REG - Royal Bk Scot.Grp. - Half Yearly Report: Part 2 <Origin Href="QuoteRef">RBS.L</Origin> - Part 4
30/07/2015 07:10
- Part 4: For the preceding part double click ID:nRSd5088Uc
Interest only variable rate 14,397 987 3,944 823 9,138 29,289 15,165 1,238 3,952 858 9,637 30,850
Interest only fixed rate 9,683 24 1,574 36 286 11,603 9,122 25 1,520 27 292 10,986
Mixed (capital and interest only) 6,425 178 10 - 987 7,600 6,820 204 - - 788 7,812
Buy-to-let 12,886 1,896 403 822 140 16,147 11,602 2,091 538 850 147 15,228
Forbearance 4,465 3,557 48 42 403 8,515 4,873 3,880 51 49 409 9,262
Forbearance arrears status
- Current 3,823 2,168 47 36 330 6,404 4,158 2,231 51 40 310 6,790
- 1-3 months in arrears 330 624 1 3 19 977 364 689 - 3 34 1,090
- >3 months in arrears 312 765 - 3 54 1,134 351 960 - 6 65 1,382
Other lending 11,724 517 4,582 84 12,174 29,081 12,335 591 5,108 78 10,924 29,036
Total lending 117,131 16,452 11,103 2,588 32,714 179,988 115,570 18,097 11,522 2,553 32,046 179,788
Mortgage LTV ratios
- Total portfolio 57% 89% 53% 62% 65% 61% 57% 92% 51% 51% 67% 62%
- New business 70% 77% 45% 65% 67% 67% 71% 75% 45% 56% 68% 68%
- Performing 57% 85% 53% 60% 65% 61% 57% 88% 51% 51% 67% 61%
- Non-performing 66% 114% 76% 172% 69% 89% 67% 115% 79% 81% 73% 91%
Mortgage REIL 1,058 2,887 26 65 912 4,948 1,218 3,362 95 1 946 5,622
Note:
(1) Relates to Royal Bank of Scotland International (RBSI) business.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key points*
UK PBB
· The UK PBB personal mortgage portfolio increased by 2.1% to £105.4 billion, of which £92.5 billion (31 December 2014 - £91.6 billion) was owner occupied and £12.9 billion (31 December 2014 - £11.6 billion) was buy-to-let. Of the total portfolio approximately £26 billion related to properties in the south east of England, while £19 billion related to properties in Greater London.
· Gross new mortgage lending amounted to £9.1 billion in H1 2015 with an average LTV by weighted value of 70.4% (2014 - 70.5%). Lending to owner-occupiers during this period was £7.5 billion (2014 - £16.6 billion) and had an average LTV by weighted value of 71.5% (2014 - 71.7%). Buy-to-let lending was £1.6 billion (2014 - £3.1 billion) with an average LTV by weighted value of 65.1% (2014 - 63.9%).
· Based on the Halifax House Price Index at March 2015, the portfolio average indexed LTV by volume was 50.4% (2014 - 50.4%) and 57.4% by weighted value of debt outstanding (2014 - 57.3%).
· Fixed interest rate products of varying time durations accounted for approximately 60% of the mortgage portfolio with 3% a combination of fixed and variable rates and the remainder variable rate. Approximately 17% of owner-occupied mortgages were on interest-only terms with a bullet repayment and 7% were on a combination of interest-only and capital and interest. The remainder were capital and interest. 63% of the buy-to-let mortgages were on interest-only terms and 3% on a combination of interest only and
capital and interest.
· The arrears rate fell from 1.0% in December 2014 to 0.9% at the end of June 2015. The number of properties repossessed in H1 2015 was also lower (338 compared with 472 in H2 2014). This reflected improvements in the UK economy and underlying asset quality
· The flow of new forbearance was £315 million in H1 2015 compared with £367 million in H2 2014. The value of mortgages subject to forbearance has decreased by 8% since the year end to £4.5 billion (equivalent to 4.2% of the total mortgage book) as a result of improved market conditions and methodology changes.
