REG - Royal Bk Scot.Grp. - Half Yearly Report - Part 3 <Origin Href="QuoteRef">RBS.L</Origin> - Part 1
RNS Number : 9700NRoyal Bank of Scotland Group PLC01 August 2014Appendix 1
Capital and risk management
Appendix 1 Capital and risk management
Presentation of information
2
General overview
2
Capital management
Capital and leverage ratios
4
Capital resources
5
Leverage exposure
9
Risk-weighted assets
11
Liquidity and funding risk
Overview
14
Liquidity risk
15
Funding risk
17
Encumbrance
19
Credit risk
Financial assets
23
Loans and related credit metrics
28
Debt securities
32
Derivatives
34
Problem debt management
35
Key loan portfolios
39
Credit risk assets
51
Market risk
Trading portfolios
56
Non-trading portfolios
59
Country risk
Overview
61
Summary of country exposures
63
Appendix 1 Capital and risk management
Presentation of information
The assets of disposal groups are presented as a single line in the consolidated balance sheet as required by IFRS. The risk and balance sheet management disclosures include the balances and exposures of disposal groups.
General overview*
RBS's main risks are described in 'Risk and balance sheet management - Risk coverage' in the 2013 Annual Report and Accounts. The following table presents a summary of the key developments for each risk during 2014.
Risk type
2014 developments and summary
Capital adequacy risk
The capital position continued to improve with CET 1 ratio at 10.1 %, up from 8.6% at the year end reflecting continuing reductions in risk-weighted assets primarily in CIB and RCR, lower regulatory capital deductions relating to deferred tax assets and expected loss, and attributable profit.
Liquidity and funding risk
Liquidity metrics remained strong: the liquid portfolio of 138 billion covering short-term wholesale funding more than four times, LCR improving to 104%, NSFR at 111% and the stressed coverage ratio improved significantly to over 170%.
Credit risk
Balance sheet credit exposures after credit mitigation and enhancement, decreased by 7% to 333 billion and credit risk RWAs fell by 35 billion, 10%, reflecting risk reduction. Impairment provisions of 22 billion covered risk elements in lending of 34 billion by 66%. Favourable credit conditions resulted in impairment charges for the half year being significantly lower than in recent periods with net recoveries in RCR and CIB.
Market risk
Average trading VaR for the first half of 2014 was about a third of that in the first half of 2013, reflecting risk reduction and the effect of incorporating credit valuation and funding valuation adjustments into VaR models.
Country risk
Net balance sheet exposure to eurozone periphery countries was reduced by 1.5 billion, 4%, to 40.3 billion in the first half of the year. Total exposure to Russia was 2.1 billion: limits have been cut and credit restrictions introduced.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
General overview* (continued)
Risk type
2014 developments and summary
Conduct risk
Business models, strategies and products continued to be reviewed to ensure better customer outcomes. Synergies with other risk disciplines were also developed to enable the consistent identification, assessment and mitigation of conduct risks.
Pension risk
RBS concluded discussions with the Trustee of the RBS Group Pension Fund, agreeing the technical provisions basis and a schedule of contributions for the 2013 funding valuation. Additionally, stress tests were carried out under scenarios designed to meet PRA and European Banking Authority (EBA) requirements.
Operational risk
RBS's operational risk framework was further enhanced. The main focus remained on supporting improvements in risk management, specifically strengthened risk assessments through defining and implementing an end-to-end approach for the most material operational risks.
Regulatory risk
Regulatory risk remained a high priority and RBS continued to work through a number of legacy issues. RBS also implemented an increasing number of regulatory changes such as Basel III and Dodd Frank.
Reputational risk
A Reputational Risk Forum was created to identify issues involving material reputational risk. On 1 July 2014, a new Head of Reputational Risk was appointed whose responsibilities include building a new framework to manage reputational risk.
Business risk
RBS moved towards simplifying and functionalising its organisation and management structure to help reduce risk. There was also a focus on strengthening its stress testing capability. In particular, it is anticipated that finalisation of the stress testing programmes of the Bank of England and the EBA will enhance management and measurement of business risk.
Strategic risk
RBS continued to develop its framework for the identification and management of the most material risks to its strategic plan. A new "Top Risk" approach assesses both the likelihood and impact of significant threats, and develops agreed mitigations. These are reviewed by the Board at least on a quarterly basis.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Capital management
Introduction
The Group aims to maintain a level of capital to meet two objectives: (i) meeting minimum regulatory capital requirements; and (ii) ensuring the Group maintains sufficient capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting the business franchise and funding capacity.
Capital and leverage ratios*
30 June 2014
31 December 2013
Current
CRR
Estimated
transitional
end-point
Transitional
CRR end-
Basel 2.5
PRA basis
basis (1)
PRA basis
point basis (1)
basis
Capital
bn
bn
bn
bn
bn
CET1
39.7
39.7
36.8
36.8
42.2
Tier 1
47.3
39.7
44.3
36.8
50.6
Total
61.2
48.7
58.2
45.5
63.7
RWAs by risk
Credit risk
- non-counterparty
283.3
283.3
317.9
317.9
291.1
- counterparty
38.6
38.6
39.1
39.1
22.3
Market risk
33.4
33.4
30.3
30.3
30.3
Operational risk
36.8
36.8
41.8
41.8
41.8
392.1
392.1
429.1
429.1
385.5
Risk asset ratios
%
%
%
%
%
CET1
10.1
10.1
8.6
8.6
10.9
Tier 1
12.1
10.1
10.3
8.6
13.1
Total
15.6
12.4
13.6
10.6
16.5
30 June
31 December
Estimated BCBS leverage ratios (2)
2014
2013
Tier 1 capital - bn
39.7
36.8
Exposure - bn
1,070.2
1,082.0
Leverage ratio - %
3.7
3.4
Notes:
(1)
CRR as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014.
(2)
Leverage ratio is calculated using:
CRR end-point Tier 1 capital; and
Exposure measure based on guidance in the BCBS 270 proposal issued in January 2014, supplemented by the instructions in the March 2014 Basel III Quantitative Impact Study (QIS) and the related FAQs.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Capital and leverage ratios* (continued)
Key points
CET1 ratio improved by 150 basis points in the first half of the year, of which 70 basis points was in the second quarter reflecting attributable profit after charging the initial DAS dividend (320 million), reduction in RWAs and lower regulatory deductions for deferred tax assets and expected loss.
RWAs declined by 37 billion with 22 billion in the second quarter mainly in CIB reflecting continued risk reduction and in RCR due to run-off and disposals.
Attributable profit as well as lower leverage exposure in CIB resulted in a 30 basis point improvement in the estimated BCBS leverage ratio in the first half of the year.
Capital resources
30 June 2014
31 December 2013
Current
CRR
Estimated
transitional
end-point
Transitional
CRR end-
Basel 2.5
basis
basis
PRA basis
point basis
basis
m
m
m
m
m
Shareholders' equity (excluding non-controlling interests)
Shareholders' equity
60,345
60,345
58,742
58,742
58,742
Preference shares - equity
(4,313)
(4,313)
(4,313)
(4,313)
(4,313)
Other equity instruments
(979)
(979)
(979)
(979)
(979)
55,053
55,053
53,450
53,450
53,450
Non-controlling interests
-
-
-
-
473
Regulatory adjustments and deductions
Own credit
629
629
601
601
726
Defined benefit pension fund adjustment
(196)
(196)
(172)
(172)
362
Net unrealised available-for-sale (AFS) losses
-
-
-
-
308
Cash flow hedging reserve
(94)
(94)
84
84
84
Deferred tax assets
(1,748)
(1,748)
(2,260)
(2,260)
-
Prudential valuation adjustments
(486)
(486)
(781)
(781)
-
Goodwill and other intangible assets
(12,173)
(12,173)
(12,368)
(12,368)
(12,368)
Expected losses less impairment provisions
(1,319)
(1,319)
(1,731)
(1,731)
(19)
50% of securitisation positions
-
-
-
-
(748)
Other regulatory adjustments
69
69
(55)
(55)
(103)
(15,318)
(15,318)
(16,682)
(16,682)
(11,758)
CET 1 capital
39,735
39,735
36,768
36,768
42,165
Appendix 1 Capital and risk management
Capital resources (continued)
30 June 2014
31 December 2013
Current
CRR
Estimated
transitional
end-point
Transitional
CRR end-
Basel 2.5
basis
basis
PRA basis
point basis
basis
m
m
m
m
m
Other Tier 1 capital
Preference shares - equity
-
-
-
-
4,313
Preference shares - debt
-
-
-
-
911
Innovative/hybrid Tier 1 securities
-
-
-
-
4,207
Qualifying Tier 1 capital and related share premium subject
to phase out from Additional Tier 1 (AT1) capital
5,820
-
5,831
-
-
Qualifying Tier 1 capital included in consolidated AT1 capital
issued by subsidiaries and held by third parties
1,708
-
1,749
-
-
7,528
-
7,580
-
9,431
Tier 1 deductions
50% of material holdings
-
-
-
-
(976)
Tax on expected losses less impairment provisions
-
-
-
-
6
-
-
-
-
(970)
Tier 1 capital
47,263
39,735
44,348
36,768
50,626
Qualifying Tier 2 capital
Undated subordinated debt
-
-
-
-
2,109
Dated subordinated debt - net of amortisation
-
-
-
-
12,436
Qualifying items and related share premium
5,740
5,145
4,431
3,582
-
Qualifying own funds instruments issued by subsidiaries
and held by third parties
8,222
3,815
9,374
5,151
-
Unrealised gains on AFS equity shares
-
-
-
-
114
Collectively assessed impairment provisions
-
-
-
-
395
13,962
8,960
13,805
8,733
15,054
Tier 2 deductions
50% of securitisation positions
-
-
-
-
(748)
Expected losses less impairment provisions
-
-
-
-
(25)
50% of material holdings
-
-
-
-
(976)
-
-
-
-
(1,749)
Tier 2 capital
13,962
8,960
13,805
8,733
13,305
Supervisory deductions
Unconsolidated investments
-
-
-
-
(36)
Other deductions
-
-
-
-
(236)
-
-
-
-
(272)
Total regulatory capital
61,225
48,695
58,153
45,501
63,659
Appendix 1 Capital and risk management
Capital resources (continued)
Capital flow statement*
The table below analyses the movement in CRR end-point CET1 and Tier 2 capital for the half year ended 30 June 2014.
CET1
Tier 2
Total
m
m
m
At 1 January 2014
36,768
8,733
45,501
Attributable profit net of movements in fair value of own credit
1,453
-
1,453
Share capital and reserve movements in respect of employee share schemes
(33)
-
(33)
Ordinary shares issued
315
-
315
Foreign exchange reserve
(728)
-
(728)
AFS reserves
446
-
446
Decrease in goodwill and intangibles deduction
195
-
195
Deferred tax assets (DTA)
512
-
512
Prudential valuation adjustments (PVA)
295
-
295
Excess of expected loss over impairment provisions (EL-P)
412
-
412
Dated subordinated debt issues
-
2,154
2,154
Net dated subordinated debt/grandfathered instrument
-
(1,528)
(1,528)
Foreign exchange movement
-
(399)
(399)
Other movements
100
-
100
At 30 June 2014
39,735
8,960
48,695
Key points
RBS issued 820 million and 1,334 million of Tier 2 subordinated debt in Q1 and Q2 respectively. Following reviews, 2.1 billion of ineligible subordinated notes were removed from Tier 2 capital.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Capital resources (continued)
Notes:*
General:
In accordance with the PRA's Policy Statement PS7/2013 issued in December 2013 on the implementation of CRD IV, all regulatory adjustments and deductions to CET1 have been applied in full (without transition relief) with the exception of unrealised gains on AFS securities which will be included from 2015.
