REG - Royal Bk Scot.Grp. - Half Yearly Report: Part 2 <Origin Href="QuoteRef">RBS.L</Origin> - Part 3
30/07/2015 07:10
- Part 3: For the preceding part double click ID:nRSd5088Ub
68 20.8 (1,067) 2,750
Manufacturing 22,035 461 322 2.1 70 1.5 (26) 188
Finance leases (1) 14,030 156 113 1.1 72 0.8 - 75
Retail, wholesale and repairs 18,498 956 645 5.2 67 3.5 106 160
Transport and storage 14,299 1,146 500 8.0 44 3.5 37 211
Health, education and leisure 15,932 734 366 4.6 50 2.3 9 349
Hotels and restaurants 7,969 1,094 574 13.7 52 7.2 (40) 109
Utilities 4,825 156 85 3.2 54 1.8 16 5
Other 29,593 1,519 1,208 5.1 80 4.1 (10) 349
Latent - - 1,316 - - - (676) -
Customers 412,801 28,177 18,000 6.8 64 4.4 (1,160) 5,269
Geographic regional analysis
UK - residential mortgages 113,521 1,394 191 1.2 14 0.2 (23) 76
- personal lending 15,923 1,674 1,452 10.5 87 9.1 290 546
- property 37,547 6,026 3,676 16.0 61 9.8 (221) 1,917
- construction 4,098 676 361 16.5 53 8.8 (1) 175
- other 113,782 3,287 2,467 2.9 75 2.2 (146) 847
Total 284,871 13,057 8,147 4.6 62 2.9 (101) 3,561
Europe - residential mortgages 15,629 3,268 1,178 20.9 36 7.5 (10) 10
- personal lending 1,051 76 66 7.2 87 6.3 9 66
- property 8,021 6,907 5,197 86.1 75 64.8 (862) 699
- construction 1,055 289 245 27.4 85 23.2 78 24
- other 19,104 2,860 2,361 15.0 83 12.4 (440) 561
Total 44,860 13,400 9,047 29.9 68 20.2 (1,225) 1,360
US - residential mortgages
- residential mortgages 21,203 957 150 4.5 16 0.7 69 150
- personal lending 11,164 195 49 1.7 25 0.4 102 125
- property 5,332 64 19 1.2 30 0.4 2 7
- construction 413 1 1 0.2 100 0.2 - 1
- other 31,338 200 342 0.6 171 1.1 1 39
Total 69,450 1,417 561 2.0 40 0.8 174 322
RoW - residential mortgages 219 15 2 6.8 13 0.9 - -
- personal lending 1,017 19 18 1.9 95 1.8 - -
- property 646 24 26 3.7 108 4.0 (2) 2
- construction 91 5 5 5.5 100 5.5 (1) 2
- other 11,647 240 194 2.1 81 1.7 (5) 22
Total 13,620 303 245 2.2 81 1.8 (8) 26
Customers 412,801 28,177 18,000 6.8 64 4.4 (1,160) 5,269
Banks 24,812 42 40 0.2 95 0.2 (10) 9
Note:
(1) Includes instalment credit.
Appendix 1 Capital and risk management
Debt securities
The table below shows debt securities by issuer, IFRS measurement classifications and external rating. Ratings are based on
the lowest of Standard & Poor's, Moody's and Fitch. US central and local government includes US federal agencies. The other
financial institutions category includes US government-sponsored agencies and securitisation entities, the latter
principally relating to asset-backed securities (ABS).