· There was an overall small release of impairment provision for personal mortgages in H1 2015 compared with a small charge in H1 2014. Reduced REIL balances and a fall in the instances of forborne mortgages drove the release in latent and PD90 provisions as well as lower LGDs.
Ulster Bank
· Ulster Bank's residential mortgage portfolio totalled £15.9 billion at 30 June 2015, with 86% in the Republic of Ireland and 14% in Northern Ireland. Excluding the impact of exchange rate movements, the portfolio decreased by 1.3% from 31 December 2014 as a result of amortisation a portion of which related to the tracker mortgage portfolio. The volume of new business has increased reflecting continuing market demand.
· The interest-rate product mix was approximately 63% of the mortgage portfolio on tracker-rate products, 23% on variable-rate products and 14% on fixed rate. Interest-only represented 6% of the total portfolio.
· The portfolio average indexed LTV decreased from 92% at 31 December 2014 to 89% at 30 June 2015 and reflected positive house price index trends over the last six months.
· At 30 June 2015, 22.3% of total mortgage assets (£3.6 billion) were subject to a forbearance arrangement, a decrease of 8.3% (£0.3 billion) from 31 December 2014. Excluding the impact of exchange rate movements, the value of mortgage assets subject to a forbearance arrangement has decreased by £276 million (4.8%).
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key points* (continued)
Ulster Bank (continued)
· The number of customers approaching Ulster Bank for the first time in respect to forbearance assistance declined through H1 2015. The majority (78%) of forbearance arrangements were less than 90 days in arrears.
· There was an overall release of impairment provisions for personal mortgages in H1 2015 compared with a charge in H1 2014. Reducing defaulted balances have reduced loss expectations driving collective and latent releases.
CFG
· The mortgage portfolio at 30 June 2015 consisted of £8 billion of residential mortgages (1% in second lien position) and £12.5 billion of home equity loans and lines of credit (HELOC) - first and second liens. Home equity consisted of 46% in first lien
position. A Serviced By Others (SBO) portfolio, which is predominantly (95%) second lien, is included in the home equity book. Excluding the effect of exchange rates, the portfolio decreased 2% from the 2014 year end as a result of contraction in HELOC and
run-off in the construction legacy serviced by others portfolios.
· CFG continued to focus on its footprint states of New England, Mid-Atlantic and the Mid-West. At 30 June 2015, £16.7 billion (81% of the total portfolio) was within footprint.
· The SBO portfolio, which was closed to new purchases in Q3 2007, decreased from £1.3 billion in Q1 2015 to £1.1 billion in Q2 2015.
· The overall mortgage portfolio credit characteristics are stable with a weighted average LTV of 65% at 30 June 2015. The weighted average LTV of the portfolio, excluding SBO, was 63%.
· CFG participates in the US-government mandated Home Affordable Modification Program (HAMP), as well as its own proprietary programme. The 12-month default rate, on a value basis, for customers who were granted forbearance, was 17.4% in H1 2015 (2014 -
15%). The increase in default rate was driven by a regulatory requirement to start tracking co-borrower bankruptcies. Additionally, many HAMP mortgages, which receive a below market rate for five years, began to reset at higher rates to adjust to the
market rate, increasing defaults.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Market risk
Market risk is the risk of losses arising from fluctuations in interest rates, credit spreads, foreign currency rates,
equity prices, commodity prices and other factors, such as market volatilities, that may lead to a reduction in earnings,
economic value or both. For a description of market risk framework, governance, policies and methodologies, refer to
Capital and risk management - Market risk in the 2014 Annual Report and Accounts. There were no material changes to market
risk methodologies or models during H1 2015.
Trading portfolios
Value-at-risk
The table below presents the internal value-at-risk (VaR) for trading portfolios split by type of market risk exposure and
by business area. The internal traded 99% one-day VaR captures all trading book positions. By contrast, the regulatory
VaR-based charges take into account only regulator-approved products, locations and legal entities and are based on a
ten-day, rather than a one-day, holding period for market risk capital calculations.
