REG - Royal Bk Scot.Grp. - Half Year Report - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 5
05/08/2016 07:07
- Part 5: For the preceding part double click ID:nRSE3368Gd
what matters' TV ad campaign has revitalised and repositioned the Ulster Bank brand in striving towards its ambition to become number one for customer service, trust and advocacy by 2020.
· The evolving demand for digital banking continues with a 20% increase in mobile and internet activity compared with H1 2015.
· Ulster Bank RoI is making good progress on its cost saving programme supported by process automation and an acceleration in digital adoption. Further enhancements to digital and online capability have been delivered while investments in segments such as the broker mortgage channel and asset finance will support business growth opportunities.
Financial Performance
H1 2016 compared with H1 2015
· Operating profit decreased by E181 million to E9 million compared with H1 2015 primarily due to an increase in litigation and conduct costs. An increase in income and decrease in adjusted expenses was offset by lower net impairment releases, resulting in a E44 million reduction in adjusted operating profit to E155 million in H1 2016.
· A non-recurring profit of E37 million relating to asset disposals has been recognised in H1 2016, of which E10 million was reported in income.
· Income increased by 2% from H1 2015 to E377 million. Excluding the benefit of asset disposals, underlying business income growth, driven by progressive re-pricing of deposits and new business lending, was more than offset by reduced income on free funds which contributed to a 2 basis point reduction in NIM to 1.64%.
· Adjusted operating expenses of E252 million reduced by E22 million, or 8%, on H1 2015 despite an E8 million increase in regulatory levies, principally reflecting one-off accrual releases of E19 million. A realignment of costs within direct expenses resulted in an increase in staff costs in H1 2016 with an offsetting reduction in other costs. This reflects the re-allocation of 660 staff from UK PBB to align with current management responsibilities following the separation of the Northern Ireland and
Republic of Ireland businesses.
· Litigation and conduct costs of E118 million principally reflect a provision made in relation to an industry wide examination of tracker mortgages. Restructuring costs increased by E10 million, or 45%, primarily driven by asset disposals.
· A net impairment release of E34 million was largely driven by asset disposals which benefitted from improved market conditions.
· New lending continued to grow, underpinned by the improvement in Irish economic conditions. Gross new mortgage lending increased 47% to E0.4 billion compared with H1 2015. Net loans and advances to customers (1) remained steady during H1 2016 as new lending was balanced against repayment levels. The low yielding tracker mortgage portfolio declined by a further E0.4 billion, or 3%, to E11.5 billion in H1 2016.
Ulster Bank RoI
· RWAs reduced by E1.5 billion during H1 2016 to E24.9 billion as underlying credit metrics continue to benefit from the improving economic environment. RWAs on the tracker mortgage portfolio reduced by E1.1 billion, or 10%, during H1 2016 to E9.6 billion.
Q2 2016 compared with Q1 2016
· Adjusted operating profit of E73 million was E9 million lower than Q1 2016. Reduced adjusted expenses were more than offset by a reduction in asset disposal income and the non recurrence of income recognised on a cohort of non performing loans in Q1 2016. A E118 million litigation and conduct charge and E16 million increase in restructuring costs contributed to a E147 million reduction in operating profit in Q2 2016.
· Income reduced by E33 million to E172 million largely due to a E18 million reduction in asset disposal income in Q2 2016 and the non repeat of income recognised on a cohort of non performing loans of E9 million in Q1 2016 which contributed to a 21 basis point decrease in net interest margin to 1.54%.
· Adjusted expenses decreased by E20 million primarily due to one-off accrual releases of E19 million.
· Net loans were stable in the quarter supported by growth in new lending offsetting customer deleveraging.
Q2 2016 compared with Q2 2015
· The operating loss of E69 million largely reflects a E118 million litigation and conduct charge principally in relation to an industry wide examination of tracker mortgages and lower net impairment releases.
