REG - Royal Bk Scot.Grp. - Final Results - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 5
26/02/2015 07:13
- Part 5: For the preceding part double click ID:nRSZ9135Fd
287 367 63 69 103
Total income 3,210 3,157 831 811 816
Analysis of impairments by sector
Commercial real estate (2) 431 5 (1) 233
Asset and invoice finance 11 31 7 2 20
Private sector education, health, social work,
recreational and community services (8) 125 - 2 28
Banks & financial institutions - 10 - (1) 4
Wholesale and retail trade repairs 20 9 4 2 3
Hotels and restaurants 7 28 6 2 10
Manufacturing 10 1 1 2 3
Construction 9 (2) 1 4 (1)
Other 29 19 9 - (23)
Total impairment losses (1) 76 652 33 12 277
Loan impairment charge as % of gross
customer loans and advances by sector
Commercial real estate - 2.1% 0.1% - 4.6%
Asset and invoice finance 0.1% 0.3% 0.2% 0.1% 0.7%
Private sector education, health, social work,
recreational and community services (0.1%) 1.6% - 0.1% 1.4%
Banks & financial institutions - 0.1% - (0.1%) 0.2%
Wholesale and retail trade repairs 0.3% 0.2% 0.3% 0.1% 0.2%
Hotels and restaurants 0.2% 0.8% 0.7% 0.2% 1.1%
Manufacturing 0.3% - 0.1% 0.2% 0.3%
Construction 0.5% (0.1%) 0.2% 0.8% (0.2%)
Other 0.1% 0.1% 0.1% - (0.4%)
Total 0.1% 0.8% 0.2% 0.1% 1.3%
Note:
(1) Includes £123 million in 2013 pertaining to the creation of RCR and related strategy.
Commercial Banking
Key metrics
Year ended Quarter ended
31 December 31 December 31 December 30 September 31 December
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 12.6% 4.9% 9.6% 16.0% (6.7%)
Return on equity - adjusted (1,2) 14.6% 7.7% 12.5% 16.7% 2.1%
Net interest margin 2.74% 2.64% 2.77% 2.78% 2.76%
Cost:income ratio 57% 63% 66% 48% 88%
Cost:income ratio - adjusted (2) 51% 53% 57% 46% 59%
Notes:
(1) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs; RWAs in 2013 are on a Basel 2.5 basis).
(2) Excluding restructuring costs and litigation and conduct costs.
(3) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of the monthly average RWAes). At 31 December 2014 the RWAes on this basis were £69.8 billion and the return on equity 9.5%.
31 December 30 September 31 December
2014 2014 2013
£bn £bn Change £bn Change
Capital and balance sheet
Loans and advances to customers (gross)
- Commercial real estate 18.3 18.6 (2%) 20.2 (9%)
- Asset and invoice finance 14.2 14.3 (1%) 11.7 21%
- Private sector education, health, social work,
recreational and community services 6.9 7.1 (3%) 7.9 (13%)
- Banks & financial institutions 7.0 7.0 - 6.9 1%
- Wholesale and retail trade repairs 6.0 6.0 - 5.8 3%
- Hotels and restaurants 3.4 3.4 - 3.6 (6%)
- Manufacturing 3.7 3.9 (5%) 3.7 -
- Construction 1.9 1.9 - 2.1 (10%)
- Other 24.7 23.8 4% 23.1 7%
Total loans and advances to customers (gross) 86.1 86.0 - 85.0 1%
Loan impairment provisions (1.0) (1.0) - (1.5) (33%)
Net loans and advances to customers (1) 85.1 85.0 - 83.5 2%
Funded assets 89.4 89.7 - 87.9 2%
Total assets 89.4 89.7 - 87.9 2%
Risk elements in lending 2.5 2.6 (4%) 4.3 (42%)
Provision coverage (2) 38% 40% (200bp) 38% -
Customer deposits 86.8 87.0 - 90.7 (4%)
Loan:deposit ratio (excluding repos) 98% 98% - 92% 600bp
Risk-weighted assets (3)
- Credit risk (non-counterparty) 57.6 58.5 (2%) 59.7 (4%)
- Operational risk 6.4 6.4 - 6.1 5%
Total risk-weighted assets 64.0 64.9 (1%) 65.8 (3%)
Notes:
(1) December 2014 includes £15 billion third party assets and £12 billion risk-weighted asset equivalents in relation to the run-down legacy book.