Half year ended Year ended
30 June 2015 30 June 2014 31 December 2014
Average Period end Maximum Minimum Average Period end Maximum Minimum Average Period end Maximum Minimum
Trading VaR (1-day 99%) £m £m £m £m £m £m £m £m £m £m £m £m
Interest rate 16.0 11.7 29.8 10.8 16.7 14.9 39.8 10.9 17.4 16.9 39.8 10.8
Credit spread 12.5 7.6 16.4 7.5 28.3 24.4 42.8 20.9 23.1 14.2 42.8 13.4
Currency 5.3 5.4 7.8 3.3 5.4 3.0 8.5 2.0 4.7 5.5 9.7 1.0
Equity 2.4 1.2 6.1 1.0 3.5 2.5 6.0 2.1 3.0 3.7 6.5 1.2
Commodity 0.5 0.7 2.2 0.2 0.6 0.7 1.4 0.3 0.6 0.4 2.5 0.3
Diversification (1) (11.6) (24.8) (18.2)
Total 21.8 15.0 30.1 15.0 30.6 20.7 58.2 20.7 27.8 22.5 58.2 17.1
CIB 21.1 14.2 29.8 14.0 28.2 21.3 48.8 20.5 26.3 21.3 48.8 15.5
RCR 3.1 2.8 4.5 2.6 6.0 3.5 16.2 3.3 4.5 3.0 16.2 2.6
Note:
(1) RBS benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
Key points
· During H1 2015, trading book exposure continued to decline. The markets exhibited higher volatility and reduced liquidity, resulting from a number of macroeconomic factors, including ongoing political and economic uncertainty in Europe and growing concerns regarding economic slowdown in China.
· The period end and average total traded internal VaR were lower than in 2014, primarily in credit spread VaR resulting from the ongoing exit of the US asset-backed products (ABP) trading business.
Appendix 1 Capital and risk management
Trading portfolios (continued)
Capital charges*
The total market risk minimum capital requirement calculated in accordance with CRR was £1,786 million at 30 June 2015 (31
December 2014 - £1,917 million), representing RWAs of £22.3 billion (31 December 2014 - £24.0 billion). It comprised two
categories: (i) the Pillar 1 model-based position risk requirement (PRR) of £1,497 million (31 December 2014 - £1,458
million), which in turn comprised several modelled charges; and (ii) the standardised PRR of £289 million (31 December 2014
- £459 million), which also had several components.
The components of the Pillar 1 model-based PRR are presented in the table below.
31 December
2014
Average Maximum Minimum Period end Period end
30 June 2015 £m £m £m £m £m
Value-at-risk 362 400 333 400 329
Stressed VaR (SVaR) 527 555 492 555 511
Incremental risk charge (IRC) 294 348 271 288 299
Risk not in VaR (RNIV) 284 319 227 254 319
1,497 1,458
Key points
· The total model-based PRR increased by 3% in the half year to 30 June 2015, driven by higher VaR and SVaR based capital charges, offset somewhat by the lower RNIV capital charge.
· The VaR and SVaR capital charges together increased by 14%, reflecting increased positioning by the rates business during Q2 2015, notably relating to euro rates, following market euro sell-off in May.
· The RNIV charge fell by 20%, primarily in stressed RNIVs following reductions in inflation basis risk in the rates business.
· Standardised charges were 37% or £170 million lower than at the 2014 year end, primarily driven by reduced securitisation exposures in the trading book reflecting the continuation of the US ABP exit, UK ABP risk reduction and the continuation of RCR disposals.
· All entities maintained a green status relating to regulatory back-testing during H1 2015 except for NatWest Plc, which had six exceptions during the 250 business days ending 30 June 2015, mainly driven by market volatility. This resulted in a £49 million increase to market risk RWAs.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Non-trading portfolios
Non-trading VaR
Average VaR for RBS's non-trading book, comprising predominantly available-for-sale portfolios, was £2.9 million for H1
2015 compared with £4.8 million for H1 2014 and £4.4 million for H2 2014. This was largely driven by a decline in the
credit spread VaR as a result of the ongoing RCR run-down. The period end VaR decreased from £3.8 million at 31 December
2014 to £2.0 million at 30 June 2015.