Central and local government Banks Other Corporate Total
financial Of which
UK US Other institutions ABS
30 June 2015 £m £m £m £m £m £m £m £m
Held-for-trading (HFT) 4,352 4,624 23,129 1,446 5,100 825 39,476 982
Designated as at fair value - - 109 - 1 - 110 -
Available-for-sale (AFS) 7,021 12,631 10,721 1,916 13,506 147 45,942 18,937
Loans and receivables - - - 249 2,541 122 2,912 2,496
Held-to-maturity (HTM) 4,932 - - - - - 4,932 -
Long positions 16,305 17,255 33,959 3,611 21,148 1,094 93,372 22,415
AAA - 6 9,366 1,867 5,827 - 17,066 4,707
AA to AA+ 16,305 17,249 10,695 422 9,997 101 54,769 15,037
A to AA- - - 9,204 1,058 2,303 198 12,763 476
BBB- to A- - - 4,537 64 828 247 5,676 434
Non-investment grade - - 157 49 1,045 514 1,765 862
Unrated - - - 151 1,148 34 1,333 899
16,305 17,255 33,959 3,611 21,148 1,094 93,372 22,415
Of which US agencies - 6,945 - - 8,077 - 15,022 14,202
Short positions (HFT) (6,104) (4,897) (12,123) (531) (736) (163) (24,554) -
Available-for-sale
Gross unrealised gains 353 185 290 6 266 6 1,106 286
Gross unrealised losses (9) (151) (10) (1) (131) (1) (303) (213)
31 December 2014
Held-for-trading 6,218 7,709 24,451 1,499 7,372 1,977 49,226 3,559
Designated as at fair value - - 111 2 4 - 117 -
Available-for-sale 4,747 11,011 11,058 3,404 14,585 161 44,966 18,884
Loans and receivables - - - 185 2,774 137 3,096 2,734
Held-to-maturity 4,537 - - - - - 4,537 -
Long positions 15,502 18,720 35,620 5,090 24,735 2,275 101,942 25,177
AAA - 6 15,533 1,319 6,086 77 23,021 4,762
AA to AA+ 15,502 18,714 9,879 283 12,215 117 56,710 16,956
A to AA- - - 4,958 2,670 2,534 340 10,502 688
BBB- to A- - - 4,822 277 1,184 772 7,055 853
Non-investment grade - - 331 61 1,247 603 2,242 1,060
Unrated - - 97 480 1,469 366 2,412 858
15,502 18,720 35,620 5,090 24,735 2,275 101,942 25,177
Of which US agencies - 6,222 - - 10,860 - 17,082 16,053
Short positions (HFT) (4,167) (6,413) (10,276) (557) (674) (731) (22,818) -
Available-for-sale
Gross unrealised gains 451 210 541 8 361 6 1,577 389
Gross unrealised losses (1) (117) (3) (1) (158) (2) (282) (257)
Appendix 1 Capital and risk management
Debt securities (continued)
Key points
· HFT: Holdings of government and ABS decreased, principally in US bonds, following continuing exits from US asset-backed products business, focus on balance sheet and RWA reduction and risk mitigation. The decrease in other government bonds was driven by a
decrease in Germany as bund yields reached historic lows in Q1 2015, largely offset by higher Japanese treasury bills, reflecting favourable rates, used for collateral upgrades. The increase in short positions (largely Italy, Germany and Spain) reflected
hedging of reverse repo collateral following liquidity concerns and uncertainty around Greece. The increase in UK government short positions reflected positioning ahead of expected interest rate rise.
· AFS: Holdings of UK and US government bonds increased due to purchases by Treasury reflecting liquidity portfolio mix management and price optimisation. CFG switched from asset-backed securities to US government bonds as part of RWA and liquidity coverage
ratio management.
· Market concerns and consequent lower bond prices resulted in lower gross unrealised gains and higher gross unrealised losses relating to AFS debt securities. Lower gains also reflected sales and redemptions in Treasury.
Derivatives
The table below shows derivatives by type of contract. The master netting agreements and collateral shown below do not
result in a net presentation on the balance sheet under IFRS.