CRD IV and Basel III impose a minimum CET1 ratio of 4.5%. Further, CET1 requirements will be imposed through buffers in the CRD. There are three buffers that will affect the Group: the capital conservation buffer set at 2.5% of RWAs; the counter-cyclical capital buffer (up to 2.5% of RWAs), which will be calculated as the weighted average of the countercyclical capital buffer rates applied in the countries where the Group has relevant credit exposures; and the highest of Global-Systemically Important Institution (G-SII), Other-Systemically Important Institution (O-SII) or Systemic Risk Buffers set by the supervisory authorities. The Group has been provisionally allocated a G-SII buffer of 1.5%. The regulatory target capital requirements will be phased in through CRR, and are expected to apply in full from 1 January 2019. Until then, using national discretion the PRA can apply a top-up. As set out in the PRA's Supervisory Statement SS3/13, the Group and other major UK banks and building societies are required to maintain a CET1 ratio of 7%, after taking into account certain adjustments set by the PRA.
From 1 January 2015, the Group must meet at least 56% of its Pillar 2A capital requirement with CET1 capital and the balance with Additional Tier 1 and/or Tier 2 capital. The Pillar 2A capital requirement is the additional capital that the Group must hold, in addition to meeting its Pillar 1 requirements in order to comply with the PRA's overall financial adequacy rule.
Measures in relation to CRR end-point basis, including RWAs, are based on the current interpretation, expectations, and understanding, of the CRR requirements, as well as further regulatory clarity and implementation guidance from the UK and EU authorities. The actual CRR end-point impact may differ when the final technical standards are interpreted and adopted.
Capital base:
(1)
Own funds are based on shareholders' equity.
(2)
Includes the nominal value of B shares (0.5 billion) on the assumption that RBS will be privatised in the future and that they will count as permanent equity in some form by the end of 2017.
(3)
The prudential valuation adjustment (PVA), arising from the application of the prudent valuation requirements to all assets measured at fair value, has been included in full. The PVA has been included in impairment provisions in the determination of the deduction from expected losses.
(4)
Where the deductions from AT1 capital exceed AT1 capital, the excess is deducted from CET1 capital. The excess of AT1 deductions over AT1 capital in year one of transition is due to the application of the current rules to the transitional amounts.
(5)
Insignificant investments in equities of other financial entities (net): long cash equity positions are considered to have matched maturity with synthetic short positions if the long position is held for hedging purposes and sufficient liquidity exists in the relevant market. All the trades are managed and monitored together within the equities business.
(6)
Based on our current interpretations of the Commission Delegated Regulation issued in December 2013 on credit risk adjustments, the Group's standardised latent provision has been reclassified to specific provision and is not included in Tier 2 capital.
Risk-weighted assets:
(1)
Current securitisation positions are shown as risk-weighted at 1,250%.
(2)
RWA uplifts include the impact of credit valuation adjustments (CVA) and asset valuation correlation (AVC) on banks and central counterparties.
(3)
RWAs reflect implementation of the full internal model method suite, and include methodology changes that took effect immediately on CRR implementation.
(4)
Non-financial counterparties and sovereigns that meet the eligibility criteria under CRR are exempt from the credit valuation adjustments volatility charges.
(5)
The CRR final text includes a reduction in the risk-weight relating to small and medium-sized enterprises.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Leverage exposure
Exposure summary*
The leverage exposure below is based on the BCBS 270 proposal issued in January 2014, with additional specificity deriving from the instructions in the March 2014 QIS and related FAQs. The BCBS 270 proposal is expected to be incorporated into the CRR but the final rules may result in changes to the calculation when implemented.
Exposure measure
30 June
31 December
2014
2013
bn
bn
Cash and balances at central banks
68.7
82.7
Reverse repos
81.7
76.4
Loans and advances
414.5
418.4
Debt securities
112.8
113.6
Equity shares
7.8
8.8
Derivatives
274.9
288.0
Goodwill and other intangible assets
12.2
12.4
Other assets
37.3
24.6
Assets of disposal groups
1.2
3.0
Total assets
1,011.1
1,027.9
Netting of derivatives (1)
(217.5)
(227.3)
Potential future exposure on derivatives (2)
102.5
128.0
SFTs (1)
77.5
59.8
Regulatory deductions and other adjustments (3)
(1.4)
(6.6)
Undrawn commitments (4)
98.0
100.2
Leverage exposure measure
1,070.2
1,082.0
Notes:
(1)
The BCBS proposal permits some limited netting for margin received against the replacement cost of derivatives, an additional gross securities financing transaction (SFT) calculation with more restrictive netting, but possible future benefit for trades against qualifying central counterparties. The notional amounts relating to sold credit protection are included in the exposure measure, offset by longer dated bought protection on the same contracts.
(2)
Potential future exposure (PFE) on derivatives: the regulatory add-on which is calculated by assigning percentages based on the type and residual maturity of the derivatives to nominal amounts or underlying values of derivative contracts. The element of PFE relating to credit derivatives sold is removed under the BCBS 270 proposal and replaced with the credit derivative notionals on protection sold per note (1).
(3)
Regulatory deductions: to ensure consistency between the leverage ratio numerator and the denominator, regulatory items that are deducted from capital are also deducted from the leverage exposure measure.
(4)
Undrawn commitments represent regulatory add-ons relating to off-balance sheet undrawn commitments based on the credit conversion factors of 10%, 20%, 50% and 100% being applied as applicable to the commitments. Refer to the following page for further analysis.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Leverage exposure (continued)
Derivative notionals*
The table below analyses derivative notional values by product and maturity.
<1 year
1-5 years
>5 years
Credit derivative 5% add on factor (1)
Credit derivative 10% add on factor (1)
Total
30 June 2014
bn
bn
bn
bn
bn
bn
Interest rate
13,522
9,781
5,758
29,061
Exchange rate
3,686
628
295
4,609
Equity
76
2
-
78
Commodities
1
-
1
2
Credit
209
69
278
Total
17,285
10,411
6,054
209
69
34,028
31 December 2013
Interest rate
10,582
16,212
8,795
35,589
Exchange rate
3,261
814
480
4,555
Equity
43
35
1
79
Commodities
-
1
1
2
Credit
189
64
253
Total
13,886
17,062
9,277
189
64
40,478
Note:
(1)
Credit derivatives receive a PFE of 5% where qualifying and 10% where non-qualifying.
Off-balance sheet items*
Ulster
Commercial
Private
UK PBB
Bank
Banking
Banking
CIB
CFG
RCR
Centre
Total
30 June 2014
bn
bn
bn
bn
bn
bn
bn
bn
bn
Unconditionally cancellable items (1)
3.1
0.1
0.5
0.1
0.7
1.7
-
-
6.2
Items with a 20% CCF
0.4
-
0.7
0.2
2.3
0.3
-
0.1
4.0
Items with a 50% CCF
6.0
1.4
12.8
1.3
37.3
6.8
0.9
2.5
69.0
Items with a 100% CCF
0.1
0.4
1.7
0.9
12.7
1.5
0.4
1.2
18.9
9.6
1.9
15.7
2.5
53.0
10.3
1.3
3.8
98.1
31 December 2013
Unconditionally cancellable items (1)
3.1
0.2
0.4
0.1
0.7
1.7
-
-
6.2
Items with a 20% CCF
0.4
-
0.6
0.6
1.5
0.2
-
-
3.3
Items with a 50% CCF
5.8
1.0
12.5
1.0
41.9
7.1
0.7
2.7
72.7
Items with a 100% CCF
0.1
0.3
2.4
1.4
12.0
1.6
0.2
-
18.0
9.4
1.5
15.9
3.1
56.1
10.6
0.9
2.7
100.2
Note:
(1)
Based on a 10% credit conversion factor.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Risk-weighted assets*
The table below analyses the movement in credit risk RWAs by key drivers during the half year.
Credit risk
Non-counterparty
Counterparty
Total
bn
bn
bn
At 1 January 2014
317.9
39.1
357.0
Foreign exchange movement
(3.8)
-
(3.8)
Business movements
(17.2)
(8.2)
(25.4)
Risk parameter changes (1)
(2.4)
-
(2.4)
Methodology changes (2)
(10.4)
5.1
(5.3)
Model updates
(1.2)
-
(1.2)
Other changes
0.4
2.6
3.0
At 30 June 2014
283.3
38.6
321.9
Modelled (3)
191.2
33.2
224.4
Non-modelled
92.1
5.4
97.5
283.3
38.6
321.9
The table below analyses movements in market and operational risk RWAs during the half year.
Market
Operational
risk
risk
bn
bn
At 1 January 2014
30.3
41.8
Business and market movements
(8.8)
(5.0)
Methodology changes
11.9
-
At 30 June 2014
33.4
36.8
Modelled (3)
15.9
-
Non-modelled
17.5
36.8
33.4
36.8
Notes:
(1)
Changes in credit quality metrics of customers and counterparties such as probability of default and loss given default.
(2)
Technical adjustments and calibration of models.
(3)
Modelled refers to advanced internal ratings based (AIRB) for non-counterparty credit risk, internal model method (IMM) for counterparty credit risk, value-at-risk (VaR) and related models for market risk.
Key points
Business movements include exposure reductions in RCR and CIB.
Methodology changes include the transfer of 11.9 billion of RWAs from non-counterparty credit risk to market risk relating to trading book securitisations.
Operational risk is calculated on a three year average of income and the business and other movement reflects the annual recalculation.
Non-modelled or standardised (STD) credit risk RWAs principally comprised CFG (56 billion); Private Banking (10 billion); derivative and repo transactions undertaken by RBSSI, the broker-dealer; and certain securitisation exposures.
Increase in RWA density of bank exposures reflected the impact of CVA and AVC and those on structured entities related to RWA treatment, both relating to the implementation of CRD IV.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Risk-weighted assets* (continued)
Credit risk: RWA density
Refer to the 2013 Pillar 3 Report for details on terminology. For the majority of credit risk, RBS used the internal ratings based (IRB) approach for calculating RWAs. The standardised approach (STD) is used for certain portfolios. RWAs at 30 June 2014 are under current rules and 31 December 2013 are on a Basel 2.5 basis.
