.9 54.9 69.7
Of which:
Core RWAs 32.3 31.8 35.2
Legacy RWAs ex Alawwal 14.0 16.1 26.6
Alawwal 6.6 7.0 7.9
Segment performance
UK Personal & Business Banking
2017 compared with 2016
● Operating profit was £2,413 million compared with £1,726 million in 2016. The increase was driven by higher income, lower adjusted operating expenses and lower litigation and conduct charges, partially offset by higher restructuring costs, largely relating to the reduction in our property portfolio and costs associated with the business previously described as Williams & Glyn, and higher impairments. Return on equity increased to 23.7% from 16.2% in 2016.
● Total income of £6,477 million was £350 million, or 5.7%, higher than 2016, principally reflecting strong balance growth, savings re-pricing benefits and a £185 million debt sale gain. Net interest margin declined by 11 basis points to 2.86% driven by lower mortgage margins, asset mix and reduced current account hedge yield, partially offset by savings re-pricing benefits from actions taken in 2016 and following the Q4 2017 base rate increase.
● Adjusted operating expenses decreased by £240 million, or 7.1%, to £3,158 million compared with 2016 driven by a £59 million, or 7.1%, reduction in staff costs, with headcount down 8.3%, and a £181 million reduction in operational costs following process and productivity improvements in service operations and re-integration benefits in respect of the business previously described as Williams & Glyn(1). Adjusted cost:income ratio improved to 48.8% in 2017 compared with 55.5% in
2016.
● The net impairment charge of £235 million, or 14 basis points of gross customer loans, reflected continued benign credit conditions. 2017 had lower recoveries partly as a result of the debt sales undertaken, compared with 2016. Defaults remained at very low levels across all portfolios compared to historic trends, although slightly higher than in 2016.
● Net loans and advances increased by £9.0 billion, or 5.9%, to £161.7 billion as UK PBB continued to deliver support for both personal and business banking customers. Gross new mortgage lending in 2017 was £31.0 billion with market share of new mortgages at approximately 12%, resulting in stock share of approximately 10% at 31 December 2017 compared with 9.7% at 31 December 2016. Positive momentum continued across business banking lending, with net balances up 3.0% compared with
31 December 2016, adjusting for transfers(3).
● Customer deposits increased by £10.6 billion, or 6.2%, to £180.6 billion, driven by strong personal current account and business deposit growth.
● UK PBB includes commercial income from the business previously described as Williams & Glyn of approximately £417 million, gross loans and advances of £8.3 billion and deposits of £14.3 billion. An estimated £70 million of the commercial income, £1.7 billion of gross loans and advances and £1.8 billion of deposits relates to mid-corporate customers not subject to the European Commission alternative remedies package. 120,000 of the remaining approximately 220,000 customers will be
subject to the remedies package.
Q4 2017 compared with Q3 2017
● Operating profit decreased by £638 million compared with Q3 2017 principally driven by higher restructuring and litigation and conduct costs and lower income, as Q3 2017 included a £168 million debt sale gain whilst Q4 2017 included a charge of £16 million following an annual review of mortgage customer repayment behaviour.
● Gross new mortgage lending in the quarter was £8.0 billion with market share of new mortgages at approximately 12%. Mortgage approval share decreased to approximately 12%, from around 14% in Q3 2017, in part reflecting intense price competition in the market.
● Net interest margin decreased by 7 basis points to 2.76% driven by the charge associated with the annual review of mortgage customer repayment behaviour, asset mix and lower mortgage new business margins, which were 14 basis points lower in the quarter as a result of intense market price competition. Current account hedge returns are now stable.
● Adjusted operating expenses increased by £45 million principally due to the annual UK bank levy charge, £33 million, and other timing and seasonal factors.
● An impairment charge of £60 million was £18 million lower than Q3 2017 mainly due to higher portfolio provision releases. Default levels remained stable.
Segment performance
Q4 2017 compared with Q4 2016
● Operating profit decreased by £168 million compared with Q4 2016 primarily due to an increase in restructuring costs and lower impairment write backs, partially offset by lower litigation and conduct costs.
● Net interest margin decreased 15 basis points driven by reduced mortgage margins and lower deposit hedge income, partially offset by savings re-pricing benefits and higher funding benefits on savings, following the base rate increase in Q4 2017.