Note:
(1) Gross loans and advances to customers at 30 June 2016 include E0.6 billion (E0.1 billion net of impairment provisions) and at 1 January 2016 E1.8 billion (E0.2 billion net of impairment provisions) of largely non-performing balances transferred from Capital Resolution on 1 January 2016 which contributed to the increase in risk elements in lending in H1 2016. Prior year comparatives have not been restated.
Gross loans and advances to customers at 30 June 2016 include E0.6 billion (E0.1 billion net of impairment provisions) and
at 1 January 2016 E1.8 billion (E0.2 billion net of impairment provisions) of largely non-performing balances transferred
from Capital Resolution on 1 January 2016 which contributed to the increase in risk elements in lending in H1 2016. Prior
year comparatives have not been restated.
Commercial Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Income statement £m £m £m £m £m
Net interest income 1,067 981 531 536 499
Net fees and commissions 523 480 261 262 250
Other non-interest income 109 196 54 55 119
Non-interest income 632 676 315 317 369
Total income 1,699 1,657 846 853 868
Direct expenses
- staff costs (265) (242) (134) (131) (119)
- other costs (41) (33) (27) (14) (18)
- operating lease costs (70) (71) (35) (35) (35)
Indirect expenses (557) (462) (301) (256) (221)
Restructuring costs
- direct (1) (11) - (1) (11)
- indirect (40) (5) (41) 1 (6)
Litigation and conduct costs (10) (59) (8) (2) (59)
Operating expenses (984) (883) (546) (438) (469)
Operating profit before impairment losses 715 774 300 415 399
Impairment losses (103) (26) (89) (14) (27)
Operating profit 612 748 211 401 372
Operating expenses - adjusted (1) (933) (808) (497) (436) (393)
Operating profit - adjusted (1) 663 823 260 403 448
Analysis of income by business
Commercial lending 900 843 464 436 455
Deposits 249 229 124 125 118
Asset and invoice finance 356 358 179 177 180
Other 194 227 79 115 115
Total income 1,699 1,657 846 853 868
Analysis of impairments by sector
Commercial real estate 2 6 4 (2) 10
Asset and invoice finance 13 3 10 3 2
Private sector services (education, health, etc) 1 3 - 1 -
Banks & financial institutions 1 1 1 - 1
Wholesale and retail trade repairs (1) - (4) 3 2
Hotels and restaurants (1) (1) (1) - 2
Manufacturing 2 - 1 1 (1)
Construction 5 2 4 1 2
Other 81 12 74 7 9
Total impairment losses 103 26 89 14 27
Loan impairment charge as a % of gross
customer loans and advances by sector
Commercial real estate - 0.1% 0.1% - 0.2%
Asset and invoice finance 0.2% 0.0% 0.3% 0.1% 0.1%
Private sector services (education, health, etc) - 0.1% - 0.1% -
Banks & financial institutions - 0.0% - - 0.1%
Wholesale and retail trade repairs - - (0.2%) 0.1% 0.1%
Hotels and restaurants (0.1%) (0.1%) (0.1%) - 0.3%
Manufacturing 0.1% - 0.1% 0.1% (0.1%)
Construction 0.5% 0.2% 0.8% 0.2% 0.4%
Other 0.5% 0.1% 0.9% 0.1% 0.1%
Total 0.2% 0.1% 0.4% 0.1% 0.1%
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Commercial Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Performance ratios
Return on equity (1) 8.1% 12.2% 4.9% 11.1% 12.1%
Return on equity - adjusted (1,2) 8.9% 13.6% 6.6% 11.2% 14.9%
Net interest margin 1.83% 1.90% 1.78% 1.88% 1.91%
Cost:income ratio 58% 53% 65% 51% 54%
Cost:income ratio - adjusted (2) 55% 49% 59% 51% 45%
30 June 31 March 31 December
2016 2016 2015
Capital and balance sheet £bn £bn Change £bn Change
Loans and advances to customers (gross)
- Commercial real estate 17.8 17.5 2% 16.7 7%
- Asset and invoice finance 14.8 14.4 3% 14.4 3%
- Private sector services (education, health etc) 6.8 7.0 (3%) 6.7 1%
- Banks & financial institutions 8.2 7.4 11% 7.1 15%