EAD post CRM (1)
RWAs
RWA density
AIRB
STD
Total
AIRB
STD
Total
AIRB
STD
Total
30 June 2014
m
m
m
m
m
m
%
%
%
Sector cluster
Sovereign
Central banks
41,702
46,390
88,092
2,180
127
2,307
5
-
3
Central government
16,860
8,522
25,382
2,435
7
2,442
14
-
10
Other sovereign
5,012
5,749
10,761
1,267
197
1,464
25
3
14
Total sovereign
63,574
60,661
124,235
5,882
331
6,213
9
1
5
Financial institutions (FI)
Banks
41,416
2,571
43,987
20,995
621
21,616
51
24
49
Other FI (2)
48,063
23,977
72,040
19,043
10,085
29,128
40
42
40
SEs (3)
19,320
3,271
22,591
11,245
5,561
16,806
58
170
74
Total FI
108,799
29,819
138,618
51,283
16,267
67,550
47
55
49
Corporates
Property
- Western Europe
- UK
49,501
3,388
52,889
24,963
3,154
28,117
50
93
53
- Ireland
8,907
46
8,953
1,705
43
1,748
19
93
20
- Other
6,385
123
6,508
3,461
105
3,566
54
85
55
- US
1,687
6,643
8,330
890
6,653
7,543
53
100
91
- RoW
3,525
271
3,796
2,272
223
2,495
64
82
66
Total property
70,005
10,471
80,476
33,291
10,178
43,469
48
97
54
Natural resources
36,955
2,891
39,846
15,840
2,564
18,404
43
89
46
Transport
32,053
3,335
35,388
18,466
3,168
21,634
58
95
61
Manufacturing
29,979
7,787
37,766
12,909
7,626
20,535
43
98
54
Retail and leisure
26,637
7,906
34,543
16,008
7,894
23,902
60
100
69
Services
23,991
8,232
32,223
14,319
8,232
22,551
60
100
70
TMT(4)
14,868
2,249
17,117
7,849
2,230
10,079
53
99
59
Total corporates
234,488
42,871
277,359
118,682
41,892
160,574
51
98
58
Personal
Mortgages
- Western Europe
- UK
113,427
7,716
121,143
13,554
3,031
16,585
12
39
14
- Ireland
16,279
37
16,316
15,609
16
15,625
96
43
96
- Other
227
335
562
22
128
150
10
38
27
- US
132
18,999
19,131
13
9,430
9,443
10
50
49
- RoW
439
540
979
51
206
257
12
38
26
Total mortgages
130,504
27,627
158,131
29,249
12,811
42,060
22
46
27
Other personal
32,338
14,537
46,875
14,226
10,715
24,941
44
74
53
Total personal
162,842
42,164
205,006
43,475
23,526
67,001
27
56
33
Other items
5,484
16,468
21,952
4,095
16,486
20,581
75
100
94
Total
575,187
191,983
767,170
223,417
98,502
321,919
39
51
42
For the notes to this table refer to the following page.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Risk-weighted assets*: Credit risk: RWA density (continued)
EAD post CRM (1)
RWAs
RWA density
AIRB
STD
Total
AIRB
STD
Total
AIRB
STD
Total
31 December 2013
m
m
m
m
m
m
%
%
%
Sector cluster
Sovereign
Central banks
34,809
59,351
94,160
1,289
180
1,469
4
-
2
Central government
17,940
8,401
26,341
2,418
30
2,448
13
-
9
Other sovereign
5,323
5,525
10,848
1,451
149
1,600
27
3
15
Total sovereign
58,072
73,277
131,349
5,158
359
5,517
9
-
4
Financial institutions (FI)
Banks
37,718
2,769
40,487
11,922
689
12,611
32
25
31
Other FI (2)
43,460
14,033
57,493
16,391
7,940
24,331
38
57
42
SEs (3)
21,564
2,523
24,087
5,827
2,189
8,016
27
87
33
Total FI
102,742
19,325
122,067
34,140
10,818
44,958
33
56
37
Corporates
Property
- Western Europe
- UK
50,250
2,771
53,021
27,904
2,461
30,365
56
89
57
- Ireland
10,338
107
10,445
3,087
136
3,223
30
127
31
- Other
8,764
143
8,907
4,937
130
5,067
56
91
57
- US
1,126
6,527
7,653
600
6,272
6,872
53
96
90
- RoW
3,579
317
3,896
2,817
253
3,070
79
80
79
Total property
74,057
9,865
83,922
39,345
9,252
48,597
53
94
58
Natural resources
29,403
2,826
32,229
15,586
2,435
18,021
53
86
56
Transport
31,677
3,024
34,701
21,678
2,709
24,387
68
90
70
Manufacturing
24,649
7,775
32,424
13,607
7,599
21,206
55
98
65
Retail and leisure
23,974
7,744
31,718
18,302
7,591
25,893
76
98
82
Services
22,716
8,757
31,473
15,972
8,382
24,354
70
96
77
TMT(4)
13,550
2,222
15,772
8,470
2,198
10,668
63
99
68
Total corporates
220,026
42,213
262,239
132,960
40,166
173,126
60
95
66
Personal
Mortgages
- Western Europe
- UK
110,470
7,841
118,311
14,412
3,267
17,679
13
42
15
- Ireland
17,148
33
17,181
16,108
12
16,120
94
36
94
- Other
202
507
709
25
202
227
12
40
32
- US
121
19,717
19,838
15
9,756
9,771
12
49
49
- RoW
396
242
638
50
107
157
13
44
25
Total mortgages
128,337
28,340
156,677
30,610
13,344
43,954
24
47
28
Other personal
33,358
14,521
47,879
15,286
10,703
25,989
46
74
54
Total personal
161,695
42,861
204,556
45,896
24,047
69,943
28
56
34
Other items
4,756
19,189
23,945
4,061
15,798
19,859
85
82
83
Total
547,291
196,865
744,156
222,215
91,188
313,403
41
46
42
Notes:
(1)
Exposure at default post credit risk mitigation.
(2)
Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks.
(3)
Structured entities primarily relate to securitisation related vehicles.
(4)
Telecommunications, media and technology.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Liquidity and funding risk
Liquidity and funding risk is the risk that the Group is unable to meet its financial obligations, including financing wholesale maturities or customer deposit withdrawals, as they fall due. The risk arises through the maturity transformation role that banks play and is dependent on company specific factors such as: maturity profile, composition of sources and uses of funding, the quality and size of the liquidity portfolio as well as broader factors, such as wholesale market conditions and depositor and investor behaviour. For a description of the liquidity and funding risk framework, governance and basis of preparation refer to the Risk and balance sheet management section of the 2013 Annual Report and Accounts.
Overview
The liquidity position remains strong: the liquidity portfolio of 138 billion at 30 June 2014 covered short-term wholesale funding (STWF) four times.
Liquid assets decreased by 8 billion mainly driven by a targeted decrease in financial institution deposits in Q1, partly offset by additional low-cost secondary liquidity. Average liquid asset balances were down in Q2 compared with Q1 reflecting proactive management of excess liquidity whilst retaining a prudent coverage of potential outflows.
The loan:deposit ratio increased by 200 basis points to 96% from 94% at 31 December 2013 reflecting continued focus on reducing excess funding.
STWF increased marginally to 33.6 billion mainly reflecting the upcoming redemption of trust preferred securities and large term debt deals falling into the less than 1 year to maturity bucket.
Appendix 1 Capital and risk management
Liquidity risk
Liquidity and related metrics*
The table below sets out the key liquidity and related metrics monitored by the Group.
30 June
31 March
31 December
2014
2014
2013
%
%
%
Stressed outflow coverage (1)
178
165
145
Liquidity coverage ratio (LCR) (2)
104
103
102
Net stable funding ratio (NSFR) (3)
111
110
118
Notes:
(1)
RBS's liquidity risk appetite is based on the Individual Liquidity Adequacy Assessment (ILAA) which is measured by reference to the liquidity portfolio as a percentage of stressed liquidity outflows under the worst of three severe stress scenarios; a market-wide stress, an idiosyncratic stress and a combination of both. Liquidity risk adequacy is determined by the surplus of liquid assets over three month stressed outflows under the worst case stress. This assessment is performed in accordance with PRA guidance.
(2)
In January 2013, the BCBS published its final guidance for calculating LCR which is currently expected to come into effect from January 2015 on a phased basis. Pending the finalisation of the LCR rules within the EU, RBS monitors the LCR based on its own interpretations of current guidance available for EU LCR reporting. Therefore, the reported LCR will change over time with regulatory developments. Due to differences in interpretation of the rules RBS's ratio may not be comparable with those of other financial institutions.
(3)
The NSFR for all periods has been calculated using RBS's current interpretations of the existing rules relating to various BCBS guidance to date. Ratios for 31 March 2014 and 31 December 2013 have been revised accordingly. BCBS is expected to issue revised guidance on the NSFR towards the end of 2014 or early 2015.
Liquidity portfolio
The table below shows RBS's liquidity portfolio by product, liquidity value and carrying value. Liquidity value is lower than carrying value as it is stated after discounts applied by the Bank of England and other central banks to instruments, within the secondary liquidity portfolio, eligible for discounting.
Liquidity value
Period end
Average
UK DLG(1)
CFG
Other
Total
Quarter
H1 2014
30 June 2014
m
m
m
m
m
m
Cash and balances at central banks
58,823
2,533
1,825
63,181
59,974
62,723
Central and local government bonds
AAA rated governments
5,583
2
-
5,585
4,241
3,527
AA- to AA+ rated governments and US agencies
5,622
6,224
-
11,846
10,701
11,155
11,205
6,226
-
17,431
14,942
14,682
Primary liquidity
70,028
8,759
1,825
80,612
74,916
77,405
Secondary liquidity (2)
54,928
934
1,597
57,459
53,420
53,986
Total liquidity value
124,956
9,693
3,422
138,071
128,336
131,391
Total carrying value
160,357
10,236
2,741
173,334
For the notes to this table refer to the following page.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Liquidity risk (continued)
Liquidity portfolio (continued)
Liquidity value
Period end
Average
UK
DLG (1)
CFG
Other
Total
Quarter
Year
31 December 2013
m
m
m
m
m
m
Cash and balances at central banks
71,121
824
2,417
74,362
76,242
80,933
Central and local government bonds
AAA rated governments and US agencies
3,320
-
-
3,320
3,059
5,149
AA- to AA+ rated governments
5,822
6,369
96
12,287
13,429
12,423
Below AA rated governments
-
-
-
-
-
151
Local government
-
-
-
-
7
148
9,142
6,369
96
15,607
16,495
17,871
Treasury bills
-
-
-
-
6
395
Primary liquidity
80,263
7,193
2,513
89,969
92,743
99,199
Secondary liquidity (2)
48,718
4,968
2,411
56,097
56,869
56,589
Total liquidity value
128,981
12,161
4,924
146,066
149,612
155,788
Total carrying value
159,743
17,520
6,970
184,233
The table below shows the currency split of the liquidity portfolio.
Total liquidity portfolio
GBP
USD
EUR
Other
Total
m
m
m
m
m
30 June 2014
91,073
33,028
12,579
1,391
138,071
31 December 2013
100,849
33,365
10,364
1,488
146,066
Notes:
(1)
The PRA regulated UK Defined Liquidity Group (UK DLG) comprises the RBS's five licensed deposit taking UK banks: The Royal Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank Limited, Coutts & Company and Adam & Company. In addition, certain of the Group's significant operating subsidiaries - RBS N.V., Citizens Financial Group Inc. and Ulster Bank Ireland Limited - hold liquidity portfolios of liquid assets that comply with local regulations that may differ from PRA rules.
(2)
Includes assets eligible for discounting at the Bank of England and other central banks.
Appendix 1 Capital and risk management
Funding risk
The composition of RBS's balance sheet is a function of the broad array of product offerings and diverse markets served by its core divisions. The structural composition of the balance sheet is augmented as needed through active management of both asset and liability portfolios. The objective of these activities is to optimise the liquidity profile, while ensuring adequate coverage of all cash requirements under extreme stress conditions.
Short-term wholesale
Total wholesale
Net inter-bank
funding (1)
funding
funding (2)
Excluding
Including
Excluding
Including
Deposits
Loans (3)
Net
derivative
derivative
derivative
derivative
inter-bank
collateral
collateral
collateral
collateral
funding
bn
bn
bn
bn
bn
bn
bn
30 June 2014
33.6
55.1
101.6
123.1
17.7
(19.3)
(1.6)
31 March 2014
31.0
50.8
101.5
121.3
15.6
(18.1)
(2.5)
31 December 2013
32.4
51.5
108.1
127.2
16.2
(17.3)
(1.1)
30 September 2013
34.6
55.1
113.6
134.1
18.1
(16.6)
1.5
30 June 2013
36.7
58.9
129.4
151.5
23.1
(17.1)
6.0
Notes:
(1)
Short-term wholesale funding is funding with a residual maturity of less than one year.
(2)
Excludes derivative cash collateral.
(3)
Principally short-term balances.
Funding sources
The table below shows RBS's principal funding sources excluding repurchase agreements (repos).
