REG - Royal Bk Scot.Grp. - Half Yearly Report - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 3
29/10/2014 09:16
- Part 3: For the preceding part double click ID:nRSA9698Nb
14.8 15.5 19.4 16.2
Citizens Financial Group 60.7 61.3 60.6 56.1
RCR 35.1 40.5 46.7 n/a
Non-Core n/a n/a n/a 29.2
RBS before RFS Holdings minority interest 387.9 410.2 425.2 381.6
RFS Holdings minority interest 4.2 4.1 3.9 3.9
RBS risk-weighted assets 392.1 414.3 429.1 385.5
Employee numbers by segment (full time equivalents rounded to the nearest hundred) 30 June 31 March 31 December
2014 2014 2013
UK Personal & Business Banking 25,700 26,300 26,700
Ulster Bank 4,500 4,600 4,700
Personal & Business Banking 30,200 30,900 31,400
Commercial Banking 7,100 7,300 7,300
Private Banking 3,500 3,500 3,500
Commercial & Private Banking 10,600 10,800 10,800
Corporate & Institutional Banking 4,500 4,400 4,700
Centre 12,800 13,100 12,800
Citizens Financial Group 17,700 18,500 18,800
RCR 800 1,100 n/a
Non-Core n/a n/a 1,300
76,600 78,800 79,800
Services 36,900 37,800 38,600
Integration and restructuring 100 100 200
RBS employee numbers 113,600 116,700 118,600
Personal & Business Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Income statement
Net interest income 2,599 2,502 1,321 1,278 1,270
Net fees and commissions 703 693 338 365 351
Other non-interest income 72 78 51 21 57
Non-interest income 775 771 389 386 408
Total income 3,374 3,273 1,710 1,664 1,678
Direct expenses
- staff costs (576) (593) (288) (288) (302)
- other costs (260) (227) (113) (147) (108)
Indirect expenses (1,101) (1,072) (518) (583) (549)
Restructuring costs
- direct 2 (85) 2 - (61)
- indirect (35) (45) (43) 8 (26)
Litigation and conduct costs (150) (185) (150) - (185)
Operating expenses (2,120) (2,207) (1,110) (1,010) (1,231)
Profit before impairment losses 1,254 1,066 600 654 447
Impairment losses (205) (759) (70) (135) (389)
Operating profit 1,049 307 530 519 58
Operating profit - adjusted (1) 1,232 622 721 511 330
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Key metrics
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 17.0% 4.3% 17.4% 16.7% 1.7%
Return on equity - adjusted (1,2) 20.0% 8.8% 23.6% 16.4% 9.5%
Net interest margin 3.39% 3.15% 3.40% 3.37% 3.20%
Cost:income ratio 63% 67% 65% 61% 73%
Cost:income ratio - adjusted (2) 57% 58% 54% 61% 57%
Notes:
(1) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2) Excluding restructuring costs and litigation and conduct costs.
Personal & Business Banking
30 June 31 March 31 December
2014 2014 2013
£bn £bn Change £bn Change
Capital and balance sheet
Loans and advances to customers (gross) 154.9 155.0 - 159.2 (3%)
Loan impairment provisions (6.1) (6.3) (3%) (8.4) (27%)
Net loans and advances to customers 148.8 148.7 - 150.8 (1%)
Funded assets 160.2 158.8 1% 160.2 -
Risk elements in lending 9.1 9.2 (1%) 13.2 (31%)
Provision coverage (1) 67% 68% (100bp) 63% 400bp
Customer deposits 166.7 165.7 1% 166.6 -
Assets under management (excluding deposits) 5.3 5.5 (4%) 5.8 (9%)
Loan:deposit ratio (excluding repos) 89% 90% (100bp) 91% (200bp)
Total risk-weighted assets 74.7 77.2 (3%) 81.9 (9%)
Note:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Key points
Personal & Business Banking (PBB) comprises the former UK Retail and business banking elements of former UK Corporate (UK
Personal & Business Banking - UK PBB) and Ulster Bank reportable segments. PBB supports individuals in managing their
personal and business banking, with a full range of financial services and advice. Through the RBS, NatWest, and Ulster
Bank brands, PBB serves over 18 million personal and business customers in the UK and Ireland. Customers can choose how
they manage their finances through access to our branches, online banking, fixed and mobile technology and one of the
largest ATM networks in the UK and Ireland.