(2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(3) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January 2014 were £61.5 billion.
Commercial Banking
Key points
Commercial Banking implemented a simplified and delayered management structure in 2014. With over 120 products removed from
sale and over 400 process improvements implemented, the segment is becoming easier to do business with.
Tangible progress is being made via a bank-wide strategic lending programme which will transform the end-to-end customer
lending experience, ensuring faster decisions and a smoother application process. Over the year there has been an
improvement in the Net Promoter Score and rating of overall service quality across the business, together with a continuing
fall in complaints.
Commercial Banking continues to back UK businesses and communities, with over 8,400 Statement of Appetite letters issued in
2014 at a total value of £4.7 billion. As part of our plan to support entrepreneurs across the UK, the first of eight
accelerator hubs opened in February 2015, offering free space, support and advice to high growth business owners. A series
of customer campaigns were launched, proactively engaging customers on their international and asset finance needs.
Significant progress has been made to drive connectivity across the bank, with a focus on providing employees with the
skills and tools they need to serve customers better. This has included investment in professional qualifications as well
as the development of a suite of banking tools to be rolled out in 2015. The alignment of Commercial & Private Banking
continues to yield benefits, with a pilot resulting in over 140 referrals between the businesses.
2014 compared with 2013
· Commercial Banking recorded an operating profit of £1,290 million compared with £530 million in the prior year. This was driven by lower net impairment losses, down £576 million, lower operating expenses, down £131 million and higher income, up £53 million. Adjusted operating profit increased by £663 million to £1,495 million.
· Net interest income increased by £79 million or 4%, largely reflecting re-pricing activity on deposits partly offset by the impact of reduced asset margins, a result of the net transfer in of lower margin legacy loans (after the cessation of Non-Core).
· Non-interest income was down £26 million or 2% as lower Corporate & Institutional Banking revenue share income, restructuring fees and the transfer out of commercial cards income to UK Personal & Business Banking in August 2014 were only partially offset by higher fair value gains and operating lease income, along with lower close out costs of interest rate products associated with impaired loans.
· Operating expenses were down £131 million or 7%, as a result of lower litigation and conduct costs, primarily relating to interest rate swap redress, and lower underlying direct costs reflecting the continued focus on cost saving. These reductions were partially offset by higher restructuring costs, as the business aligns itself to better support customers, and growth in operating lease depreciation. Operating expenses excluding restructuring costs and litigation and conduct costs declined by £34 million.
Commercial Banking
Key points (continued)
2014 compared with 2013 (continued)
· Net impairment losses declined £576 million to £76 million, as 2013 included the impact of the creation of RCR. Excluding the RCR charges, underlying impairments declined by £453 million with fewer individual cases across the portfolio, reduced collectively assessed provisions and higher latent provision releases, reflecting improved credit conditions.
· The loan:deposit ratio increased to 98%, from reduced deposits, down 4%, reflecting the rebalancing of the bank's liquidity position, and a 2% increase in net loans and advances, as reductions in the commercial real estate and restructuring portfolio were offset by growth across other businesses.
· RWAs were £1.8 billion lower at £64.0 billion, primarily reflecting net transfers to RCR, effective 1 January 2014, and improving credit quality on the back of UK economic recovery, offset by loan growth.
Q4 2014 compared with Q3 2014
· Operating profit declined by £159 million to £248 million. This was driven by higher operating expenses coupled with higher net impairment losses only partially offset by an increase in income. Adjusted operating profit was £323 million compared with £425 million in the preceding quarter.
· Net interest income was broadly flat as a decline in asset margins offset an increase in current account balancesRecent news on Natwest
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