30 June 2014
31 December 2013
Short-term
Long-term
Short-term
Long-term
less than
more than
Total
less than
more than
Total
1 year
1 year
1 year
1 year
m
m
m
m
m
m
Deposits by banks
derivative cash collateral
21,430
-
21,430
19,086
-
19,086
other deposits
16,544
1,205
17,749
14,553
1,690
16,243
37,974
1,205
39,179
33,639
1,690
35,329
Debt securities in issue
commercial paper
1,091
-
1,091
1,583
-
1,583
certificates of deposit
1,751
97
1,848
2,212
65
2,277
medium-term notes
8,083
32,552
40,635
10,385
36,779
47,164
covered bonds
1,780
7,039
8,819
1,853
7,188
9,041
securitisations
511
6,183
6,694
514
7,240
7,754
13,216
45,871
59,087
16,547
51,272
67,819
Subordinated liabilities
3,885
20,924
24,809
1,350
22,662
24,012
Notes issued
17,101
66,795
83,896
17,897
73,934
91,831
Wholesale funding
55,075
68,000
123,075
51,536
75,624
127,160
Customer deposits
derivative cash collateral (1)
6,469
-
6,469
7,082
-
7,082
financial institution deposits
47,029
2,038
49,067
44,621
2,265
46,886
personal deposits
180,024
6,089
186,113
183,799
8,115
191,914
corporate deposits
156,451
3,157
159,608
167,100
4,687
171,787
Total customer deposits
389,973
11,284
401,257
402,602
15,067
417,669
Total funding excluding repos
445,048
79,284
524,332
454,138
90,691
544,829
Note:
(1)
Cash collateral includes 5,720 million (31 December 2013 - 6,720 million) from financial institutions.
Appendix 1 Capital and risk management
Funding risk (continued)
Total funding by currency
GBP
USD
EUR
Other
Total
30 June 2014
m
m
m
m
m
Deposits by banks
6,830
10,808
19,300
2,241
39,179
Debt securities in issue
- commercial paper
3
573
486
29
1,091
- certificates of deposit
494
1,116
237
1
1,848
- medium-term notes
5,287
10,319
20,285
4,744
40,635
- covered bonds
983
-
7,836
-
8,819
- securitisations
1,830
2,090
2,774
-
6,694
Subordinated liabilities
1,792
13,604
7,202
2,211
24,809
Wholesale funding
17,219
38,510
58,120
9,226
123,075
% of wholesale funding
14%
31%
47%
8%
100%
Customer deposits
271,438
79,877
40,137
9,805
401,257
Total funding excluding repos
288,657
118,387
98,257
19,031
524,332
% of total funding
55%
22%
19%
4%
100%
31 December 2013
Deposits by banks
7,418
8,337
17,004
2,570
35,329
Debt securities in issue
- commercial paper
4
897
682
-
1,583
- certificates of deposit
336
1,411
476
54
2,277
- medium-term notes
6,353
11,068
23,218
6,525
47,164
- covered bonds
984
-
8,057
-
9,041
- securitisations
1,897
2,748
3,109
-
7,754
Subordinated liabilities
1,857
10,502
8,984
2,669
24,012
Wholesale funding
18,849
34,963
61,530
11,818
127,160
% of wholesale funding
15%
28%
48%
9%
100%
Customer deposits
272,304
86,727
49,116
9,522
417,669
Total funding excluding repos
291,153
121,690
110,646
21,340
544,829
% of total funding
54%
22%
20%
4%
100%
Repos
The table below analyses RBS's repos by counterparty type.
30 June
31 December
2014
2013
m
m
Financial institutions
- central and other banks
31,722
28,650
- other financial institutions
44,325
52,945
Corporate
7,215
3,539
83,262
85,134
Appendix 1 Capital and risk management
Funding risk (continued)
Segment loan:deposit ratios and funding surplus
The table below shows loans, deposits, loan:deposit ratios (LDR) and customer funding surplus/(gap) by reporting segment.
30 June 2014
31 December 2013
Funding
Funding
Loans (1)
Deposits (2)
LDR
surplus/(gap)
Loans (1)
Deposits (2)
LDR
surplus/(gap)
m
m
%
m
m
m
%
m
UK PBB
126,422
145,971
87
19,549
124,828
144,841
86
20,013
Ulster Bank
22,423
20,688
108
(1,735)
26,068
21,651
120
(4,417)
PBB
148,845
166,659
89
17,814
150,896
166,492
91
15,596
Commercial Banking
83,980
87,987
95
4,007
83,454
90,883
92
7,429
Private Banking
16,525
35,890
46
19,365
16,644
37,173
45
20,529
CPB
100,505
123,877
81
23,372
100,098
128,056
78
27,958
CIB
68,978
55,492
124
(13,486)
68,148
64,734
105
(3,414)
Central items
844
1,002
84
158
289
1,081
27
792
CFG
51,722
52,923
98
1,201
50,279
55,118
91
4,839
RCR
15,658
1,304
nm
(14,354)
n/a
n/a
n/a
n/a
Non-Core
n/a
n/a
n/a
n/a
22,880
2,188
nm
(20,692)
386,552
401,257
96
14,705
392,590
417,669
94
25,079
nm = not meaningful
Notes:
(1)
Excludes reverse repo agreements and net of impairment provisions.
(2)
Excludes repo agreements.
154 billion (or 38%) of the customer deposits included above are insured through the UK Financial Services Compensation Scheme, US Federal Deposit Insurance Corporation scheme and other similar schemes. Of the personal and corporate deposits above, 54% relate to personal customers.
Encumbrance
RBS's encumbrance ratios are set out below.
In general encumbrance ratios decreased marginally reflecting the balance sheet structure.
Encumbrance ratios
30 June
31 December
2014
2013
%
%
Total
16
17
Excluding balances relating to derivatives transactions
17
19
Excluding balances relating to derivative and securities financing transactions
11
11
Appendix 1 Capital and risk management
Balance sheet encumbrance
Encumbered assets relating to:
Unencumbered
Debt securities in issue
Other secured liabilities
Total
Encumbered
Readily realisable (3)
Securitisations
Covered
Secured
encumbered
assets as a
Liquidity
Other (4)
Cannot be (5)
and conduits
bonds
Derivatives
Repos
balances (1)
assets (2)
% of related
portfolio
Other
realisable
encumbered
Total
30 June 2014
bn
bn
bn
bn
bn
bn
assets
bn
bn
bn
bn
bn
Cash and balances at central banks
-
-
-
-
2.1
2.1
3
61.1
5.5
-
-
68.7
Loans and advances to banks
4.8
0.3
9.7
-
0.3
15.1
52
2.1
7.9
3.8
-
28.9
Loans and advances to customers
- UK residential mortgages
13.2
14.9
-
-
-
28.1
25
67.9
7.9
8.1
-
112.0
- Irish residential mortgages
8.9
-
-
-
1.0
9.9
69
-
4.3
-
0.1
14.3
- US residential mortgages
-
-
-
-
10.4
10.4
55
1.4
-
0.4
6.8
19.0
- UK credit cards
3.0
-
-
-
-
3.0
55
-
2.3
0.2
-
5.5
- UK personal loans
3.4
-
-
-
-
3.4
37
-
3.0
2.8
-
9.2
- other
7.6
-
17.1
-
1.0
25.7
11
7.5
13.5
138.4
41.5
226.6
Reverse repurchase agreements
and stock borrowing
-
-
-
-
-
-
-
-
-
-
81.7
81.7
Debt securities
0.3
-
7.4
44.9
2.6
55.2
49
15.8
40.1
1.4
0.3
112.8
Equity shares
-
-
0.2
5.1
-
5.3
68
-
1.0
0.3
1.2
7.8
Settlement balances
-
-
-
-
-
-
-
-
-
-
19.7
19.7
Derivatives
-
-
-
-
-
-
-
-
-
-
274.9
274.9
Intangible assets
-
-
-
-
-
-
-
-
-
-
12.2
12.2
Property, plant and equipment
-
-
-
-
0.3
0.3
4
-
-
5.5
1.3
7.1
Deferred tax
-
-
-
-
-
-
-
-
-
-
3.1
3.1
Prepayments, accrued income and other assets
-
-
-
-
-
-
-
-
-
-
7.4
7.4
Assets of disposal groups
-
-
-
-
-
-
-
-
-
-
0.2
0.2
41.2
15.2
34.4
50.0
17.7
158.5
155.8
85.5
160.9
450.4
1,011.1
Securities retained
17.5
Total liquidity portfolio
173.3
Liabilities secured
Intra-Group - secondary liquidity
(16.4)
-
-
-
-
(16.4)
Intra-Group - other
(14.5)
-
-
-
-
(14.5)
Third-party (6)
(6.7)
(8.8)
(34.4)
(83.3)
(10.4)
(143.6)
(37.6)
(8.8)
(34.4)
(83.3)
(10.4)
(174.5)
For the notes to this table refer to page 22.
Appendix 1 Capital and risk management
Balance sheet encumbrance (continued)
Encumbered assets relating to:
Unencumbered
Debt securities in issue
Other secured liabilities
Total
Encumbered
Readily realisable (3)
Securitisations
Covered
Secured
encumbered
assets as a
Liquidity
Other (4)
Cannot be (5)
and conduits
bonds
Derivatives
Repos
balances (1)
assets (2)
% of related
portfolio
Other
realisable
encumbered
Total
31 December 2013
bn
bn
bn
bn
bn
bn
assets
bn
bn
bn
bn
bn
Cash and balances at central banks
-
-
-
-
-
-
-
74.3
8.4
-
-
82.7
Loans and advances to banks
5.8
0.5
10.3
-
-
16.6
60
0.1
10.9
-
-
27.6
Loans and advances to customers
- UK residential mortgages
14.6
16.2
-
-
-
30.8
28
60.8
18.6
-
-
110.2
- Irish residential mortgages
9.3
-
-
-
1.2
10.5
70
0.7
3.8
-
0.1
15.1
- US residential mortgages
-
-
-
-
3.5
3.5
18
9.5
6.7
-
-
19.7
- UK credit cards
3.4
-
-
-
-
3.4
52
-
3.1
-
-
6.5
- UK personal loans
3.4
-
-
-
-
3.4
38
-
5.5
-
-
8.9
- other
13.5
-
18.1
-
0.8
32.4
14
4.4
9.6
175.6
10.2
232.2
Reverse repurchase agreements
and stock borrowing
-
-
-
-
-
-
-
-
-
-
76.5
76.5
Debt securities
0.9
-
5.5
55.6
2.7
64.7
57
17.0
31.9
-
-
113.6
Equity shares
-
-
0.5
5.3
-
5.8
66
-
3.0
-
-
8.8
Settlement balances
-
-
-
-
-
-
-
-
-
-
5.5
5.5
Derivatives
-
-
-
-
-
-
-
-
-
-
288.0
288.0
Intangible assets
-
-
-
-
-
-
-
-
-
-
12.4
12.4
Property, plant and equipment
-
-
-
-
0.4
0.4
5
-
-
7.5
-
7.9
Deferred tax
-
-
-
-
-
-
-
-
-
-
3.5
3.5
Prepayments, accrued income and other assets
-
-
-
-
-
-
-
-
-
-
8.6
8.6
Assets of disposal groups
-
-
-
-
-
-
-
-
-
-
0.2
0.2
50.9
16.7
34.4
60.9
8.6
171.5
166.8
101.5
183.1
405.0
1,027.9
Securities retained
17.4
Total liquidity portfolio
184.2
Liabilities secured
Intra-Group - secondary liquidity
(19.1)
-
-
-
-
(19.1)
Intra-Group - other
(18.4)
-
-
-
-
(18.4)
Third-party (6)
(7.8)
(9.0)
(34.4)
(85.1)
(6.0)
(142.3)
(45.3)
(9.0)
(34.4)
(85.1)
(6.0)
(179.8)
For the notes to this table refer to the following page.