● Adjusted operating expenses decreased by £58 million, or 6.6%, to £816 million compared with Q4 2016 driven by a £51 million reduction in operational costs reflecting continued operations and re-integrations benefits in respect of the business previously described as Williams & Glyn. Staff costs were £7 million, or 3.6%, lower with headcount 8.3% lower.
Ulster Bank RoI
2017 compared with 2016
● An operating loss of E151 million compared with a E24 million profit in 2016 primarily reflecting a E206 million increase in impairment losses, largely relating to a change in the non performing loan strategy to allow for further portfolio sales.Adjusted return on equity was 3.6% compared with 8.4% in 2016.
● Adjusted income of E693 million was E8 million, or 1.1%, lower than 2016 primarily reflecting a E53 million reduction in income on free funds, partially offset by one off items, higher lending income and reduced funding costs. Net interest margin of 1.67% was 5 basis points higher than 2016 reflecting a combination of improved deposit and loan margins, one-off income adjustments and successful deleveraging measures in 2016 which have reduced the concentration of low yielding
loans.
● Adjusted operating expenses of E516 million were 7.7% lower than 2016 primarily due to continued progress in the delivery of cost saving initiatives, as evidenced by a 12.9% reduction in headcount, and lower pension costs. Adjusted cost:income ratio of 74.3% compared with 79.8% in 2016.
● A litigation and conduct provision of E192 million related to customer remediation and project costs associated with legacy business issues.
● A net impairment loss of E68 million compared with a E138 million release in 2016. The movement was driven by a provision relating to a change in the non performing loan strategy to allow for further portfolio sales, gains associated with asset disposals in 2016 and refinements to the mortgage provision models in 2017. REILs were E3.7 billion, 9.8% lower than 2016 reflecting credit quality improvements.
● Ulster Bank RoI gross new lending was E2.6 billion in 2017, up 3.4% compared with 2016.
● RWAs of E20.2 billion reduced by E0.9 billion, or 4.3%, compared with 2016.
Q4 2017 compared with Q3 2017
● An operating loss of E199 million compared with a profit of E36 million in Q3 2017. An impairment charge of E92 million, compared with a release of E11 million in Q3 2017, included a provision for a change in the non performing loan strategy, partially offset by releases relating to improvements in the housing market. In addition Ulster Bank RoI recognised a E153 million conduct and litigation provision in Q4 2017 for customer remediation and project costs associated with legacy
business issues.
● Net interest margin increased by 18 basis points to 1.76% primarily driven by one off income gains in Q4 2017.
Q4 2017 compared with Q4 2016
● An operating loss of E199 million was E145 million higher than Q4 2016 primarily due to a provision for a change in the non performing loan strategy and a E60 million increase in litigation and conduct costs, relating to legacy business issues.
● Adjusted operating expenses reduced by 21.9% driven by one off charges in Q4 2016 and the benefit of transformation activity and lower pension costs.
Notes:
(1) The business previously described as Williams & Glyn was integrated in to the reportable operating segment UK PBB in Q4 2017 and prior year comparatives re-presented.
(2) UK PBB Collective Investment Funds (CIFL) business was transferred to Private Banking on 1 October 2017. CIFL Business transfer included total income of £33 million and total expenses of £9 million. Comparatives were not re-presented.
(3) Transfers include £0.4 billion loans and advances transferred from Commercial Banking to UK PBB during 2017 to better align Business banking customers. Comparatives were not re-presented.
Segment performance
Commercial Banking
2017 compared with 2016
● Operating profit of £1,108 million compared with £742 million in 2016, primarily reflecting a reduction in litigation and conduct costs. Adjusted operating profit of £1,308 million was £35 million, or 2.7%, higher than 2016 reflecting lower adjusted operating expenses and higher income, partially offset by higher impairments. Adjusted return on equity remained broadly stable at 8.2%.
● Total income increased by £69 million, or 2.0%, to £3,484 million primarily reflecting increased volumes in targeted segments and re-pricing benefits on deposits. Net interest margin decreased by 2 basis points as active re-pricing of assets and deposits has been more than offset by wider asset margin pressure in a low rate environment.