30 June 2015 31 December 2014
Notional (1) Assets Liabilities Notional (1) Assets Liabilities
£bn £m £m £bn £m £m
Interest rate (2) 20,123 216,983 204,738 27,331 269,912 259,971
Exchange rate 4,196 61,566 65,228 4,675 78,707 83,781
Credit 100 1,704 1,681 125 2,254 2,615
Equity and commodity 60 2,032 2,133 78 3,119 3,582
282,285 273,780 353,992 349,949
Counterparty mark-to-market netting (228,780) (228,780) (295,315) (295,315)
Cash collateral (28,295) (25,627) (33,272) (30,203)
Securities collateral (6,999) (8,299) (7,013) (14,437)
Net exposure 18,211 11,074 18,392 9,994
Net exposure by sector
Banks 1,357 2,065 1,875 1,534
Other financial institutions 6,205 5,313 4,035 3,721
Corporate 9,820 3,585 11,186 4,382
Government 829 111 1,296 357
18,211 11,074 18,392 9,994
Net exposure by region of counterparty
UK 9,708 4,524 9,037 3,233
Europe 4,818 2,395 5,628 3,521
US 1,344 1,867 1,544 1,280
RoW 2,341 2,288 2,183 1,960
18,211 11,074 18,392 9,994
Notes:
(1) Includes exchange traded contracts of £2,620 billion (31 December 2014 - £2,436 billion) principally interest rate. Trades are generally closed out daily hence carrying values were insignificant; assets £3 million (31 December 2014 - £8 million); liabilities £81 million (31 December 2014 - £119 million).
(2) Interest rate notional includes £12,007 billion (31 December 2014 - £18,452 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.
Appendix 1 Capital and risk management
Derivatives (continued)
Key points
· Over-the-counter derivative notionals reduced from £29.8 trillion to £21.9 trillion in the six months to 30 June 2015 reflecting active participation in trade compression cycles, as well as targeted bilateral tear-ups.
· The carrying value of derivative assets and liabilities at 30 June 2015 have been materially impacted by changes in market rates:
○ Interest rate contracts: Fair values decreased by approximately 20% in the first half of 2015 due to an upward shift in yields, based on the expectation of interest rate rises in the US and UK. Eurozone yields also increased following favourable economic outlook.
○ Foreign exchange contracts: Fair value decreases from targeted tear-ups and risk reductions have more than offset the impact of US dollar strengthening against the euro (9%) and Japanese yen (3%).
○ Credit derivatives: fair values decreased despite widening credit spreads due to Greek debt crisis concerns as RBS continued to de-risk the credit default swap portfolio.
Appendix 1 Capital and risk management
Key loan portfolios*
The internal measure used for credit risk management is credit risk assets (CRA) and consists of lending, derivatives after
the effect of enforceable netting arrangements and contingent obligations.
The table below summarises CRA by sector and geographic region.
30 June 2015 Wholesale
Banks and Natural Retail and Of which:
Personal other FIs Sovereign Property resources leisure Other Total RCR
£m £m £m £m £m £m £m £m £m
UK 130,302 25,382 50,922 39,438 8,099 14,618 40,062 308,823 7,168
Western Europe (excl. UK) 15,113 33,644 11,025 7,523 3,232 2,418 11,485 84,440 6,241
North America 33,113 12,779 22,465 7,308 5,057 5,945 19,892 106,559 556
RoW (1) 3,383 9,916 3,599 1,511 3,703 597 11,933 34,642 2,936
Total 181,911 81,721 88,011 55,780 20,091 23,578 83,372 534,464 16,901
of which: RCR 90 2,621 30 7,458 2,746 796 3,160 16,901 n/a
Flow into forbearance (2) 1,625 88 - 1,934 412 454 902 5,415 1,420
of which: RCR - 11 - 1,060 36 145 168 1,420 n/a
AQ10 7,477 715 1 8,003 258 1,278 2,397 20,129 7,662
of which: RCR 75 304 - 5,540 150 483 1,110 7,662 n/a
31 December 2014
UK 129,091 27,560 45,308 44,401 7,825 15,539 40,199 309,923 11,579
Western Europe (excl. UK) 16,802 37,156 6,855 11,858 4,030 3,221 13,162 93,084 12,159
North America 32,449 13,367 27,162 6,846 7,070 5,736 21,642 114,272 851
RoW (1) 2,406 13,406 3,039 1,875 5,685 1,188 17,187 44,786 5,061
Total 180,748 91,489 82,364 64,980 24,610 25,684 92,190 562,065 29,650
of which: RCR 203 3,587 536 14,819 2,910 1,828 5,767 29,650 n/a
Flow into forbearance (2) 4,350 60 - 5,416 377 984 1,956 13,143 4,839
of which: RCR - 29 - 3,551 28 535 696 4,839 n/a
AQ10 8,424 638 1 14,743 263 2,329 3,662 30,060 16,099
of which: RCR 182 423 - 11,886 112 1,355 2,141 16,099 n/a
Notes:
(1) Rest of World comprises Asia Pacific, Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.