- Wholesale and retail trade repairs 8.2 8.3 (1%) 7.5 9%
- Hotels and restaurants 3.6 3.5 3% 3.3 9%
- Manufacturing 7.0 6.4 9% 5.3 32%
- Construction 2.1 2.2 (5%) 2.1 -
- Other 31.7 30.8 3% 28.9 10%
Total loans and advances to customers (gross) 100.2 97.5 3% 92.0 9%
Loan impairment provisions (1.0) (1.1) (9%) (0.7) 43%
Net loans and advances to customers 99.2 96.4 3% 91.3 9%
Total assets 146.3 139.4 5% 133.5 10%
Funded assets 146.3 139.4 5% 133.5 10%
Risk elements in lending 2.2 2.2 - 1.9 16%
Provision coverage (3) 46% 48% (200bp) 39% 700bp
Customer deposits (excluding repos) 96.7 97.1 - 88.9 9%
Loan:deposit ratio (excluding repos) 103% 99% 400bp 103% -
Risk-weighted assets
- Credit risk (non-counterparty) 71.0 69.2 3% 65.3 9%
- Operational risk 6.5 6.5 - 7.0 (7%)
Total risk-weighted assets 77.5 75.7 2% 72.3 7%
Notes:
(1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 11% of the monthly average of segmental RWAes, assuming 28% tax rate.
(2) Excluding restructuring costs and litigation and conduct costs.
(3) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Commercial Banking
Serving our Customers
Commercial Banking continued to make a significant contribution to overall bank profitability through its support of the UK
and Western Europe business community.
· A continuing focus on end to end business performance aimed at improving customer service, trust and advocacy is showing signs of success with a 6th consecutive quarter of loan growth, exceeding market indicators.
· Loan growth has been seen across the business in a variety of sectors, however we do expect some re-financing into the debt markets in H2 2016. Commercial real estate continues to be actively managed and remains within risk appetite.
· We continue to improve our internal processes and enhance our frontline service, through completion of professional qualifications, to ensure customers get decisions and delivery in a timely manner whilst raising customer satisfaction and reducing customer complaints.
· We are running a series of programmes to proactively support small and medium companies with their development by providing access to specialist advice from a wide spectrum of experts.
· A further three new business accelerator hubs have been opened in H1 2016, bringing the total to nine. This included the launch of an Entrepreneurial Centre in Edinburgh to bring over 100 entrepreneurs and support organisations together with the goal of achieving their strategic growth targets.
· Costs continue to be in focus, with on-going review of how we best serve our customers whilst allowing for us to create efficiencies in our cost base.
Financial performance
H1 2016 compared with H1 2015
· Commercial Banking reported an operating profit of £612 million in H1 2016, £136 million, or 18%, lower than H1 2015. Adjusted operating profit of £663 million was £160 million lower than H1 2015 principally reflecting increased adjusted operating expenses and equity disposal and fair value gains of £75 million in H1 2015.
· Total income increased by £42 million to £1,699 million. Excluding the impact of business transfers(1), income fell by £48 million reflecting £75 million of equity disposal and fair value gains in H1 2015 partially offset by higher asset and deposit volumes. Net interest margin fell by 7 basis points to 1.83% reflecting an increased allocation of the low yielding liquidity portfolio and asset margin pressure.
· Adjusted operating expenses of £933 million were £125 million higher than H1 2015. Excluding business transfers(1), adjusted operating expenses increased by £75 million reflecting a £25 million intangible asset write-down and increased investment spend.