UK Personal & Business Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Income statement
Net interest income 2,276 2,200 1,152 1,124 1,118
Net fees and commissions 637 624 304 333 316
Other non-interest income 49 5 43 6 4
Non-interest income 686 629 347 339 320
Total income 2,962 2,829 1,499 1,463 1,438
Direct expenses
- staff costs (451) (469) (226) (225) (235)
- other costs (225) (200) (95) (130) (96)
Indirect expenses (975) (947) (455) (520) (484)
Restructuring costs
- direct (6) (70) (6) - (47)
- indirect (13) (39) (23) 10 (22)
Litigation and conduct costs (150) (160) (150) - (160)
Operating expenses (1,820) (1,885) (955) (865) (1,044)
Profit before impairment losses 1,142 944 544 598 394
Impairment losses (148) (256) (60) (88) (126)
Operating profit 994 688 484 510 268
Operating profit - adjusted (1) 1,163 957 663 500 497
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
UK Personal & Business Banking
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Analysis of income by product
Personal advances 467 443 232 235 220
Personal deposits 302 227 160 142 124
Mortgages 1,287 1,277 649 638 649
Cards 374 419 176 198 210
Business banking 490 481 245 245 247
Other 42 (18) 37 5 (12)
Total income 2,962 2,829 1,499 1,463 1,438
Analysis of impairments by sector
Personal advances 79 84 40 39 49
Mortgages 5 26 4 1 16
Business banking 30 87 1 29 37
Cards 34 59 15 19 24
Total impairment losses 148 256 60 88 126
Loan impairment charge as % of gross
customer loans and advances (excluding
reverse repurchase agreements) by sector
Personal advances 2.1% 2.0% 2.1% 2.0% 2.4%
Mortgages - 0.1% - - 0.1%
Business banking 0.4% 1.1% - 0.8% 1.0%
Cards 1.3% 2.1% 1.1% 1.4% 1.7%
Total 0.2% 0.4% 0.2% 0.3% 0.4%
Key metrics
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 25.7% 16.4% 25.3% 26.0% 12.8%
Return on equity - adjusted (1,2) 30.0% 22.8% 34.7% 25.5% 23.8%
Net interest margin 3.62% 3.50% 3.64% 3.61% 3.56%
Cost:income ratio 61% 67% 64% 59% 73%
Cost:income ratio - adjusted (2) 56% 57% 52% 60% 57%
Notes:
(1) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2) Excluding restructuring costs and litigation and conduct costs.
UK Personal & Business Banking
30 June 31 March 31 December
2014 2014 2013
£bn £bn Change £bn Change
Capital and balance sheet
Loans and advances to customers (gross)
- personal advances 7.5 7.9 (5%) 8.1 (7%)
- mortgages 101.8 100.4 1% 99.3 3%
- business 14.6 14.6 - 14.6 -
- cards 5.3 5.5 (4%) 5.8 (9%)
129.2 128.4 1% 127.8 1%
Loan impairment provisions (2.8) (2.9) (3%) (3.0) (7%)
Net loans and advances to customers 126.4 125.5 1% 124.8 1%
Funded assets 133.6 132.8 1% 132.2 1%
Risk elements in lending 4.2 4.5 (7%) 4.7 (11%)
Provision coverage (1) 66% 65% 100bp 63% 300bp
Customer deposits
- personal current accounts 34.2 33.8 1% 32.5 5%
- personal savings 80.9 81.1 - 82.3 (2%)
- business/commercial 30.9 29.7 4% 30.1 3%
Total customer deposits 146.0 144.6 1% 144.9 1%
Assets under management (excluding deposits) 5.3 5.5 (4%) 5.8 (9%)
Loan:deposit ratio (excluding repos) 87% 87% - 86% 100bp
Risk-weighted assets (2)
- Credit risk (non-counterparty) 37.5 39.0 (4%) 41.4 (9%)
- Operational risk 9.5 9.5 - 9.8 (3%)
Total risk-weighted assets 47.0 48.5 (3%) 51.2 (8%)
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.
UK Personal & Business Banking
Key points
The strategic goal of UK PBB is to become the number one personal and business bank for customer trust and advocacy in the
UK. To support this, investment of over £1 billion is planned between 2014 and 2017. Through to the end of June 2014 these
initiatives included:
· Further enhancements to the customer experience were introduced to UK PBB's mobile and digital services. The business currently has more than 5.5 million online users, and 2.8 million customers now using its mobile application, transacting more than £10 billion in digital payments on an annual basis.