(2) Completed during the period.
Key points
· The CRA decrease reflected a continued focus on risk reduction and improving overall credit quality.
· CRA decreased in all regions and sectors except sovereign where CRA increased by 7%, reflecting Treasury activity. UK CRA (excluding RCR) increased by 1%, in personal (mainly mortgage lending).
· For wholesale loans, the flow into forbearance decreased during H1 2015 compared with H2 2014 in line with improving market conditions and RCR's disposal strategy. Of the total forbearance granted, 54% related to non-performing loans with a provision coverage of 48% (2014 - 62%).
· The property sector remained the most significant contributor to the forborne portfolio. There was an increase in forbearance granted in the natural resources sector driven by counterparties in the oil and gas sector (refer to page 28 for further sector information).
· RCR is on track to complete its targeted run-down by the end of 2015, with CRA down by 43% to £16.9 billion. Non-performing exposures decreased significantly to £7.7 billion (2014 - £16.1 billion) driven by the disposal strategy and the improving economic climate.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios* (continued)
The following key portfolios are discussed in more detail: commercial real estate (within property); oil and gas (within
natural resources); shipping (within other); and personal portfolios.
Commercial real estate (CRE)
The CRE sector comprises exposures to entities involved in the development of, or investment in, commercial and residential
properties (including house builders). The analysis of lending below is gross of impairment provisions and excludes rate
risk management and contingent obligations
Investment Development
Commercial Residential Total Commercial Residential Total Total
By geography £m £m £m £m £m £m £m
30 June 2015
UK (excluding NI (1)) 15,959 4,351 20,310 541 3,393 3,934 24,244
Ireland (ROI and NI (1)) 1,519 312 1,831 614 2,022 2,636 4,467
Western Europe (other) 947 29 976 110 22 132 1,108
US 4,489 1,362 5,851 - 5 5 5,856
RoW (1) 415 16 431 41 249 290 721
23,329 6,070 29,399 1,306 5,691 6,997 36,396
31 December 2014
UK (excluding NI (1)) 17,327 4,757 22,084 600 3,446 4,046 26,130
Ireland (ROI and NI (1)) 2,864 740 3,604 1,499 4,469 5,968 9,572
Western Europe (other) 1,222 53 1,275 189 24 213 1,488
US 4,063 1,358 5,421 - 59 59 5,480
RoW (1) 406 22 428 34 185 219 647
25,882 6,930 32,812 2,322 8,183 10,505 43,317
Note:
(1) ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.
Key points
· Overall gross CRE lending fell in the first half of 2015 mostly in RCR (£6.5 billion) due to asset sales, repayments, and write-offs.
· The RCR portfolio contains legacy CIB, Commercial Bank and Ulster Bank assets and now represents 17% of the total portfolio (2014 - 29%). Geographically, 57% (£3.5 billion) of the remaining RCR portfolio is located in Ireland (ROI and NI), with the UK (excluding NI) accounting for 28% (£1.7 billion) and the remainder (£1.0 billion) in Western Europe and the RoW.