· Net impairment losses increased by £77 million to £103 million primarily reflecting a single name charge taken in respect of the Oil & Gas portfolio. The overall credit quality of the book has improved with REIL as a percentage of gross customer loans reducing by 30 basis points to 2.1% compared with H1 2015.
· Net loans and advances increased by £7.9 billion in the first six months of 2016. Adjusting for the impact of business transfers(1), net loans and advances to customers increased by £6.9 billion, compared with H1 2015, principally reflecting increased borrowing across mid and large corporate customers.
· RWAs increased by £5.2 billion during H1 2016 to £77.5 billion reflecting asset balance growth and a £1.5 billion uplift associated with the weakening of sterling.
Commercial Banking
Q2 2016 compared with Q1 2016
· Operating profit of £211 million compared with £401 million in Q1 2016. Adjusted operating profit of £260 million was £143 million lower than Q1 2016 reflecting increased adjusted operating expenses and higher impairments.
· Total income reduced by £7 million to £846 million compared with Q1 2016 principally driven by the non-repeat of Q1 2016 one-off items partially offset by asset volume growth.Net interest margin reduced by 10 basis points to 1.78% driven by the non-repeat of Q1 2016 one-off items and an increased allocation of the low yielding liquidity portfolio.
· Adjusted operating expenses increased by £61 million to £497 million due to a £25 million intangible asset write-down and increased investment spend.
· Impairments increased by £75 million to £89 million primarily reflecting a single name charge taken in respect of the Oil & Gas portfolio.
· Net loans and advances increased by £2.8 billion to £99.2 billion primarily reflecting growth in the large corporate sector.
Q2 2016 compared with Q2 2015
· Operating profit reduced £161 million to £211 million. Adjusted operating profit of £260 million was £188 million lower than Q2 2015 driven by lower equity disposal and fair value gains, increased adjusted operating expenses and a higher impairment charge.
· Excluding the impact of business transfers(1), total income reduced by £70 million principally reflecting equity disposal and fair value gains in Q2 2015, partially offset by increased asset and deposit volumes.
· Excluding business transfers(1), adjusted operating expenses increased by £78 million reflecting a £25 million intangible asset write-down and increased investment spend.
Note:
(1) The portfolio transfers included: total income of £90 million (Q2 2016 - £48 million; Q1 2016 - £42 million); operating expenses of £50 million (Q2 2016 - £26 million; Q1 2016 - £24 million); impairments of £15 million (credit) (Q2 2016 £7 million; Q1 2016
£8 million) net loans and advances to customers of £4.1 billion (31 March 2016 - £4.9 billion; 31 December 2015 - £3.1 billion); customer deposits of £0.7 billion (31 March 2016 - £2.1 billion; 31 December 2015 - £0 billion); and RWAs of £6.7 billion (31
March 2016 - £7.0 billion; 31 December 2015 - £6.0 billion). The portfolio transfers were as follows: Q4 2015 - Western European corporate loan; Q1 2016 - Ulster Bank NI commercial and RCR residual portfolios, Q2 2016 transfer out of clients to PBB. Asset
growth in transferred businesses achieved since Q4 2015 is included in underlying commercial business movements. UK Corporate transfer in Q2 2015 has been excluded from comparison due to spot balance sheet movements being shown in both periods and minimal
profit and loss variance.
The portfolio transfers included: total income of £90 million (Q2 2016 - £48 million; Q1 2016 - £42 million); operating
expenses of £50 million (Q2 2016 - £26 million; Q1 2016 - £24 million); impairments of £15 million (credit) (Q2 2016 £7
million; Q1 2016 £8 million) net loans and advances to customers of £4.1 billion (31 March 2016 - £4.9 billion; 31 December
2015 - £3.1 billion); customer deposits of £0.7 billion (31 March 2016 - £2.1 billion; 31 December 2015 - £0 billion); and
RWAs of £6.7 billion (31 March 2016 - £7.0 billion; 31 December 2015 - £6.0 billion). The portfolio transfers were as
follows: Q4 2015 - Western European corporate loan; Q1 2016 - Ulster Bank NI commercial and RCR residual portfolios, Q2
2016 transfer out of clients to PBB. Asset growth in transferred businesses achieved since Q4 2015 is included in
underlying commercial business movements. UK Corporate transfer in Q2 2015 has been excluded from comparison due to spot
balance sheet movements being shown in both periods and minimal profit and loss variance.