● Adjusted operating expenses of £1,814 million were £122 million, or 6.3%, lower than 2016, reflecting operating model simplification and productivity improvements, including a 16.4% reduction in front office headcount, and a £25 million intangible asset write-down in 2016. Adjusted cost:income ratio improved to 50.0% compared with 54.8% in 2016.
● Net impairment losses of £362 million were £156 million higher than 2016, reflecting a small number of single name impairments.
● Adjusting for transfers(1), net loans and advances decreased by £4.9 billion to £97.0 billion, compared with 2016, as growth in targeted segments has been more than offset by active capital management of the lending book.
● Adjusting for transfers(1), RWAs decreased by £8.2 billion, or 10.4%, to £71.8 billion compared with 2016 reflecting active capital management of the lending book, achieving £12.5 billion of gross RWA reductions.
Q4 2017 compared with Q3 2017
● Operating profit of £114 million was £220 million lower than Q3 2017 principally reflecting increased operating expenses, largely due to the annual UK bank levy charge, £91 million, and lower income.
● Total income decreased by £122 million to £806 million compared with Q3 2017 reflecting asset disposal and fair value losses of £46 million, compared with an asset disposal gain of £52 million in Q3 2017, and lower lending volumes.
● Adjusting for transfers(1), RWAs decreased by £4.3 billion to £71.8 billion compared with Q3 2017 reflecting active capital management of the lending book.
Q4 2017 compared with Q4 2016
● Operating profit of £114 million compared with a loss of £225 million in Q4 2016, primarily reflecting lower conduct and litigation costs.
● Total income decreased by £61 million, or 7.0%, to £806 million compared with Q4 2016, principally reflecting asset disposal and fair value losses of £46 million and lower lending volumes. Net interest margin increased by 7 basis points to 1.75% primarily due to asset and deposit re-pricing activity.
● Adjusted operating expenses decreased by £37 million, or 6.7%, to £519 million reflecting cost efficiencies and reduced headcount.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution, were transferred from NatWest Markets on 1 October 2017, including net loans and advances tocustomers of £2.6 billion and RWAs of £2.1 billion. Commercial Banking transferred whole business securitisations and relevant financial institution's (RFI) to NatWest Marketsduring December 2017, including net loans and advances to customers of £0.8 billion and RWAs of £0.6 billion. Comparatives were not re-presented for these transfers.
Segment performance
Private Banking
2017 compared with 2016
● Operating profit increased by £32 million, or 28.8%, to £143 million compared with 2016 and return on equity increased from 5.6% to 6.4%. Adjusted operating profit of £227 million was £78 million, or 52.3%, higher than 2016 primarily reflecting lower adjusted operating expenses and higher income. Adjusted return on equity increased to 11.3% from 7.8% in 2016.
● Adjusting for transfers(1),total income increased by £12 million to £678 million due to increased lending volumes and an £8 million gain on a property sale, partially offset by ongoing margin pressure. Net interest margin fell 19 basis points to 2.47% reflecting the competitive market and low rate environment.
● Adjusted operating expenses of £445 million decreased by £66 million, or 12.9%, compared with 2016 largely reflecting management actions to reduce costs, including an 11.8% reduction in front office headcount. Adjusted cost:income ratio improved to 65.6% compared with 77.8% in 2016.
● Net loans and advances of £13.5 billion were £1.3 billion, or 10.7%, higher than 2016 principally driven by growth in mortgages.
● Adjusting for transfers(1), assets under management were £2.4 billion, or 14.4%, higher than 2016 at £21.5 billion, reflecting both organic growth and favourable market conditions.
● RWAs of £9.1 billion were £0.5 billion, or 5.8%, higher than 2016 primarily due to increased mortgage lending.
Q4 2017 compared with Q3 2017
● An operating loss of £5 million in Q4 2017, compared with a profit of £66 million in Q3 2017, principally due to increased litigation and conduct costs and increased restructuring costs. Adjusted operating profit of £62 million decreased by £7 million compared with Q3 2017, primarily reflecting higher adjusted operating expenses partially offset by higher income.
● Adjusting for transfers(1), total income increased by £16 million to £191 million, compared with Q3 2017, reflecting improved margins and an £8 million gain on a property sale. Net interest margin increased by 5 basis points to 2.44% due to re-pricing benefits and higher funding benefits on deposits following the Q4 2017 base rate increase.
● Adjusted operating expenses increased by £27 million to £127 million
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