· The reduction of the commercial investment UK sub-sector is almost entirely driven by reductions of £1.3 billion in RCR. RCR divestments in the development sub-sector have also led to the portfolio being more weighted towards the investment sub-sector.
· The increase in US exposure was predominantly driven by higher business volumes in CFG, in line with risk appetite and business strategy.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios*: Commercial real estate (continued)
RBS excluding RCR RCR Total
LTV ratio by value Non- Non- Non-
Performing performing Total Performing performing Total Performing performing Total
£m £m £m £m £m £m £m £m £m
30 June 2015
<= 50% 10,147 139 10,286 243 18 261 10,390 157 10,547
> 50% and <= 70% 8,500 249 8,749 387 87 474 8,887 336 9,223
> 70% and <= 90% 1,944 356 2,300 76 391 467 2,020 747 2,767
> 90% and <= 100% 374 106 480 79 42 121 453 148 601
> 100% and <= 110% 185 145 330 42 173 215 227 318 545
> 110% and <= 130% 174 156 330 29 385 414 203 541 744
> 130% and <= 150% 77 128 205 2 120 122 79 248 327
> 150% 331 410 741 44 1,582 1,626 375 1,992 2,367
Total with LTVs 21,732 1,689 23,421 902 2,798 3,700 22,634 4,487 27,121
Minimal security (1) 13 38 51 - 1,206 1,206 13 1,244 1,257
Other 6,316 420 6,736 16 1,266 1,282 6,332 1,686 8,018
Total 28,061 2,147 30,208 918 5,270 6,188 28,979 7,417 36,396
Total portfolio
average LTV (2) 56% 140% 62% 74% 287% 236% 56% 232% 85%
31 December 2014
<= 50% 9,833 220 10,053 300 45 345 10,133 265 10,398
> 50% and <= 70% 8,750 301 9,051 602 173 775 9,352 474 9,826
> 70% and <= 90% 2,285 409 2,694 220 554 774 2,505 963 3,468
> 90% and <= 100% 343 134 477 41 116 157 384 250 634
> 100% and <= 110% 168 148 316 56 211 267 224 359 583
> 110% and <= 130% 326 201 527 49 438 487 375 639 1,014
> 130% and <= 150% 135 128 263 6 404 410 141 532 673
> 150% 305 495 800 65 4,160 4,225 370 4,655 5,025
Total with LTVs 22,145 2,036 24,181 1,339 6,101 7,440 23,484 8,137 31,621
Minimal security (1) 33 38 71 - 3,168 3,168 33 3,206 3,239
Other 5,956 546 6,502 34 1,921 1,955 5,990 2,467 8,457
Total 28,134 2,620 30,754 1,373 11,190 12,563 29,507 13,810 43,317
Total portfolio
average LTV (2) 56% 133% 62% 75% 338% 291% 57% 287% 116%
Notes:
(1) Total portfolio average LTV is presented net of loans with minimal security given that the anticipated recovery rate is less than 10%. Provisions are marked against these loans where required to reflect the relevant asset quality and recovery profile.
(2) Weighted average by exposure.
Key points
· The reductions in the higher LTV bands occurred mostly in the RCR book originated by Ulster Bank, Commercial Banking and CIB, reflecting valuation improvements, reductions through repayments, asset sales and write-offs - principally for non-performing assets.
· Interest payable by customers on performing loans secured by investment property was covered 1.8x (2014 - 1. 6x) and 3.1x (2014 - 2.9x) within RCR and rest of RBS, respectively.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios* (continued)
Oil and gas
RBS's exposure to oil and gas sector in terms of CRA and total exposure (including committed but undrawn facilities), is
set out below.