Private Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Income statement £m £m £m £m £m
Net interest income 226 219 113 113 109
Net fees and commissions 94 96 48 46 46
Other non-interest income 11 11 5 6 6
Non-interest income 105 107 53 52 52
Total income 331 326 166 165 161
Direct expenses
- staff costs (77) (90) (37) (40) (44)
- other costs (23) (17) (9) (14) (8)
Indirect expenses (156) (133) (73) (83) (65)
Restructuring costs
- direct (1) (2) - (1) (2)
- indirect (19) (77) (4) (15) (80)
Litigation and conduct costs (2) (2) (2) - -
Operating expenses (278) (321) (125) (153) (199)
Operating profit/(loss) before impairment losses 53 5 41 12 (38)
Impairment (losses)/releases (2) 3 - (2) 2
Operating profit/(loss) 51 8 41 10 (36)
Operating expenses - adjusted (1) (256) (240) (119) (137) (117)
Operating profit - adjusted (1) 73 89 47 26 46
Analysis of income by business
Investments 50 45 22 28 21
Banking 281 281 144 137 140
Total income 331 326 166 165 161
Performance ratios
Return on equity (2) 5.1% (0.3%) 8.6% 1.5% (9.9%)
Return on equity - adjusted (1,2) 7.6% 8.5% 9.9% 5.1% 9.3%
Net interest margin 2.76% 2.81% 2.73% 2.80% 2.76%
Cost:income ratio 84% 98% 75% 93% 124%
Cost:income ratio - adjusted (1) 77% 74% 72% 83% 73%
Notes:
(1) Excluding restructuring costs and litigation and conduct costs.
(2) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 15% of the monthly average of segmental RWAes, assuming 28% tax rate.
Private Banking
30 June 31 March 31 December
2016 2016 2015
Capital and balance sheet £bn £bn Change £bn Change
Loans and advances to customers (gross)
- Personal 2.5 2.6 (4%) 2.7 (7%)
- Mortgages 6.8 6.8 - 6.5 5%
- Other 2.5 2.2 14% 2.0 25%
Total loans and advances to customers (gross) 11.8 11.6 2% 11.2 5%
Net loans and advances to customers 11.8 11.6 2% 11.2 5%
Total assets 17.8 17.4 2% 17.0 5%
Funded assets 17.7 17.3 2% 17.0 4%
Assets under management 14.6 14.0 4% 13.9 5%
Risk elements in lending 0.1 0.1 - 0.1 -
Provision coverage (1) 42% 32% nm 28% nm
Customer deposits (excluding repos) 25.4 23.2 9% 23.1 10%
Loan:deposit ratio (excluding repos) 46% 50% (400bp) 48% (200bp)
Risk-weighted assets
- Credit risk (non-counterparty) 7.0 7.6 (8%) 7.6 (8%)
- Operational risk 1.1 1.0 10% 1.1 -
Total risk-weighted assets 8.1 8.6 (6%) 8.7 (7%)
Note:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Serving our Customers
Following the appointment of a new Chief Executive in the first half of 2016, Private Banking continues to drive forward
with its goal of being the leading UK-based private bank and wealth manager, through a focus on supporting our clients and
reducing complexity:
· Continuing to drive balance sheet and AUM growth through an enhanced product proposition, including a range of execution only funds as well as the launch of an investment backed lending product.
· Following the sale of International Private Banking, an alternative offshore booking centre has been established in Jersey, which will offer Private Banking and Wealth Management Solutions to our ongoing client base.