Non-traded interest rate risk
Non-traded interest rate risk affects earnings arising from banking activities. This excludes positions in financial
instruments which are classified as held-for-trading. The methodology relating to interest rate risk is detailed in Capital
and risk management - Market risk - Non-traded market risk in the 2014 Annual Report and Accounts.
Non-traded interest rate risk VaR metrics are based on interest rate repricing gaps at the reporting date. The table below
captures the risk resulting from mismatches in the repricing dates of assets and liabilities. This includes any mismatch
between structural hedges and stable non and low interest bearing liabilities such as equity and money transmission
accounts as regards their interest rate repricing behavioural profile. Other customer products and associated funding and
hedging transactions as well as non-financial assets and liabilities such as property, plant and equipment are also
included.
VaR does not provide a dynamic measurement of interest rate risk since static underlying repricing gap positions are
assumed. Changes in customer behaviour under varying interest rate scenarios are captured by way of earnings at risk
measures. VaR relating to non-traded interest rate risk for RBS's retail and commercial banking activities at a 99%
confidence level and a currency analysis at the period end were as follows:
Average Period end Maximum Minimum
Six months ended £m £m £m £m
30 June 2015 17 13 25 11
30 June 2014 64 68 79 45
31 December 2014 37 23 56 23
30 June 30 June 31 December
2015 2014 2014
£m £m £m
Euro 2 3 2
Sterling 13 8 12
US dollar 14 73 27
Other 4 3 3
Key point
· In H1 2015, interest rate VaR was lower on average than in 2014 as RBS continued to steer its structural interest rate exposure more closely to the neutral duration prescribed in its risk management policy. The reduction in the US dollar VaR reflects reduced exposure to US dollar fixed rate assets, which helped to achieve the alignment to policy.
Appendix 1 Capital and risk management
Non-trading portfolios (continued)
Sensitivity of net interest income*
Earnings sensitivity to rate movements is derived from a central forecast over a 12 month period. Market implied forward
rates and new business volume, mix and pricing consistent with business assumptions are used to generate a base case
earnings forecast, which is then subjected to interest rate shocks. The variance between the central forecast and the shock
gives an indication of sensitivity to interest rate movements.
The following table shows the sensitivity of net interest income, over the next 12 months, to an immediate upward or
downward change of 100 basis points to all interest rates. The main drivers of earnings sensitivity relate to interest rate
pass-through assumptions on customer products, reinvestment rate assumptions for maturing product and equity structural
hedges and mismatches in the re-pricing dates of loans and deposits. In addition, the table includes the impact of a
gradual 400 basis point steepening (bear steepener) and a gradual 300 basis point flattening (bull flattener) of the yield
curve at tenors greater than a year.
The scenarios represent annualised interest rate stresses of a scale deemed sufficient to trigger a modification in
customer behaviour. The asymmetry in the steepening and flattening scenarios reflects the difference in the expected
behaviour of interest rates as they approach zero.
Of which
Euro Sterling US dollar Other Total CFG
30 June 2015 £m £m £m £m £m £m
+ 100 basis point shift in yield curves 7 365 135 12 519 155
- 100 basis point shift in yield curves (9) (397) (109) (30) (545) (104)
Bear steepener 377 112
Bull flattener (130) (85)
31 December 2014
+ 100 basis point shift in yield curves (28) 347 214 (17) 516 154
- 100 basis point shift in yield curves (34) (298) (87) (12) (431) (85)
Bear steepener 406 105
Bull flattener (116) (58)
Key points
· Excluding Citizens, £258 million of the benefit of the immediate 100 basis point upward change in interest rates relates to interest rate pass-through assumptions on customer savings accounts.
· Earnings sensitivity for the downward change of 100 basis points increased from December 2014, due to higher interest rate expectations in the market for the next 12 months.