30 June 2015 31 December 2014
CRA Total CRA Total
By segment £m £m £m £m
CIB 5,311 12,801 8,297 20,278
Commercial Banking 1,033 2,202 671 1,035
CFG 1,362 2,323 1,251 2,134
RCR 257 295 352 457
Others 63 200 101 243
8,026 17,821 10,672 24,147
The tables below provide a breakdown of CIB's oil and gas sector exposure which represents 72% of RBS's exposure to this
sector (including committed but undrawn exposure) split by sub-sector and geography. The analysis is based on RBS's sector
concentration framework.
Western
Europe North Asia Latin
UK (excl. UK) America America Pacific CEEMA (1) Total
30 June 2015 £m £m £m £m £m £m £m
Producers (incl. integrated oil companies) 285 903 2,129 231 118 594 4,260
Oilfield service providers 312 801 701 252 - 138 2,204
Other wholesale and trading activities 147 486 465 747 - 47 1,892
Refineries 1 102 2,022 287 21 6 2,439
Pipelines 1 372 1,542 36 - 55 2,006
746 2,664 6,859 1,553 139 840 12,801
Including committed undrawn exposures
Of which: exploration and production 5 43 1,131 99 43 - 1,321
31 December 2014
Producers (incl. integrated oil companies) 833 1,101 4,822 263 115 848 7,982
Oilfield service providers 153 675 1,007 742 - 535 3,112
Other wholesale and trading activities 295 794 683 907 - 122 2,801
Refineries 1 177 2,700 591 141 67 3,677
Pipelines 96 48 2,359 49 33 121 2,706
1,378 2,795 11,571 2,552 289 1,693 20,278
Including committed undrawn exposures
Of which: exploration and production 145 3 3,118 115 150 37 3,568
Note:
(1) Includes exposures to Central and Eastern Europe as well as the Middle East and Africa.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios*: Oil and gas(continued)
Key points
· Overall exposure decreased by £2.6 billion (CRA) and £6.3 billion (total exposure), in line with strategy as a result of active portfolio management and asset disposals, principally in CIB. The small increase in CPB reflected transfers from CIB.
· The price of crude oil recovered from a low of US$45 per barrel in January 2015 to US$61 per barrel at 30 June 2015. The price of natural gas is not highly correlated to oil prices and is determined regionally. US natural gas prices have been relatively stable compared with the recent price of crude oil.
· Exposures continue to be closely managed through ongoing customer and sub-sector reviews, and stress testing. Risk appetite was reduced during 2014 with further reductions in 2015 (in part due to asset disposals). Further stress analysis of the portfolio was carried out in 2015 and limits were again reduced with a continued focus on ensuring that the portfolio remains heavily weighted towards investment grade customers. As part of the bank's strategic review, limits for Americas and Asia-Pacific have been
significantly reduced.
· The sub-sector in which a customer operates is a primary consideration for assessing credit risk. Current areas of focus for stress testing and more active credit risk management include those customers involved in exploration and production (E&P) and oilfield service providers. E&P customers represent approximately 10% of CIB's exposure to the oil and gas sector.
· Customers involved in E&P are most immediately exposed to the oil price decline. At 30 June 2015, 97% of these were within the producers sub-sector. Companies involved in this area have already introduced capital spending reductions to conserve cash. In turn, this reduced spending is likely to have an adverse impact on oilfield service providers. This is due to the E&P companies buying less products and services from the oilfield service providers, and demanding lower prices for those they do purchase.
· The other principal components of CIB's exposure to producers are Integrated Oil Companies (IOCs) and National Oil Companies (NOCs). IOCs and NOCs are less vulnerable to the oil price decline due to scale, diversification and in the case of NOC, explicit support from governments.
· At 30 June 2015 78% (2014 - 83%) of the CIB total portfolio exposure was investment grade (AQ1-AQ4 or equivalent to BBB- and above).
· The committed lending exposure included legal commitments to syndicated bank facilities, with tenors up to five years. These committed facilities are for general corporate purposes - including funding operating needs and capital expenditures - and are available as long as counterparties comply with the terms of the credit agreement. Contingent obligations relate to guarantees, letters of credit and suretyships provided to customers.