Appendix 1 Capital and risk management
Balance sheet encumbrance(continued)
Notes:
(1)
Includes cash, coin and nostro balance held with the Bank of England as collateral against notes in circulation.
(2)
Encumbered assets are those that have been pledged to provide security for the liability shown above and are therefore not available to secure funding or to meet other collateral needs.
(3)
Unencumbered readily realisable assets are those assets on the balance sheet that can be readily used to meet funding or collateral requirements and comprise:
(a) Liquidity portfolio: cash balances at central banks, high quality debt securities and loans that have been pre-positioned with central banks. In addition, the liquidity portfolio includes securitisations of own assets which has reduced over the years and has been replaced by loans.
(b) Other readily realisable assets: including assets that have been enabled for use with central banks; and unencumbered debt securities.
(4)
Unencumbered other realisable assets are those assets on the balance sheet that are available for funding and collateral purposes but are not readily realisable in their current form. These assets include loans that could be prepositioned with central banks but have not been subject to internal and external documentation review and diligence work.
(5)
Assets that cannot be encumbered include:
(a) derivatives, reverse repurchase agreements and trading related settlement balances.
(b) non-financial assets such as intangibles, prepayments and deferred tax.
(c) assets in disposal groups.
(d) loans that cannot be pre-positioned with central banks based on criteria set by the central banks, primary US, including those relating to date of origination and level of documentation.
(e) non-recourse invoice financing balances and certain shipping loans whose terms and structure prohibit their use as collateral.
(6)
In accordance with market practice RBS employs securities recognised on the balance sheet, and securities received under reverse repo transactions as collateral for repos. Secured derivative liabilities now reflect net positions that are collateralised by balance sheet assets.
Appendix 1 Capital and risk management
Credit risk
Credit risk is the risk of financial loss due to the failure of a customer or counterparty to meet its obligation to settle outstanding amounts. For a description of the bank's credit risk framework, governance, policies and methodologies refer to the Risk and balance sheet management - Credit risk section - of the 2013 Annual Report and Accounts.
Financial assets
Exposure summary
The table below analyses financial asset exposures, both gross and net of offset arrangements as well as credit mitigation and enhancement.
Collateral
Exposure post
Gross
IFRS
Carrying
Non-IFRS
Real estate
Credit
credit mitigation
exposure
offset (1)
value(2)
offset (3)
Cash (4)
Securities (5)
Residential (6)
Commercial (6)
enhancement (7)
and enhancement
30 June 2014
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
Cash and balances at central banks
68.7
-
68.7
-
-
-
-
-
-
68.7
Lending
419.3
(3.8)
415.5
(35.5)
(1.8)
(3.2)
(146.0)
(61.2)
(4.8)
163.0
Reverse repos
133.9
(52.2)
81.7
(7.2)
-
(74.4)
-
-
-
0.1
Debt securities
112.8
-
112.8
-
-
-
-
-
(0.7)
112.1
Equity shares
7.8
-
7.8
-
-
-
-
-
-
7.8
Settlement balances
24.2
(4.5)
19.7
-
-
-
-
-
-
19.7
Derivatives
461.5
(186.6)
274.9
(227.6)
(26.4)
(4.9)
-
-
(15.1)
0.9
Total
1,228.2
(247.1)
981.1
(270.3)
(28.2)
(82.5)
(146.0)
(61.2)
(20.6)
372.3
Short positions
(39.0)
-
(39.0)
-
-
-
-
-
-
(39.0)
Net of short positions
1,189.2
(247.1)
942.1
(270.3)
(28.2)
(82.5)
(146.0)
(61.2)
(20.6)
333.3
For the notes to this table refer to the following page.
Appendix 1 Capital and risk management
Financial assets (continued)
Collateral
Exposure post
Gross
IFRS
Carrying
Non-IFRS
Real estate
Credit
credit mitigation
exposure
offset (1)
value(2)
offset (3)
Cash (4)
Securities (5)
Residential (6)
Commercial (6)
enhancement (7)
and enhancement
31 December 2013
bn
bn
bn
bn
bn
bn
bn
bn
bn
bn
Cash and balances at central banks
82.7
-
82.7
-
-
-
-
-
-
82.7
Lending
423.6
(3.4)
420.2
(37.2)
(1.6)
(2.7)
(145.4)
(60.0)
(3.9)
169.4
Reverse repos
117.2
(40.7)
76.5
(11.4)
-
(65.0)
-
-
-
0.1
Debt securities
113.6
-
113.6
-
-
-
-
-
(1.3)
112.3
Equity shares
8.8
-
8.8
-
-
-
-
-
-
8.8
Settlement balances
8.2
(2.7)
5.5
(0.3)
-
-
-
-
-
5.2
Derivatives
553.7
(265.7)
288.0
(241.3)
(24.4)
(6.0)
-
-
(7.3)
9.0
Total
1,307.8
(312.5)
995.3
(290.2)
(26.0)
(73.7)
(145.4)
(60.0)
(12.5)
387.5
Short positions
(28.0)
-
(28.0)
-
-
-
-
-
-
(28.0)
Net of short positions
1,279.8
(312.5)
967.3
(290.2)
(26.0)
(73.7)
(145.4)
(60.0)
(12.5)
359.5
Notes:
(1)
Relates to offset arrangements that comply with IFRS criteria and transactions cleared through and novated to central clearing houses, primarily London Clearing House and US Government Securities Clearing Corporation.
(2)
The carrying value on the balance sheet represents the exposure to credit risk by class of financial instrument.
(3)
Balance sheet offset reflects the amounts by which the bank's credit risk is reduced through master netting and cash management pooling arrangements. Derivative master netting agreements include cash pledged with counterparties in respect of net derivative liability positions and are included in lending in the table above.
(4)
Includes cash collateral pledged by counterparties based on daily mark-to-market movements of net derivative positions with the counterparty.
(5)
Securities collateral represent the fair value of securities received from counterparties, mainly relating to reverse repo transactions as part of netting arrangements.
(6)
Property valuations are capped at the loan value and reflect the application of haircuts in line with regulatory rules to indexed valuations. Commercial collateral includes ships and plant and equipment collateral.
(7)
Credit enhancement comprises credit derivatives (bought protection) and guarantees and reflects notional amounts less fair value and notional amounts respectively.
Key points
The major components of net exposures are cash and balances at central banks, unsecured commercial, corporate and bank loans, debt securities and short-term settlement balances.
Of the 112 billion of debt securities, 34 billion are asset-backed but underlying collateral is not reflected above as the bank only has access to cashflows from the collateral.
Appendix 1 Capital and risk management
Financial assets (continued)
Asset quality
The table below analyses the bank's financial assets excluding debt securities by internal asset quality (AQ) ratings. Debt securities are analysed by external ratings and are therefore excluded from the table below and are set out on page 33.
Loans and advances
Banks (1)
Customers
Settlement
Cash and
Derivative
Derivative
balances and
balances at
Reverse
cash
Bank
Reverse
cash
Customer
other financial
Contingent
central banks
repos
collateral
loans
Total
repos
collateral
loans
Total
assets
Derivatives
Commitments
liabilities
Total
Total
30 June 2014
m
m
m
m
m
m
m
m
m
m
m
m
m
m
%
Total
AQ1
66,802
7,614
1,976
4,063
13,653
34,525
9,982
39,075
83,582
7,028
65,652
68,390
8,810
313,917
28.5
AQ2
-
5,097
3,949
1,126
10,172
69
1,630
18,475
20,174
748
61,994
19,148
1,745
113,981
10.4
AQ3
1,542
2,952
1,728
4,492
9,172
5,182
3,314
28,596
37,092
3,476
93,223
26,781
7,086
178,372
16.2
AQ4
321
9,636
1,571
7,567
18,774
8,483
1,677
114,339
124,499
5,358
42,919
39,446
3,807
235,124
21.4
AQ5
3
1,484
361
1,298
3,143
4,441
442
67,179
72,062
1,314
7,269
35,442
2,299
121,532
11.1
AQ6
-
815
42
150
1,007
189
27
38,141
38,357
244
2,265
11,256
1,046
54,175
4.9
AQ7
-
565
21
189
775
653
36
29,124
29,813
112
550
9,760
830
41,840
3.8
AQ8
2
-
1
54
55
-
6
7,059
7,065
-
486
779
97
8,484
0.8
AQ9
-
-
5
316
321
-
1
9,544
9,545
31
91
998
260
11,246
1.0
AQ10
-
-
-
-
-
-
-
919
919
9
457
1,027
114
2,526
0.2
Past due
-
-
-
-
-
-
-
7,141
7,141
1,362
-
-
-
8,503
0.8
Impaired
-
-
-
60
60
-
-
32,241
32,241
-
-
-
-
32,301
2.9
Impairment
provision
-
-
-
(50)
(50)
-
-
(22,396)
(22,396)
-
-
-
-
(22,446)
(2.0)
68,670
28,163
9,654
19,265
57,082
53,542
17,115
369,437
440,094
19,682
274,906
213,027
26,094
1,099,555
100
For the note to this table refer to the following page.
Appendix 1 Capital and risk management
Financial assets: Asset quality (continued)
Loans and advances
Banks (1)
Customers
Settlement
Cash and
Derivative
Derivative
balances and
balances at
Reverse
cash
Bank
Reverse
cash
Customer
other financial
Contingent
central banks
repos
collateral
loans
Total
repos
collateral
loans
Total
assets
Derivatives
Commitments
liabilities
Total
Total
31 December 2013
m
m
m
m
m
m
m
m
m
m
m
m
m
m
%
Total
AQ1
80,305
5,885
2,043
6,039
13,967
30,233
10,042
34,395
74,670
2,707
71,497
64,453
6,739
314,338
28.2
AQ2
1
4,744
4,930
672
10,346
996
1,899
17,695
20,590
192
69,949
28,717
2,940
132,735
11.9
AQ3
1,873
2,164
1,502
2,347
6,013
1,857
3,796
29,364
35,017
746
94,678
23,126
7,057
168,510
15.1
AQ4
479
9,864
1,451
7,031
18,346
10,642
1,894
99,258
111,794
470
39,157
40,984
4,430
215,660
19.3
AQ5
-
1,776
416
662
2,854
5,403
297
77,045
82,745
717
8,826
33,507
2,087
130,736
11.7
AQ6
-
1,823
1
157
1,981
82
38
39,324
39,444
59
1,487
14,138
1,426
58,535
5.3
AQ7
-
301
-
237
538
684
50
30,279
31,013
22
978
7,437
918
40,906
3.7
AQ8
3
-
-
48
48
-
10
8,482
8,492
58
132
1,183
119
10,035
0.9
AQ9
-
-
-
34
34
-
41
16,944
16,985
-
641
1,020
317
18,997
1.7
AQ10
-
-
-
-
-
-
-
730
730
-
695
1,274
137
2,836
0.3
Past due
-
-
-
-
-
-
-
9,068
9,068
620
-
-
-
9,688
0.9
Impaired
-
-
-
70
70
-
-
37,101
37,101
-
-
-
-
37,171
3.3
Impairment
provision
-
-
-
(63)
(63)
-
-
(25,162)
(25,162)
-
-
-
-
(25,225)
(2.3)
82,661
26,557
10,343
17,234
54,134
49,897
18,067
374,523
442,487
5,591
288,040
215,839
26,170
1,114,922
100
Note:
(1)
Excludes items in the course of collection from other banks of 1,523 million (31 December 2013 - 1,454 million).