Structural hedging*
Banks generally have the benefit of a significant pool of stable, non and low interest bearing liabilities, principally
comprising equity and money transmission accounts. These balances, known as net free funds are usually hedged, either by
investing directly in longer-term fixed rate assets or by the use of interest rate swaps, in order to provide a consistent
and predictable revenue stream.
After hedging the net interest rate exposure of the bank externally, Treasury allocates income to products or equity in
structural hedges by reference to the relevant interest rate swap curve. Over time, the hedging programme has built up a
portfolio of interest rate swaps that provide a basis for stable income attribution to the product and equity hedges.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Non-trading portfolios (continued)
Product hedging*
Product structural hedges are used to reduce the volatility on earnings related to specific products, primarily customer
deposits. The balances are primarily hedged with medium-term interest rate swaps, so that reported income is less sensitive
to movements in short-term interest rates.
The table below shows the impact on net interest income associated with product hedges managed by Treasury. These relate to
the main UK banking businesses except Private Banking. The figures shown represent the incremental contribution of the
hedge relative to short-term wholesale cash rates.
Six months ended
Net interest income 30 June 30 June 31 December
2015 2014 2014
£m £m £m
Product hedges
UK Personal & Business Banking 210 184 209
Commercial Banking 101 81 99
Corporate & Institutional Banking 39 37 38
Total product hedges 350 302 346
Key points
· As short-term interest rates remained close to historically low levels in H1 2015, the incremental impact of product hedges relative to wholesale cash rates remained positive.
· In H1 2015, the all-in yield was 1.5%, slightly lower than in H2 2014 (1.6%), due to low levels of interest rates, and similar to H1 2014 (1.5%).
Equity hedging*
Equity structural hedges are also used to reduce the volatility on earnings arising from returns on equity. The hedges
managed by Treasury relate mainly to the UK banking businesses and contributed £0.4 billion to these businesses in H1 2015
(H1 2014 and H2 2014 - £0.4 billion), which is an incremental benefit relative to short-term wholesale cash rates. In H1
2015, the all-in yield was 2.4%, slightly lower than in H1 2014 (2.6%) and H2 2014 (2.5%) due to the low levels of interest
rates.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Non-trading portfolios (continued)
Foreign exchange risk
The only material non-traded open currency positions are the structural foreign exchange exposures arising from investments
in foreign subsidiaries, branches and associates and their related currency funding. These exposures are assessed and
managed by Treasury to predefined risk appetite levels under delegated authority from the ALCo. Treasury seeks to limit the
potential volatility impact on RBS's CET1 ratio from exchange rate movements by maintaining a structural open currency
position. Gains or losses arising from the retranslation of net investments in overseas operations are recognised in equity
and reduce the sensitivity of capital ratios to foreign exchange rate movements primarily arising from the retranslation of
non-sterling-denominated RWAs. Sensitivity is minimised where, for a given currency, the ratio of the structural open
position to RWAs equals RBS's CET1 ratio. The sensitivity of the CET1 capital ratio to exchange rates is monitored monthly
and reported to the ALCo at least quarterly.
Foreign exchange exposures arising from customer transactions are sold down by businesses on a regular basis in line with
RBS policy.
Structural
Net assets foreign currency Residual
Net assets of overseas Net exposures structural
of overseas operations investment pre-economic Economic foreign currency
operations NCI (1) excluding NCI hedges hedges hedges (2) exposures
30 June 2015 £m £m £m £m £m £m £m
US dollar 11,302 (4,968) 6,334 (1,910) 4,424 (3,605) 819
Euro 5,210 (56) 5,154 (205) 4,949 (1,894) 3,055
Other non-sterling 3,962 (483) 3,479 (2,777) 702 - 702
20,474 (5,507) 14,967 (4,892) 10,075 (5,499) 4,576
31 December 2014
US dollar 11,402 (2,321) 9,081 (3,683) 5,398 (4,034) 1,364
Euro 6,076 (39) 6,037 (192) 5,845 (2,081) 3,764
Other non-sterling 4,178 (456) 3,722 (2,930) 792 - 792
21,656 (2,816) 18,840 (6,805) 12,035 (6,115) 5,920
Notes:
(1) Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners' equity, which consisted mainly of CFG in US dollar.