· We are moving towards a consolidated regional office footprint with an improved customer service model driving a more efficient coverage model together with an improved client experience.
· The cost base is being managed whilst absorbing charges previously borne by the International business as well as absorbing an increase in investment spend. Simplification of the Private Banking UK operating model is underway.
Private Banking
Financial performance
H1 2016 compared with H1 2015
· Operating profit increased £43 million to £51 million compared with H1 2015 largely due to an £82 million intangible asset write down within restructuring costs recorded in H1 2015. Adjusted operating profit of £73 million was £16 million lower principally due to increased adjusted operating expenses. Adjusted return on equity of 7.6% compared with 8.5% in H1 2015.
· Total income of £331 million increased by £5 million compared with H1 2015 largely due to asset volume growth driving a 3% increase in net interest income. Net interest margin fell 5 basis points to 2.76% reflecting asset margin pressures.
· Adjusted operating expenses increased by £16 million, or 7%, to £256 million reflecting increased infrastructure costs absorbed from the sale of the international business, partially offset by lower staff costs as employee numbers declined by 7%.
· Net loans and advances of £11.8 billion were £0.9 billion higher compared with H1 2015 driven by mortgages and have increased by £0.6 billion compared with Q4 2015. Assets under management of £14.6 billion were £0.9 billion higher compared with H1 2015 and up £0.7 billion during the first six months of 2016 due to market movements.
· RWAs of £8.1 billion were £0.6 billion lower than 31 December 2015 primarily due to mortgage calibration improvements.
Q2 2016 compared with Q1 2016
· Operating profit increased by £31 million to £41 million. Adjusted operating profit of £47 million was £21 million higher than Q1 2016 principally reflecting reduced adjusted operating expenses with adjusted return on equity of 9.9% compared with 5.1% in Q1 2016.
· Total income of £166 million was stable on Q1 2016 as asset and deposit volume growth has been offset by the impact of low interest rates on margins.
· Adjusted operating expenses reduced by £18 million, or 13%, to £119 million reflecting the impact of cost reduction initiatives and non repeat of one-off items in Q1 2016.
· Net loans and advances of £11.8 billion were broadly stable on Q1 2016 as new business growth was offset by balance run-down. Assets under management increased £0.6 billion from £14.0 billion principally driven by equity market increases.
Q2 2016 compared with Q2 2015
· Operating profit of £41 million increased by £77 million compared with Q2 2015 principally reflecting the intangible asset write down within restructuring in Q2 2015. Adjusted operating profit remained stable at £47 million. Adjusted return on equity of 9.9% compared with 9.3% in Q2 2015.
· Total income of £166 million was 3% higher than Q2 2015 reflecting increased asset volumes. Adjusted operating expenses increased £2 million to £119 million reflecting increased infrastructure costs absorbed from the sale of the International business.
RBS International
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2016 2015 2016 2016 2015
Income statement £m £m £m £m £m
Net interest income 151 152 76 75 76
Net fees and commissions 25 19 14 11 9
Other non-interest income 9 14 5 4 7
Non-interest income 34 33 19 15 16
Total income 185 185 95 90 92
Direct expenses
- staff costs (22) (21) (12) (10) (11)
- other costs (8) (8) (3) (5) (4)
Indirect expenses (38) (50) (18) (20) (26)
Restructuring costs
- direct (1) - (1) - -
- indirect (2) (3) (1) (1) (1)
Operating expenses (71) (82) (35) (36) (42)
Operating profit before impairment losses 114 103 60 54 50
Impairment (losses)/releases (11) (1) (9) (2) 1
Operating profit 103 102 51 52 51
Operating expenses - adjusted (1) (68) (79) (33) (35) (41)
Operating profit - adjusted (1) 106 105 53 53 52
Performance ratios
Return on equity (2) 15.4% 18.4% 15.0% 16.0% 18.1%
Return on equity - adjusted (1,2) 15.9% 19.0% 15.7% 16.3% 18.4%
Net interest margin 1.42% 1.49% 1.40% 1.43% 1.49%
Cost:income ratio 38% 44% 37% 40% 46%
Cost:income ratio - adjusted (1) 37% 43% 35% 39% 45%
Notes:
(1) Excluding restructuring costs.