· UK PBB continued its branch refurbishment programme and completed the roll-out of WiFi across the branch network and expanded its ATM network to include increased presence at shopping centres and train stations across the UK.
· UK PBB continued to focus on streamlining processes offering pre-approved loans through online banking and allowing mortgage customers to service their accounts online. We are moving further towards our goal of responding intelligently to each individual customer via their channel of choice.
In line with UK PBB's goal of responsible lending, we introduced the new Clear Rate Credit card in March 2014 ending zero
percent balance transfer deals that then revert to higher rates when the deal expires. This product is designed
specifically for those customers that want to control and reduce their debt over time without the need to move their
balance from card to card or remember when their introductory offer comes to an end.
The CashBack Plus scheme, which rewards personal debit card users through selected retailers, was launched in August 2013
and continued to expand, with more than 1.2 million customers now registered. In February 2014, CashBack Plus won 'Best
Card Benefits Programme' at the annual Cards and Payments awards.
Business Banking is the number one business banking franchise in the UK, with a 23% current account market share. The
bank's share of business start-ups increased by 2 percentage points to 24% in the 6 months to June with strong gross new
lending over the same period. Net promoter scores improved in the relationship-managed space and UK PBB believes that
bringing together Personal and Business banking will enable it to more ably satisfy customer needs.
H1 2014 compared with H1 2013
· Operating profit increased by 44% to £994 million, with restructuring costs down £90 million to £19 million. Adjusted operating profit increased by 22% to £1,163 million, driven by income growth of 5% and a 42% decline in impairment losses.
· Net interest income increased by 3% to £2,276 million, driven by strong deposit growth of 4%, improved margins, and increased personal mortgage balances, up 4%, partly offset by lower income from unsecured lending.
· Non-interest income increased by 9%, to £686 million, primarily driven by higher current account-related fee income and higher insurance profit share. Debit card transactional spend increased by 8%, supported by the CashBack Plus programme.
UK Personal & Business Banking
Key points (continued)
H1 2014 compared with H1 2013 (continued)
· Direct costs were up 1% at £676 million, with higher customer compensation and marketing costs only partly offset by a decrease in staff costs driven by lower headcount. Indirect costs were 3% higher at £975 million, reflecting a technology write-off in Q1 2014 of £60 million.
· Impairments were £108 million lower due to improved asset quality and lower default volumes.
· Risk-weighted assets decreased by 10%, reflecting improvements in the quality of the book and business model enhancements, partly offset by mortgage balance growth.
Q2 2014 compared with Q1 2014
· Operating profit decreased by 5% to £484 million, reflecting additional conduct costs of £150 million for Payment Protection Insurance redress. Adjusted operating profit increased by 33% to £663 million, driven by income growth of 2% and lower costs (down 11%). Impairments also continued to improve.
· Net interest income increased by 2% to £1,152 million, primarily due to improved deposit income from increased balances and margins. Strong mortgage balance growth of £1.4 billion (gross new business lending market share was 10%) was offset by modest pressure on mortgage margins.
· Non-interest income increased by 2% to £347 million, largely due to higher insurance profit share. Card transaction-related fee income improved with transaction levels up 6%.
· Direct costs decreased by 10% to £321 million driven by a remediation provision of £15 million in Q1 2014. Indirect costs declined by 13% to £455 million.
· Impairments were £28 million lower due to lower customer defaults across all products, reflecting continued improvement in asset quality. Recoveries across personal and business banking continued to improve.
· Risk-weighted assets decreased by 3%, reflecting personal unsecured balance reductions partly offset by mortgage balance growth.
Q2 2014 compared with Q2 2013
· Operating profit increased by 81% to £484 million, with restructuring, litigation and conduct costs down £50 million to £179 million. Adjusted operating profit increased by 33% to £663 million, with income up 4% and expenses, excluding restructuring and litigation and conduct costs, down 5%. Impairments also improved, halving to £60 million.
· Net interest income increased by 3% to £1,152 million, driven by strong deposit income with balance growth of 4% and improved margins.
· Non-interest income increased by 8% to £347 million, benefiting from higher current account-related fee income and higher insurance profit share.