Appendix 1 Capital and risk management
Financial assets: Asset quality (continued)
Key points
Overall asset quality improved slightly with AQ1-AQ4 (investment grade of BBB- or above) increasing from 75% at 31 December 2013 to 77% at 30 June 2014 reflecting improving credit conditions and disposals and run-down in RCR.
Cash and balances at central banks decreased 14.0 billion reflecting the management of surplus liquidity.
Asset quality trends improved with loans to banks and customers rated AQ1 (equivalent to AA or above) up by 3 billion. Recalibration of retail and business banking models using updated data trends from the last three years resulted in a significant upward shift between AQ5 and below to AQ4.
Gross derivatives decreased 5% to 274.9 billion with the proportion AQ1-AQ4 stable at 96%.
Past due loans decreased 1.1 billion or 11% driven mainly by CFG (1.0 billion) and a decrease in Ulster Bank (0.3 billion) reflecting increased work with customers in arrears.
Loan impairment provisions decreased 2.8 billion mainly in relation to RCR disposals and run-off (2.0 billion).
Appendix 1 Capital and risk management
Loans and related credit metrics
The tables below analyse gross loans and advances (excluding reverse repos) and the related credit metrics by business unit.
Credit metrics
Gross loans to
REIL
Provisions
REIL as a %
of gross
Provisions
Year-to-date
loans to
as a %
Impairment
Amounts
Banks
Customers
customers
of REIL
charge
written-off
30 June 2014
m
m
m
m
%
%
m
m
UK PBB
900
129,243
4,278
2,821
3.3
66
148
407
Ulster Bank
3,036
25,708
4,861
3,285
18.9
68
57
33
PBB
3,936
154,951
9,139
6,106
5.9
67
205
440
Commercial Banking
861
85,142
2,860
1,162
3.4
41
31
201
Private Banking
1,426
16,618
239
93
1.4
39
-
24
CPB
2,287
101,760
3,099
1,255
3.0
40
31
225
CIB
19,405
69,154
105
177
0.2
nm
(36)
-
Centre
2,513
848
3
3
0.4
nm
(12)
56
CFG
277
52,221
1,307
500
2.5
38
102
147
RCR
551
30,014
20,428
14,405
68.1
71
(19)
1,619
RBS
28,969
408,948
34,081
22,446
8.3
66
271
2,487
31 December 2013
UK PBB
760
127,781
4,663
2,957
3.6
63
497
967
Ulster Bank
591
31,446
8,466
5,378
26.9
64
1,774
277
PBB
1,351
159,227
13,129
8,335
8.2
63
2,271
1,244
Commercial Banking
701
85,071
4,276
1,617
5.0
38
652
587
Private Banking
1,531
16,764
277
120
1.7
43
29
15
CPB
2,232
101,835
4,553
1,737
4.5
38
681
602
CIB
20,550
69,080
1,661
976
2.4
59
598
360
Centre
2,670
341
1
66
0.3
nm
65
-
CFG
406
50,551
1,034
272
2.0
26
151
284
Non-Core
431
36,718
19,014
13,839
51.8
73
4,646
1,856
RBS
27,640
417,752
39,392
25,225
9.4
64
8,412
4,346
Appendix 1 Capital and risk management
Loans and related credit metrics (continued)
Key points
Gross loans and advances to customers decreased by 8.8 billion or 2% to 408.9 billion; excluding the impact of foreign exchange the movement was 6.3 billion mainly driven by disposals and run off in RCR. REIL fell by 13% to 34.1 billion. Provision coverage strengthened to 66% compared with 64% at the end of 2013 and REIL were 8.3% of gross customer loans compared with 9.4% as at 31 December 2013. Asset quality continued to improve across the board.
Impairment charge for the first half of 2014 was significantly lower at 271 million compared with the prior year including 180 million of latent provision releases primarily reflecting more favourable credit conditions.
30% of the 56.9 billion property loans were REIL, with a provision coverage of 66%. 20% of property loans carry a provision. Refer to page 41 for an analysis of commercial real estate in RCR.
Strong mortgage lending in UK PBB of 2.5 billion was offset by a fall in unsecured lending of 1.1 billion. Impairment charges and credit metrics continued to show improving trends with REIL as a percentage of gross loans falling to 3.3% from 3.6% at 31 December 2013 reflecting improved asset quality and lower default trends. Write-offs of 0.4 billion reflected the continued write-off of legacy balances.
Ulster Bank loans, excluding the impact of foreign exchange and transfers to RCR, were 0.5 billion lower than at the year end mainly as customers deleveraged. Impairment charges were significantly lower at 57 million in the first half of 2014 reflecting the transfer of underperforming assets to RCR and the ongoing reduction in mortgage arrears.
Lending in CPB remained broadly stable with REIL, excluding the impact of the transfers to RCR, decreasing by 0.7 billion with write-offs and repayments outpacing new provisions.
CFG loans showed growth of 1.2 billion excluding the impact of foreign exchange with impairment charges of 102 million, higher than the prior year due to the transfer in Q1 of serviced-by-others, home equity and other portfolios in Non-Core. Credit metrics remained broadly stable.
Appendix 1 Capital and risk management
Loans and related credit metrics:Loans, REIL, provisions and impairments
The tables below analyse gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and geography (by location of lending office).
Credit metrics
30 June 2014
REIL as a
Provisions
Provisions
Year-to-date
Gross
% of gross
as a %
as a % of
Impairment
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans
charge
written-off
m
m
m
%
%
%
m
m
Central and local government
8,191
5
4
0.1
80
-
3
-
Finance
34,166
466
318
1.4
68
0.9
43
13
Personal
- mortgages
148,237
5,871
1,731
4.0
29
1.2
110
109
- unsecured
27,482
2,102
1,754
7.6
83
6.4
261
420
Property
56,908
17,315
11,490
30.4
66
20.2
(113)
1,189
Construction
6,261
1,190
737
19.0
62
11.8
68
65
Manufacturing
22,491
651
472
2.9
73
2.1
(38)
38
Finance leases (1)
13,252
195
150
1.5
77
1.1
(1)
38
Retail, wholesale and repairs
18,031
1,072
773
5.9
72
4.3
111
97
Transport and storage
14,415
1,303
631
9.0
48
4.4
32
31
Health, education and leisure
15,374
855
478
5.6
56
3.1
(13)
212
Hotels and restaurants
8,055
1,341
770
16.6
57
9.6
(4)
33
Utilities
5,432
120
76
2.2
63
1.4
3
1
Other
30,653
1,534
1,223
5.0
80
4.0
(1)
241
Latent
-
-
1,789
-
-
-
(180)
-
408,948
34,020
22,396
8.3
66
5.5
281
2,487
of which:
UK
- residential mortgages
112,252
1,713
292
1.5
17
0.3
14
23
- personal lending
16,279
1,786
1,578
11.0
88
9.7
210
348
- property
40,585
7,943
4,366
19.6
55
10.8
(33)
828
- construction
4,616
873
491
18.9
56
10.6
26
44
- other
109,618
3,489
2,515
3.2
72
2.3
(71)
514
Europe
- residential mortgages
16,482
3,213
1,288
19.5
40
7.8
59
11
- personal lending
1,104
120
120
10.9
100
10.9
5
8
- property
10,978
9,279
7,081
84.5
76
64.5
(81)
355
- construction
1,240
308
237
24.8
77
19.1
42
21
- other
21,695
3,558
3,382
16.4
95
15.6
24
179
US
- residential mortgages
19,115
927
147
4.8
16
0.8
37
75
- personal lending
9,056
179
39
2.0
22
0.4
46
64
- property
4,476
69
19
1.5
28
0.4
1
2
- construction
371
1
1
0.3
100
0.3
-
-
- other
27,838
260
609
0.9
234
2.2
12
8
RoW
- residential mortgages
388
18
4
4.6
22
1.0
-
-
- personal lending
1,043
17
17
1.6
100
1.6
-
-
- property
869
24
24
2.8
100
2.8
-
4
- construction
34
8
8
23.5
100
23.5
-
-
- other
10,909
235
178
2.2
76
1.6
(10)
3
408,948
34,020
22,396
8.3
66
5.5
281
2,487
Banks
28,969
61
50
0.2
82
0.2
(10)
-
For the note to this table refer to the following page.
Appendix 1 Capital and risk management
Loans and related credit metrics:Loans, REIL, provisions and impairments (continued)
Credit metrics
31 December 2013
REIL as a
Provisions
Provisions
Year-to-date
Gross
% of gross
as a %
as a % of
Impairment
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans
charge
written-off
m
m
m
%
%
%
m
m
Central and local government
8,643
2
2
-
100
-
2
-
Finance
35,948
593
292
1.6
49
0.8
4
72
Personal
- mortgages
148,533
6,025
1,799
4.1
30
1.2
392
441
- unsecured
28,160
2,417
1,909
8.6
79
6.8
415
861
Property
62,292
20,283
13,189
32.6
65
21.2
5,130
1,642
Construction
6,331
1,334
774
21.1
58
12.2
291
160
Manufacturing
21,377
742
559
3.5
75
2.6
195
104
Finance leases (1)
13,587
263
190
1.9
72
1.4
16
121
Retail, wholesale and repairs
19,574
1,187
783
6.1
66
4.0
268
128
Transport and storage
16,697
1,491
635
8.9
43
3.8
487
229
Health, education and leisure
16,084
1,324
756
8.2
57
4.7
359
119
Hotels and restaurants
6,942
1,427
812
20.6
57
11.7
281
194
Utilities
4,960
131
80
2.6
61
1.6
54
23
Other
28,624
2,103
1,370
7.3
65
4.8
489
212
Latent
-
-
2,012
-
-
-
44
-
417,752
39,322
25,162
9.4
64
6.0
8,427
4,306
of which:
UK
- residential mortgages
110,515
1,900
319
1.7
17
0.3
39
180
- personal lending
17,098
2,052
1,718
12.0
84
10.0
264
681
- property
44,252
9,797
5,190
22.1
53
11.7
2,014
950
- construction
4,691
941
515
20.1
55
11.0
194
159
- other
110,466
4,684
3,202
4.2
68
2.9
1,091
537
Europe
- residential mortgages
17,540
3,155
1,303
18.0
41
7.4
195
26
- personal lending
1,267
141
129
11.1
91
10.2
19
26
- property
13,177
10,372
7,951
78.7
77
60.3
3,131
659
- construction
979
351
227
35.9
65
23.2
72
-
- other
22,620
4,057
3,498
17.9
86
15.5
1,012
465
US
- residential mortgages
19,901
951
173
4.8
18
0.9
161
233
- personal lending
8,722
207
45
2.4
22
0.5
114
151
- property
4,279
85
19
2.0
22
0.4
(11)
25
- construction
313
34
24
10.9
71
7.7
25
1
- other
27,887
198
589
0.7
297
2.1
65
131
RoW
- residential mortgages
577
19
4
3.3
21
0.7
(3)
2
- personal lending
1,073
17
17
1.6
100
1.6
18
3
- property
584
29
29
5.0
100
5.0
(4)
8
- construction
348
8
8
2.3
100
2.3
-
-
- other
11,463
324
202
2.8
62
1.8
31
69
417,752
39,322
25,162
9.4
64
6.0
8,427
4,306
Banks
27,640
70
63
0.3
90
0.2
(15)
40
Note:
(1)
Includes instalment credit.