(2) Economic hedges mainly represent US dollar and euro preference shares in issue that are treated as equity under IFRS and do not qualify as hedges for accounting purposes.
Key points
· Structural foreign currency exposures before and after economic hedges were £2.0 billion and £1.3 billion respectively lower, mainly due to changes below:
○ Net assets of overseas operations declined by £1.2 billion, largely due to the strength of sterling against other currencies, especially the euro, which depreciated significantly during the period.
○ Non-controlling interests increased by £2.7 billion, mainly as a result of the partial disposal of Citizens during Q1 2015.
○ Net investment hedges decreased by £1.9 billion, mainly due to the partial disposal of Citizens, partly offset by an increase in the hedging of the remaining Citizens holdings.
· Economic hedges, which consist of equity capital securities in issue, decreased by £0.6 billion reflecting redemptions of certain equity securities during Q1 2015.
· A 5% strengthening in foreign currencies against sterling would result in a gain or loss of £0.5 billion in equity (2014 - £0.6 billion).
Appendix 1 Capital and risk management
Country risk
Country risk is the risk of losses occurring as a result of either a country event or unfavourable country operating
conditions. As country events may simultaneously affect all or many individual exposures to a country, country event risk
is a concentration risk. Refer to Capital and risk management - Credit risk in the 2014 Annual Report and Accounts for
other types of concentration risk such as product, sector or single-name concentration and Country risk for governance,
monitoring, management and definitions.
Key points*
The comments below relate to changes in country exposures in H1 2015 unless indicated otherwise.
● Net balance sheet and off-balance sheet exposure to most countries declined across most products. RBS continues to maintain a cautious stance as it becomes a more UK-centred bank with an international focus on Western Europe. In addition, many clients continued to reduce debt levels. The US dollar and the euro depreciated against sterling by 0.7% and 8.9% respectively, contributing to the decline in exposure. ● Total eurozone net balance sheet exposure decreased by £12.0 billion or 12%, to £85.6 billion.
○ The depreciation of the euro played a significant role in the reduction. ○ The main reductions were in HFT government bonds in Germany, Italy and Spain; in derivatives exposure (mostly to banks) in the Netherlands, Italy and Germany; and in lending in Ireland, Italy and Spain. ○ Notional bought and sold credit default swaps (CDS) continued its downward trend in line with the bank's general reduction in trading. Net bought CDS protection on eurozone exposures was broadly unchanged. ○ Net lending in RCR
roughly halved to £2.0 billion for the eurozone as a whole, including £0.8 billion in Ireland and £0.5 billion in Spain, with CRE accounting for broadly half of the total. ● Eurozone periphery net balance sheet exposure decreased by £7.4 billion or 24%, to £24.0 billion. ○ Ireland - exposure fell by £2.5 billion or 11% to £20.2 billion, with exposure to corporates and households (mostly mortgage lending) decreasing by £1.5 billion each, largely reflecting currency movements and portfolio sales in RCR.
Provisions fell by £3.3 billion to £5.1 billion, largely as a result of these sales. Ulster Bank's cash deposits with the Central Bank of Ireland increased by £0.7 billion, again reflecting the proceeds of the RCR portfolio sales. ○ Spain - exposure decreased by £1.2 billion to £2.1 billion. This largely reflected reductions in net HFT government bonds, the result of client demand and perceived peripheral eurozone risks triggered by the Greek crisis, and corporate lending (mostly RCR exposure to the
commercial real estate, construction and transport sectors). Off-balance sheet exposure, mostly to corporates, decreased by £0.5 billion. ○ Italy - exposure fell by £3.2 billion to £1.1 billion, reflecting reductions in net HFT government bonds, driven by client demand and eurozone risks, and the maturity of a few large derivatives transactions with banks and corporate loans. Off-balance sheet exposure, largely to corporate clients, decreased by £0.7 billion. RBS will continue to service core clients in
Italy. ○ Portugal - exposure decreased by £0.3 billion to £0.5 billion, due to decreases in net HFT government bonds, derivatives to banks and corporate lending.