· Direct costs of £321 million were 3% lower, with staff cost benefits from lower headcount. Indirect costs were down 6%.
· Impairments decreased by 52%, to £60 million, reflecting improvements in the quality of the book and continued strong recoveries across UK PBB.
Ulster Bank
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Income statement
Net interest income 323 302 169 154 152
Net fees and commissions 66 69 34 32 35
Other non-interest income 23 73 8 15 53
Non-interest income 89 142 42 47 88
Total income 412 444 211 201 240
Direct expenses
- staff costs (125) (124) (62) (63) (67)
- other costs (35) (27) (18) (17) (12)
Indirect expenses (126) (125) (63) (63) (65)
Restructuring costs
- direct 8 (15) 8 - (14)
- indirect (22) (6) (20) (2) (4)
Litigation and conduct costs - (25) - - (25)
Operating expenses (300) (322) (155) (145) (187)
Profit before impairment losses 112 122 56 56 53
Impairment losses (57) (503) (10) (47) (263)
Operating profit/(loss) 55 (381) 46 9 (210)
Operating profit/(loss) - adjusted (1) 69 (335) 58 11 (167)
Note:
(1) Excluding restructuring costs and litigation and conduct costs.
Ulster Bank
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
£m £m £m £m £m
Analysis of income by business
Corporate 134 170 65 69 88
Retail 190 209 100 90 120
Other 88 65 46 42 32
Total income 412 444 211 201 240
Analysis of impairments by sector
Mortgages 35 181 16 19 91
Commercial real estate
- investment 9 97 1 8 51
- development (6) 26 (3) (3) 12
Other corporate 8 186 (9) 17 111
Other lending 11 13 5 6 (2)
Total impairment losses 57 503 10 47 263
Loan impairment charge as % of gross
customer loans and advances (excluding
reverse repurchase agreements) by sector
Mortgages 0.4% 1.8% 0.4% 0.4% 1.8%
Commercial real estate
- investment 1.8% 5.4% 0.4% 3.2% 5.7%
- development (3.0%) 7.4% (3.0%) (3.0%) 6.9%
Other corporate 0.3% 5.0% (0.7%) 1.3% 5.9%
Other lending 2.2% 2.0% 2.0% 2.4% (0.6%)
Total 0.4% 3.1% 0.2% 0.7% 3.2%
Key metrics
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2014 2013 2014 2014 2013
Performance ratios
Return on equity (1) 2.7% (14.9%) 4.6% 0.9% (16.8%)
Return on equity - adjusted (1,2) 3.4% (13.1%) 5.8% 1.1% (13.4%)
Net interest margin 2.32% 1.82% 2.35% 2.29% 1.84%
Cost:income ratio 73% 73% 73% 72% 78%
Cost:income ratio - adjusted (2) 69% 62% 68% 71% 60%
Notes:
(1) Return on equity is based on segmental operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs).
(2) Excluding restructuring costs and litigation and conduct costs.
Ulster Bank
30 June 31 March 31 December
2014 2014 2013
£bn £bn Change £bn Change
Capital and balance sheet
Loans and advances to customers (gross)
Mortgages 18.1 18.8 (4%) 19.0 (5%)
Commercial real estate
- investment 1.0 1.0 - 3.4 (71%)
- development 0.4 0.4 - 0.7 (43%)
Other corporate 5.2 5.4 (4%) 7.1 (27%)
Other lending 1.0 1.0 - 1.2 (17%)
25.7 26.6 (3%) 31.4 (18%)
Loan impairment provisions (3.3) (3.4) (3%) (5.4) (39%)
Net loans and advances to customers 22.4 23.2 (3%) 26.0 (14%)
Funded assets 26.6 26.0 2% 28.0 (5%)
Risk elements in lending
- Mortgages 3.3 3.1 6% 3.2 3%
- Commercial real estate
- investment 0.3 0.3 - 2.3 (87%)
- development 0.2 0.2 - 0.5 (60%)
- Other corporate 0.9 0.9 - 2.3 (61%)
- Other lending 0.2 0.2 - 0.2 -
Total risk elements in lending 4.9 4.7 4% 8.5 (42%)
Provision coverage (1) 68% 72% (400bp) 64% 400bp
Customer deposits 20.7 21.1 (2%) 21.7 (5%)
Loan:deposit ratio (excluding repos) 108% 110% (200bp) 120% (1,200bp)
Risk-weighted assets (2)
- Credit risk
- non-counterparty 26.0 26.7 (3%) 28.2 (8%)
- counterparty 0.1 0.3 (67%) 0.3 (67%)
- Market risk 0.1 0.2 (50%) 0.5 (80%)
- Operational risk 1.5 1.5 - 1.7 (12%)
Risk-weighted assets 27.7 28.7 (3%) 30.7 (10%)
Spot exchange rate - E/£ 1.25 1.21 1.20
Notes:
(1) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(2) Risk-weighted assets at 31 December 2013 are on a Basel 2.5 basis.