Appendix 1 Capital and risk management
Debt securities
The table below analyses debt securities by issuer and IFRS measurement classifications. US central and local government includes US federal agencies. The 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 2014
m
m
m
m
m
m
m
m
Held-for-trading (HFT)
5,978
7,805
28,908
1,821
9,089
2,292
55,893
6,940
Designated as at fair value
-
-
104
-
17
-
121
14
Available-for-sale (AFS)
3,905
11,613
10,052
5,521
17,436
171
48,698
24,104
Loans and receivables
-
-
-
160
3,224
142
3,526
3,139
Held-to-maturity (HTM)
4,556
-
-
-
-
-
4,556
-
Long positions
14,439
19,418
39,064
7,502
29,766
2,605
112,794
34,197
Of which US agencies
-
5,620
-
-
12,758
-
18,378
17,243
Short positions (HFT)
(4,546)
(10,257)
(20,949)
(821)
(1,245)
(1,042)
(38,860)
(34)
Available-for-sale
Gross unrealised gains
154
358
570
92
502
12
1,688
599
Gross unrealised losses
(15)
(90)
(3)
(103)
(265)
(3)
(479)
(449)
31 December 2013
Held-for-trading
6,764
10,951
22,818
1,720
12,406
1,947
56,606
10,674
Designated as at fair value
-
-
104
-
17
1
122
15
Available-for-sale
6,436
12,880
10,303
5,974
17,330
184
53,107
24,174
Loans and receivables
10
1
-
175
3,466
136
3,788
3,423
Long positions
13,210
23,832
33,225
7,869
33,219
2,268
113,623
38,286
Of which US agencies
-
5,599
-
-
13,132
-
18,731
18,048
Short positions (HFT)
(1,784)
(6,790)
(16,087)
(889)
(1,387)
(826)
(27,763)
(36)
Available-for-sale
Gross unrealised gains
201
428
445
70
386
11
1,541
458
Gross unrealised losses
(69)
(86)
(32)
(205)
(493)
(2)
(887)
(753)
Key points
HFT: Holdings of UK and US government bonds, and ABS decreased, reflecting sales and continued focus on balance sheet reduction and capital management in CIB. The increase in other government bonds primarily reflected higher seasonal market activity in bond auctions compared with the year end, partially offset by disposals. The increase in short positions in UK and US government bonds was driven by market conditions and customer demand, while that in other government reflected hedging of higher long positions and customer demand.
AFS: Government securities decreased by 4.0 billion. The decreases in UK, US and other government bonds reflected net disposals as gains were realised, as well as transfers of UK government bonds to HTM in Treasury. Holdings in bank issuances fell by 0.5 billion due to maturities and disposals.
AFS gross unrealised gains and losses: The UK and US government decreases in unrealised gains reflect exposure reductions. The increases in other government reflect market movements, and increases in banks and other financial institutions reflect maturities, disposals and market movements.
Appendix 1 Capital and risk management
Debt securities (continued)
Ratings
The table below analyses debt securities by issuer and external ratings. Ratings are based on the lowest of Standard and Poor's, Moody's and Fitch.
Central and local government
Banks
Other
Corporate
Total
financial
Of which
UK
US
Other
institutions
Total
ABS
30 June 2014
m
m
m
m
m
m
m
%
m
AAA
-
6
15,694
1,677
7,572
18
24,967
22
6,379
AA to AA+
14,439
19,412
8,666
262
15,237
187
58,203
52
19,200
A to AA-
-
-
7,185
2,886
980
430
11,481
10
1,855
BBB- to A-
-
-
7,146
2,134
1,939
1,142
12,361
11
2,902
Non-investment grade
-
-
373
358
2,588
562
3,881
3
2,591
Unrated
-
-
-
185
1,450
266
1,901
2
1,270
14,439
19,418
39,064
7,502
29,766
2,605
112,794
100
34,197
31 December 2013
AAA
-
18
13,106
1,434
8,155
162
22,875
20
6,796
AA to AA+
13,210
23,812
7,847
446
16,825
138
62,278
55
21,054
A to AA-
-
-
4,200
1,657
1,521
290
7,668
7
1,470
BBB- to A-
-
-
7,572
3,761
2,627
854
14,814
13
4,941
Non-investment grade
-
-
494
341
2,444
427
3,706
3
2,571
Unrated
-
2
6
230
1,647
397
2,282
2
1,454
13,210
23,832
33,225
7,869
33,219
2,268
113,623
100
38,286
Appendix 1 Capital and risk management
Derivatives
The table below analyses the bank's derivatives by type of contract. The master netting arrangements and collateral shown below do not result in a net presentation on the balance sheet under IFRS.
30 June 2014
31 December 2013
Notional (1)
Assets
Liabilities
Notional (1)
Assets
Liabilities
bn
m
m
bn
m
m
Interest rate (2)
29,061
223,476
212,861
35,589
218,041
208,698
Exchange rate
4,609
44,151
47,761
4,555
61,923
65,749
Credit
278
4,362
4,589
253
5,306
5,388
Equity and commodity
80
2,917
4,876
81
2,770
5,692
274,906
270,087
288,040
285,527
Counterparty mtm netting
(227,622)
(227,622)
(241,265)
(241,265)
*
Cash collateral
(26,405)
(23,067)
(24,423)
(25,302)
*
Securities collateral
(4,894)
(10,242)
(5,990)
(8,257)
*
Net exposure
15,985
9,156
16,362
10,703
*
*Revised
Notes:
(1)
Includes exchange traded contracts of 2,749 billion, (31 December 2013 - 2,298 billion) principally interest rate. Trades are margined daily hence carrying values were insignificant: assets - 72 million (31 December 2013 - 69 million) and liabilities - 265 million (31 December 2013 - 299 million).
(2)
Interest rate notional includes 17,606 billion (31 December 2013 - 22,563 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.
Key points
Interest rate contracts: notionals balances were 6.5 trillion lower due to increased participation in trade compression cycles during the first half of 2014, following subdued activity by Tri Optima in 2013. This also resulted in reduced amounts of trades cleared through central clearing counterparties (5 trillion reduction). The fair value increased due to downward shifts in major yield curves due to volatility in emerging markets at the beginning of the year followed by the European Central Bank's decision to introduce measures to aid economic recovery in June 2014. This was partially offset by decrease due to the strengthening of GBP against the US Dollar and Euro and participation in tear ups.
Foreign exchange contracts: decrease in fair value reflects the strengthening of GBP against the US dollar and euro, and the strengthening of Japanese yen against the US dollar, as the portfolio is materially positioned long US dollar and short Japanese yen at 30 June 2014.
Credit derivatives fair values decreased reflecting tightening credit spreads and compression cycles.
Uncollateralised derivatives predominantly represent those with large corporates with whom RBS may have netting arrangements in place, but whose business models do not support collateral posting capacity and sovereigns and supranational entities with one way collateral agreements in their favour. In addition there are some uncollateralised derivative positions with banks in certain jurisdictions for example Russia, China, Malaysia which are either uncollateralised or the collateral agreements are not deemed legally enforceable and have therefore been reported as uncollateralised.
Appendix 1 Capital and risk management (continued)
Problem debt management
For a description of early problem identification and problem debt management processes, refer to pages 242 to 251 of the 2013 Annual Report and Accounts.
Wholesale forbearance
The table below shows the loans (excluding loans where the bank has initiated recovery procedures) for which forbearance was completed during H1 2014, by sector and between performing and non-performing.
Half year ended
Year ended
30 June 2014
31 December 2013
Non-
Provision
Non-
Provision
Performing
performing
coverage (2)
Performing
performing
coverage (2)
Sector
m
m
%
m
m
%
Property
704
3,298
59
1,759
4,802
60
Transport
192
218
36
1,016
229
34
Retail and leisure
296
195
50
455
390
37
Services
342
115
42
405
234
77
Other
461
162
61
670
510
27
1,995
3,988
57
4,305
6,165
55
The table below analyses the incidence of the main types of wholesale forbearance arrangements by loan value.
Half year ended
Year ended
30 June
31 December
2014
2013
Arrangement type (3)
%
%
Payment concessions and loan rescheduling
84
78
Other (4)
5
31
Covenant-only concessions
28
16
Forgiveness of all or part of the outstanding debt
4
9
Variation in margin
4
2
Notes:
(1)
The data reflected changes in methodology highlighted in the 2013 Report and Accounts, and also the removal in April of the reporting threshold for forbearance data capture.
(2)
Provision coverage reflects impairment provision as a percentage of non performing loan.
(3)
The total exceeds 100% as an individual case can involve more than one type of arrangement.
(4)
Principally formal standstill agreements and release of security.
Key points
Forbearance completed on loans decreased during the first half of 2014 compared with the second half of 2013. This was in line both with improving market conditions and the RCR disposal strategy.
Forbearance continued to be granted in sectors that have experienced financial stress in recent years. The property sector remained the greatest contributor to the forborne portfolio, while there was a marked fall in the transport sector during the period. Some 70% of completed forbearance in the half year related to RCR loans, of which 60% were originated by Ulster Bank. Of the forbearance granted on non-performing loans, 65% related to loans originated by Ulster Bank.
Appendix 1 Capital and risk management (continued)
Problem debt management (continued)
Key points (continued)
Provisions for the non-performing loans disclosed above are individually assessed and therefore not directly comparable across periods. Provision coverage remained stable in H1.
At 30 June 2014 loans totalling 5.9 billion (31 December 2013 - 9.4 billion) had been granted credit approval for forbearance but had not yet been formally documented and were not being managed in accordance with the approved forbearance strategy. These loans are referred to as "in process" and are not included in the tables above, but 86% were non-performing (31 December 2013 - 84%) with an associated provision coverage of 54% (31 December 2013 - 44%). The principal types of forbearance offered were consistent with the completed forbearance population. The amount of in-process forbearance fell materially in line with the completion of forbearance during H1 and with disposals in RCR, which were not offset by new in-process cases.
Retail forbearance
The table below shows the loans for which forbearance was agreed during H1 2014 split between performing and non-performing by segment.
Ulster
Private
UK PBB
Bank
Banking
CFG
Total
Half year ended 30 June 2014
m
m
m
m
m
Performing forbearance in the half year
675
1,487
106
-
2,268
Non-performing forbearance in the half year
53
824
44
42
963
Total forbearance in the half year
728
2,311
150
42
3,231
Year ended 31 December 2013
Performing forbearance in the year
1,332
2,223
41
-
3,596
Non-performing forbearance in the year
186
1,213
22
101
1,522
Total forbearance in the year
1,518
3,436
63
101
5,118
Appendix 1 Capital and risk management (continued)
Problem debt management: Retail forbearance (continued)
The mortgage arrears information for retail accounts in forbearance and related provision at the end of the period are shown in the tables below.
No missed
1-3 months
>3 months
payments
in arrears
in arrears
Total
Balance
Provision
Balance
Provision
Balance
Provision
Balance
Provision
Forborne balances (1)
m
m
m
m
m
m
m
m
%
30 June 2014
UK PBB (2,3)
4,556
19
401
20
385
42
5,342
81
5.2
Ulster Bank (2,3)
1,930
190
697
159
879
265
3,506
614
19.3
Private Banking
105
2
3
-
6
-
114
2
1.3
CFG
302
29
21
1
51
-
374
30
2.0
6,893
240
1,122
180
1,321
307
9,336
727
6.3
31 December 2013
UK PBB (2,3)
4,596
17
426
23
424
51
5,446
91
5.5
Ulster Bank (2,3)
1,362
166
631
76
789
323
2,782
565
14.6
Private Banking
112
3
6
-
9
-
127
3
1.5
CFG
287
26
33
3
53
-
373
29
1.9
6,357
212
1,096
102
1,275
374
8,728
688
6.0
Notes:
(1)
As a percentage of mortgage loans.
(2)
Forbearance in UK PBB and Ulster Bank includes all changes to the contractual payment terms, including thosewhere the customer is up-to-date on payments and there is no evidence of financial difficulty.