●
Net balance sheet and off-balance sheet exposure to most countries declined across most products. RBS continues to maintain
a cautious stance as it becomes a more UK-centred bank with an international focus on Western Europe. In addition, many
clients continued to reduce debt levels. The US dollar and the euro depreciated against sterling by 0.7% and 8.9%
respectively, contributing to the decline in exposure.
●
Total eurozone net balance sheet exposure decreased by £12.0 billion or 12%, to £85.6 billion.
○
The depreciation of the euro played a significant role in the reduction.
○
The main reductions were in HFT government bonds in Germany, Italy and Spain; in derivatives exposure (mostly to banks) in
the Netherlands, Italy and Germany; and in lending in Ireland, Italy and Spain.
○
Notional bought and sold credit default swaps (CDS) continued its downward trend in line with the bank's general reduction
in trading. Net bought CDS protection on eurozone exposures was broadly unchanged.
○
Net lending in RCR roughly halved to £2.0 billion for the eurozone as a whole, including £0.8 billion in Ireland and £0.5
billion in Spain, with CRE accounting for broadly half of the total.
●
Eurozone periphery net balance sheet exposure decreased by £7.4 billion or 24%, to £24.0 billion.
○
Ireland - exposure fell by £2.5 billion or 11% to £20.2 billion, with exposure to corporates and households (mostly
mortgage lending) decreasing by £1.5 billion each, largely reflecting currency movements and portfolio sales in RCR.
Provisions fell by £3.3 billion to £5.1 billion, largely as a result of these sales. Ulster Bank's cash deposits with the
Central Bank of Ireland increased by £0.7 billion, again reflecting the proceeds of the RCR portfolio sales.
○
Spain - exposure decreased by £1.2 billion to £2.1 billion. This largely reflected reductions in net HFT government bonds,
the result of client demand and perceived peripheral eurozone risks triggered by the Greek crisis, and corporate lending
(mostly RCR exposure to the commercial real estate, construction and transport sectors). Off-balance sheet exposure, mostly
to corporates, decreased by £0.5 billion.
○
Italy - exposure fell by £3.2 billion to £1.1 billion, reflecting reductions in net HFT government bonds, driven by client
demand and eurozone risks, and the maturity of a few large derivatives transactions with banks and corporate loans.
Off-balance sheet exposure, largely to corporate clients, decreased by £0.7 billion. RBS will continue to service core
clients in Italy.
○
Portugal - exposure decreased by £0.3 billion to £0.5 billion, due to decreases in net HFT government bonds, derivatives to
banks and corporate lending.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key points* (continued)
○ Greece - net balance sheet exposure decreased to £110 million (down from £0.4 billion), mostly as a result of sales of derivatives positions. The remaining exposure comprised mostly lending and collateralised derivatives exposure to corporate clients, including local subsidiaries of international companies. Total exposure after risk mitigation was approximately £86 million, about a quarter of this in RCR. Contingency planning for any downside scenarios had been refreshed when capital controls were introduced in late
June.
○ Estimated funding mismatches at risk of redenomination at 30 June 2015 were:
- Ireland - £3.5 billion, down from £4.0 billion, due principally to lower lending.
- Spain - £0.5 billion (broadly unchanged).
- Italy - minimal, down from £1.5 billion due to lower derivatives and HFT exposure, and lower lending.
- Portugal - minimal, down from £0.5 billion, due to lower HFT, derivatives and lending.
The net positions for Greece and Cyprus remained minimal.
· Germany - net balance sheet exposure fell by £4.3 billion to £22.3 billion, in net HFT bonds, derivatives and SFT exposure to financial institutions and corporate
lending. This was partially offset by an increase of £3.9 billion in cash deposits with the Bundesbank. Off-balance sheet exposure, mostly to corporates, decreased by
£0.9 billion.