· RBS had no high-yield bond or loan underwriting positions as at 30 June 2015 (2014 - US$86 million high-yield loan underwritings in the Americas).
· There has been a small number of forbearance events, usually involving the relaxation of financial covenants to give customers more financial flexibility. Most forbearance has involved customers in the E&P and oilfield services sub-sectors where earnings have been more immediately and materially impacted by the downturn.
· At 30 June 2015, Watchlist Red (performing customers who show signs of declining creditworthiness and so require active management) outside RCR totalled £310 million (2014 - £88 million), of which £98 million (2014 - £5 million) was managed by Restructuring.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios*
Shipping
RBS's exposure to the shipping sector is as follows:
30 June 31 December
2015 2014
By segment £m £m
CIB 6,338 6,700
RCR 1,463 2,855
Other 828 803
8,629 10,358
Key points
· Of the total exposure to shipping, £6.6 billion (2014 - £7.9 billion) related to asset-backed ocean-going vessels, the rest predominantly related to shipbuilding and inland water transport. The decrease during H1 2015 reflected scheduled loan repayments,
secondary sales and prepayments. £5.3 billion (2014 - £5.7 billion) of the asset-backed ocean-going vessel exposure was in CIB. The main concentration risks were in the dry bulk sector which represented 36% of our exposure (2014 - 38%); tankers at 27%
(2014 - 29%) and containers at 17% (2014 - 17%). The remaining exposures comprise gas (including liquid petroleum and natural gases), 11% (2014 - 10%) and others 7% (2014 - 6%).
· Conditions remained depressed in the bulk market during H1 2015 as a result of vessel oversupply and a slowdown in commodity demand from China. Tanker market conditions are currently favourable and container markets over the last 12 months have stabilised
but remain weak in comparison to historic averages. The container market is subject to oversupply on certain lines such as the Asia - Europe line and carriers are struggling to implement general freight rate rises as a result. Rates remain relatively
stable at present but downside risks exist over the next 12-18 months. The majority of the RBS portfolio is insulated by long-term charters, which provide more stable long-term fixed cash flows.
· The majority of ship-secured exposure is extended against recently-built vessels. Across the portfolio (including RCR) the average age of mortgaged vessels is 7.2 years (2014 - 6.4 years). Less than 3% of the core book is secured by vessels that are more
than 15 years old and around 82% (2014 - 87%) is secured by vessels built in the last ten years. Due to strategic considerations, RBS has significantly reduced commitments to new builds and, as a result, the average age of the portfolio has risen. RBS
continues to provide new lending against second-hand vessels and on some new-build deliveries.
· A key protection for RBS is the minimum security covenant. The overall loan-to-value (LTV) of the portfolio at 30 June 2015 was 84% (2014 - 77%) with RCR standing at 101% (2014 - 92%) and RBS excluding RCR at 79% (2014 - 73%). Amortisation across the
portfolio is approximately 7% per annum excluding early repayments. Asset values fall as markets deteriorate and rise as they improve. Therefore even if exposure falls, the overall LTV position may rise or fall depending on the underlying value of the
vessels. The dry bulk sub-sector has seen asset value reductions of around 20-30% in H1 2015 (15-20% in Q1 2015) with dry bulk market values dropping to a 30-year low in February 2015, which led to a rise in the average LTV.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios* (continued)
Personal portfolios
This section summarises personal portfolios by type, segment and related credit metrics.
Overview of personal portfolios split by product type and segment*
30 June 2015 31 December 2014
UK Ulster Private Commercial UK Ulster Private Commercial
PBB Bank Banking Banking (1) CFG Total PBB Bank Banking Banking (1) CFG Total
£m £m £m £m £m £m £m £m £m £m £m £m
Mortgages 105,407 15,935 6,521 2,504 20,540 150,907 103,235 17,506 6,414 2,475 21,122 150,752
Of which:
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