Ulster Bank
Key points
Ulster Bank returned to profitability in H1 2014, the first half-yearly profit recorded since 2008. The macroeconomic
environment across the island of Ireland has stabilised considerably but trading conditions continue to be volatile and the
regulatory environment remains challenging.
Key financial highlights:
· The transfer of assets to RCR coupled with the benefits of the investment in programmes to support customers in financial difficulty has driven a significant reduction in impairment losses.
· Lending activity has increased in 2014, albeit repayments continue to exceed new lending.
· Net interest margin has improved reflecting a strong focus on reducing the overall cost of funding for Ulster Bank.
· Tight management of expenses remains a key priority; however the investment required to address legacy issues remains significant.
· The right-sizing of the branch network and rationalising of the property footprint is progressing.
· The number of mortgage customers more than 90 days in arrears has declined in each of the last 15 months, a trend not seen elsewhere in the market. This reflects the investment made to support customers in financial difficulty.
Further progress was made in H1 2014 to make it simple and easy for customers to do business:
· There has been a significant increase in new lending activity following the launch of the big YES mortgage campaign and 'Ahead for Business' campaign. New mortgage lending increased by 44% compared with the same period in 2013 while over £650 million of new lending has been made available to business customers.
· Customers have continued to move towards direct channels with 86% of all activity now outside the traditional branch.
· The separation of Ulster Bank batch processing from NatWest and RBS brands was successfully delivered in H1 2014. This significantly reduces the risk of disruption to customers.
The creation of RCR resulted in the net transfer of £4.4 billion of gross assets to RCR on 1 January 2014. This has had a
significant impact on the comparison of 2014 financial performance with that reported in 2013.
H1 2014 compared with H1 2013
· Ulster Bank posted an operating profit of £55 million for H1 2014, compared with a loss of £381 million in H1 2013, with the improvement primarily driven by a significant reduction in impairment losses across all portfolios. Adjusted operating profit was £69 million for H1 2014, compared with a loss of £335 million for H1 2013.
· Net interest margin increased by 50 basis points to 2.32% primarily reflecting a significant reduction in deposit pricing coupled with the impact of the transfer of underperforming assets to RCR. Net interest income increased by £21 million with the benefit of deposit repricing partly offset by lower income on the tracker mortgage book following reductions in the European Central Bank refinancing interest rate.
· Non-interest income decreased by £53 million primarily due to a favourable mark-to-market movement of £36 million on economic hedges on the mortgage portfolio in H1 2013 as well as the impact of the asset transfer to RCR.
Ulster Bank
Key points (continued)
H1 2014 compared with H1 2013 (continued)
· Expenses decreased by £22 million reflecting lower headcount and a £32 million reduction in restructuring, litigation and conduct costs, only partly offset by the impact of a cost realignment following the creation of RCR, £22 million, and the introduction of the new bank levy in the Republic of Ireland, £8 million.
· Impairment losses decreased by £446 million or 89% with reductions across all portfolios. This reflects further de-risking of the balance sheet following the transfer of underperforming assets to RCR and the benefit of the ongoing reduction in mortgage arrears.
· The loan:deposit ratio of 108% improved by 12 percentage points during H1 2014, largely reflecting the impact of the transfer of loan balances to RCR.
Q2 2014 compared with Q1 2014
· Operating profit increased by £37 million to £46 million driven by higher income and a further reduction in impairment losses, partly offset by higher restructuring costs. Adjusted operating profit was up £47 million to £58 million.
· Total income increased by £10 million to £211 million. Net interest income increased by £15 million, to £169 million, reflecting lower funding costs and the recognition of interest income on previously non-performing assets. Net interest margin increased by 6 basis points to 2.35%.
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