(2) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 12% of the monthly average of segmental RWAes, assuming 10% tax rate.
30 June 31 March 31 December
2016 2016 2015
Capital and balance sheet £bn £bn Change £bn Change
Loans and advances to customers (gross)
- Corporate 5.9 5.4 9% 4.5 31%
- Mortgages 2.6 2.6 - 2.5 4%
- Other - - - 0.4 (100%)
Total loans and advances to customers (gross) 8.5 8.0 6% 7.4 15%
Loan impairment provisions - - - (0.1) (100%)
Net loans and advances to customers 8.5 8.0 6% 7.3 16%
Total assets 24.6 23.7 4% 23.1 6%
Funded assets 24.6 23.7 4% 23.1 6%
Risk elements in lending 0.1 0.1 - 0.1 -
Provision coverage (1) 33% 37% (400bp) 34% (100bp)
Customer deposits (excluding repos) 24.1 21.6 12% 21.3 13%
Loan:deposit ratio (excluding repos) 35% 37% (200bp) 35% -
Risk-weighted assets
- Credit risk (non-counterparty) 8.9 8.4 6% 7.6 17%
- Operational risk 0.7 0.7 - 0.7 -
Total risk-weighted assets 9.6 9.1 5% 8.3 16%
Note:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
RBS International
Serving our Customers
RBS International (RBSI) operates under the CPB franchise, serving retail, commercial, corporate and financial institution
customers in Jersey, Guernsey, Isle of Man and Gibraltar.
During the first half of 2016, RBSI continued to improve its customer service experience through:
· Continuing to support personal and non-personal businesses with lending growth of 15% during H1 2016. Gross new mortgage lending was £0.2 billion in H1 2016 supported by a competitively priced 2 year fixed product and related campaign. We remain determined to offer a market leading mortgage experience in each jurisdiction and will combine exceptional customer service with competitive rates.
· Funds Sector lending also performing strongly with conversion rates higher than prior years as the majority of deals are in support of existing customers (raising larger funds, running multiple funds or widening their investment strategies).
· RBSI expanded into Luxembourg(1) in Q2 2016 with the transfer of the Funds business from Capital Resolution. This is a key milestone for RBSI in its Funds strategy, allowing for the first steps in the simplification of the Bank-wide operating model for Funds clients.
· 'Entrepreneur Pitching Workshops' have been held across Jersey and Guernsey to support business start-ups and growth.
· We continue to review how best we serve our customers as cost efficiently as possible
Financial performance
H1 2016 compared with H1 2015
· Operating profit of £103 million was broadly in line with H1 2015.
· Total income of £185 million was broadly stable on H1 2015. Net interest margin reduced by 7 basis points to 1.42% driven by deposit margin pressure.
· Adjusted operating expenses reduced by £11 million, or 14%, to £68 million principally reflecting a reduction in allocated services and functions costs.
· Impairments of £11 million compared with a charge of £1 million in H1 2015.
· Net loans and advances increased by £1.2 billion during H1 2016 to £8.5 billion reflecting balance draw-downs in the corporate lending portfolio, mainly within the Funds sector.
· Customer deposits increased by £2.8 billion during H1 2016 to £24.1 billion principally reflecting the transfer of the Luxembourg branch into RBSI from Capital Resolution during Q2 2016(1).
Q2 2016 compared with Q1 2016
· Q2 2016 operating profit of £51 million compared with £52 million in Q1 2016. Adjusted operating profit of £53 million was in line with Q1 2016 as increased income and lower adjusted expenses have been offset by increased impairments.
· Total income of £95 million
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