· France - net balance sheet exposure rose by £1.3 billion to £17.4 billion. Exposure to banks increased by £1.0 billion, principally because of the build-up of cash
balances with a French bank for the redemption during Q3 2015 of outstanding notes issued by RBS. AFS bonds rose by £0.5 billion, as part of Treasury liquidity
management. Off-balance sheet exposure, largely to corporates, fell by £1.0 billion.
· Netherlands - net balance sheet exposure decreased by £1.8 billion, mainly because derivatives exposure was reduced to a few major banks. Net HFT debt securities
increased by £0.8 billion, driven by client demand and market opportunities. This was largely offset by decreases in AFS debt securities. Off-balance sheet exposure to
the corporate sector and financial institutions fell by a combined £1.4 billion.
· Other eurozone - net HFT government bonds increased by £0.5 billion to £1.4 billion, driven by opportunities in the Finnish and Austrian bond markets.
· Japan - net HFT government bond exposure increased by £4.2 billion to £7.2 billion. This exposure was driven by collateral trading in London, with the increase in
outright holdings reflecting reduced access to local repo markets following RBS's decision to exit its Japanese onshore business. Nostro balances with the central bank
also increased, by £1.0 billion. These balances fluctuate on a daily basis depending on RBS excess yen liquidity held in London and Tokyo. Derivatives exposure to banks
and in corporate lending decreased by a combined £0.8 billion.
· China - net balance sheet exposure decreased by £1.2 billion to £2.4 billion, with reductions mostly in corporate lending, driven by the new international strategy. The
portfolio is focused on the largest banks and corporates. Stress tests indicate that the impact of an economic downturn scenario on credit losses would be limited.
· India - net balance sheet exposure fell by £0.3 billion to £1.7 billion, with reductions mostly in corporate lending, reflecting the bank's new UK-centred strategy.
· Russia - net balance sheet exposure decreased by £0.2 billion to £1.6 billion which included £0.9 billion of corporate lending and £0.7 billion of bank lending. Around
one-third of the bank lending risk was transferred to third-party investors through credit-linked notes. The exposure continues to be closely monitored and reviewed
against all international sanctions, with strict credit restrictions placed on new business.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Country risk: Country exposures
Net balance sheet exposure Analysis of net balance sheet exposures Off- CDS
Sovereign Central Other Other Net Debt securities Net balance Total notional less Gross
banks banks FI Corporate Personal Total lending AFS/LAR HFT (net) Derivatives SFT sheet exposure fair value Derivatives SFT
30 June 2015 £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Eurozone
Ireland 292 1,326 541 732 4,174 13,116 20,181 18,959 20 511 691 - 2,429 22,610 (38) 2,001 1,384
Spain (168) 1 447 44 1,683 77 2,084 1,579 - (175) 677 3 1,449 3,533 (294) 2,959 608
Italy (1,338) 12 1,583 262 527 25 1,071 612 23 (1,356) 1,790 2 1,303 2,374 (483) 6,231 2,020
Portugal (41) - 165 73 263 7 467 226 18 (2) 225 - 185 652 (104) 261 199
Greece 6 - 3 1 80 20 110 64 - 6 40 - 21 131 (33) 40 -
Cyprus - - - - 44 14 58 43 - - 15 - 12 70 - 15 -
Eurozone
periphery
- More to follow, for following part double click ID:nRSd5088UeRecent news on Natwest
See all newsREG - Permanent TSB Group NatWest Group plc - Holding(s) in Company
AnnouncementREG - Permanent TSB Group NatWest Group plc - Sale of Shares by Natwest
AnnouncementREG - NatWest Group plc - Successful disposal of shares in Permanent TSB
AnnouncementREG - NatWest Group plc - Intention to sell shares in Permanent TSB
AnnouncementREG - Higher Education Sec - Doc re. LSE Investor Report
Announcement