(3)
Includes the current stock position of forbearance deals agreed since early 2008 for UK PBB and early 2009 for Ulster Bank.
The incidence of the main types of retail forbearance on the balance sheet are analysed below.
Ulster
Private
UK PBB
Bank
Banking
CFG
Total (1)
30 June 2014
m
m
m
m
m
Interest only conversions - temporary and permanent
1,705
448
1
-
2,154
Term extensions - capital repayment and interest only
2,529
447
33
51
3,060
Payment concessions
255
1,934
11
237
2,437
Capitalisation of arrears
907
1,089
-
-
1,996
Other
307
-
69
86
462
5,703
3,918
114
374
10,109
31 December 2013
Interest only conversions - temporary and permanent
1,784
512
-
-
2,296
Term extensions - capital repayment and interest only
2,478
325
29
35
2,867
Payment concessions
241
1,567
12
246
2,066
Capitalisation of arrears
907
494
-
-
1,401
Other
366
-
86
92
544
5,776
2,898
127
373
9,174
Note:
(1)
As an individual case can include more than one type of arrangement. The analysis in the forbearance arrangements table exceeds the total value of cases subject to forbearance.
Appendix 1 Capital and risk management
Problem debt management: Retail forbearance (continued)
Key points
UK PBB
The flow of new forbearance, 341 million in the second quarter of 2014, continued on a downward trend compared with the average of 409 million per quarter in the preceding four quarters. The flow for H1 2014 was 728 million.
The 24 month rolling stock of forbearance (where it was provided in the previous 24 months) fell by 13% to 1.7 billion at 30 June 2014 from 2.0 billion at 31 December 2013.
5.2% of total mortgage assets (5.3 billion) were subject to a forbearance arrangement from January 2008. This represented a decrease of 1.9% from 31 December 2013 (5.4 billion).
Approximately 85% of forbearance loans (31 December 2013 - 84%) were up-to-date with payments compared with approximately 98% of assets not subject to forbearance activity.
The majority (96%) of UK PBB forbearance was permanent in nature (term extensions, capitalisation of arrears, historical conversions to interest only). Temporary forbearance comprises payment concessions, such as reduced or deferred payments, with arrangements typically agreed for a period between three and six months.
The most frequently occurring forbearance types were term extensions (44% of forbearance loans at 30 June 2014), interest only conversions (30%) and capitalisations of arrears (16%). Conversions to interest only have only been permitted on a very exceptional basis since the fourth quarter of 2012 and have not been permitted for customers in financial difficulty since 2009.
The impairment provision cover on forbearance mortgages remained significantly higher than that on assets not subject to forbearance.
Ulster Bank
At 30 June 2014, 19.3% (3.5 billion)of Ulster Bank's mortgage loans were subject to forbearance arrangements, an increase from 14.6% (2.8 billion) at 31 December 2013. This reflected Ulster Bank'sstrategy of seekingtohelp customersfacing financial difficulties.
The increase in forbearance stock from 31 December 2013 to 30 June 2014 is attributable to customers entering forbearance for the first time (48%), customers re-entering forbearance (33%) and methodology refinements primarily relating to exit criteria (19%). The number of customers approaching Ulster Bank for assistance for the first time fell in Q2 2014 compared with Q4 2013.
There was continued increase in the proportion of longer-term forbearance solutions granted by Ulster Bank. As a percentage of the total, 55% of forbearance loans were subject to a longer term arrangement at 30 June 2014 (31 December 2013 - 41%). Capitalisations represented 28% (December 2013 - 17%), term extensions 11% (31 December 2013 - 11%) and interest rate discounts 16% (31 December 2013 - 13%) of the total forbearance portfolio at 30 June 2014. Interest rate discounts are offered for periods of up to eight years and incorporate a payment concession based on the customer's ability to pay.
The remaining forbearance loans were temporary concessions accounting for45% of the total forborne population, (31 December 2013 -59%).Interest only arrangements decreased during 2014 to 11% of forbearance loans at 30 June 2014 (31 December 2013 - 18%). Payment concessions (excluding interest rate discounts) represented the remaining34% (31 December 2013 - 41%).
The proportion of forbearance arrangements that were less than 90 days in arrears increased from 72% (31 December 2013) to 75% (30 June 2014).
Appendix 1 Capital and risk management
Key loan portfolios
Commercial real estate*
The commercial real estate sector comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders). The analysis of lending utilisations below is gross of impairment provisions and excludes rate risk management and contingent obligations.
30 June 2014
31 December 2013
Investment
Development
Total
Investment
Development
Total
By franchise (1)
m
m
m
m
m
m
PBB
4,904
886
5,790
7,350
1,228
8,578
CPB
16,639
2,844
19,483
16,616
2,957
19,573
CIB
1,158
227
1,385
898
183
1,081
22,701
3,957
26,658
24,864
4,368
29,232
CFG
4,270
-
4,270
4,018
-
4,018
RCR/Non-Core
10,700
7,564
18,264
11,624
7,704
19,328
Total
37,671
11,521
49,192
40,506
12,072
52,578
Investment
Development
Commercial
Residential
Total
Commercial
Residential
Total
Total
By geography (1)
m
m
m
m
m
m
m
30 June 2014
UK (excluding NI (2))
20,384
5,199
25,583
614
3,700
4,314
29,897
Ireland (ROI and NI (2))
3,431
936
4,367
1,814
4,925
6,739
11,106
Western Europe (other)
2,296
120
2,416
220
28
248
2,664
US
3,796
1,140
4,936
-
13
13
4,949
RoW (2)
365
4
369
-
207
207
576
30,272
7,399
37,671
2,648
8,873
11,521
49,192
31 December 2013
UK (excluding NI (2))
20,861
5,008
25,869
678
3,733
4,411
30,280
Ireland (ROI and NI (2))
4,405
1,028
5,433
1,919
5,532
7,451
12,884
Western Europe (other)
4,068
183
4,251
22
17
39
4,290
US
3,563
1,076
4,639
-
8
8
4,647
RoW (2)
314
-
314
30
133
163
477
33,211
7,295
40,506
2,649
9,423
12,072
52,578
For the notes to these tables refer to the following page.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Commercial real estate* (continued)
By sub-sector (1)
Ireland
Western
UK
(ROI and
Europe
(excl NI (2))
NI(2))
(other)
US
RoW(2)
Total
m
m
m
m
m
m
30 June 2014
Residential
8,899
5,860
149
1,153
211
16,272
Office
3,972
727
1,009
57
89
5,854
Retail
6,699
918
367
215
78
8,277
Industrial
2,892
423
22
1
14
3,352
Mixed/other
7,435
3,178
1,117
3,523
184
15,437
29,897
11,106
2,664
4,949
576
49,192
31 December 2013
Residential
8,740
6,560
200
1,085
133
16,718
Office
4,557
813
1,439
32
121
6,962
Retail
6,979
1,501
967
84
73
9,604
Industrial
3,078
454
43
30
13
3,618
Mixed/other
6,926
3,556
1,641
3,416
137
15,676
30,280
12,884
4,290
4,647
477
52,578
Notes:
(1)
Data at 30 June 2014 includes commercial real estate lending from Private Banking in CPB of 1.3 billion that was excluded from the tables showing 31 December 2013 data.
(2)
ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.
Key points
In line with the bank's strategy, overall gross lending exposure to commercial real estate fell by 3.4 billion, or 6% during the first half of 2014. Most of the decrease occurred in RCR exposure originated by Ulster Bank and CIB and was due to repayments, asset sales and write-offs.
The RCR portfolio totalled 18.3 billion, representing 37% of the bank's portfolio at 30 June 2014. Geographically, 54% of the portfolio was held in Ireland, 31% in the UK, and 14% in Western Europe.
Following disposals in the RCR portfolio which were concentrated in Ireland and western Europe (mainly in Germany), the commercial real estate portfolio was more focused on the UK market which represented 61% of the CRE portfolio (31 December 2013 - 58%). Approximately 45% of the UK portfolio was held in London and the south east of England at 30 June 2014 (31 December 2013 - 47%). The overall mix of sub-sector and investments and development remained broadly unchanged.A significant increase in new business inUK residential development during the first half of 2014 to support new housing construction wasoffsetby repayments of maturing loans, in addition to timing issues with recently agreed loans expected to be drawn asconstruction progressed.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Commercial real estate* (continued)
RCR
Rest of the Bank
Bank
Loan-to-value ratio
Non-
Non-
Non-
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
m
m
m
m
m
m
m
m
m
30 June 2014
<= 50%
435
67
502
8,675
179
8,854
9,110
246
9,356
> 50% and <= 70%
861
302
1,163
9,657
335
9,992
10,518
637
11,155
> 70% and <= 90%
836
673
1,509
2,297
420
2,717
3,133
1,093
4,226
> 90% and <= 100%
137
214
351
490
165
655
627
379
1,006
> 100% and <= 110%
88
761
849
248
127
375
336
888
1,224
> 110% and <= 130%
142
842
984
327
215
542
469
1,057
1,526
> 130% and <= 150%
20
875
895
166
215
381
186
1,090
1,276
> 150%
88
6,685
6,773
244
565
809
332
7,250
7,582
Total with LTVs
2,607
10,419
13,026
22,104
2,221
24,325
24,711
12,640
37,351
Minimal security (1)
7
3,394
3,401
9
31
40
16
3,425
3,441
Other (2)
233
1,604
1,837
5,928
635
6,563
6,161
2,239
8,400
Total
2,847
15,417
18,264
28,041
2,887
30,928
30,888
18,304
49,192
Total portfolio
average LTV (3)
77%
300%
255%
58%
141%
65%
60%
273%
132%
Non-Core
Rest of the Bank
Bank
Non-
Non-
Non-
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
31 December 2013
m
m
m
m
m
m
m
m
m
<= 50%
419
142
561
7,589
143
7,732
8,008
285
8,293
> 50% and <= 70%
867
299
1,166
9,366
338
9,704
10,233
637
10,870
> 70% and <= 90%
1,349
956
2,305
2,632
405
3,037
3,981
1,361
5,342
> 90% and <= 100%
155
227
382
796
295
1,091
951
522
1,473
> 100% and <= 110%
168
512
680
643
327
970
811
839
1,650
> 110% and <= 130%
127
1,195
1,322
444
505
949
571
1,700
2,271
> 130% and <= 150%
13
703
716
356
896
1,252
369
1,599
1,968
> 150%
69
7,503
7,572
400
1,864
2,264
469
9,367
9,836
Total with LTVs
3,167
11,537
14,704
22,226
4,773
26,999
25,393
16,310
41,703
Minimal security (1)
51
3,069
3,120
9
88
97
60
3,157
3,217
Other (2)
108
1,396
1,504
5,266
888
6,154
5,374
2,284
7,658
Total
3,326
16,002
19,328
27,501
5,749
33,250
30,827
21,751
52,578
Total portfolio
average LTV (3)
75%
292%
245%
64%
187%
85%
65%
261%
142%
Notes:
(1)
Total portfolio average LTV is quoted 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)
Other non-performing loans of 2.2 billion (31 December 2013 - 2.3 billion) were subject to standard provisioning policies. Other performing loans of 6.2 billion (31 December 2013 - 5.4 billion) included general corporate loans, typically unsecured, to commercial real estate companies, and major UK house builders in addition to facilities supported by guarantees. The credit quality of these exposures was consistent with that of the performing portfolio overall.
(3)
Weighted average by exposure.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Commercial real estate* (continued)
Key points
The average LTV for the performing book improved from 65% to 60% during the last six months. The performing book in the UK had a slightly better LTV at 56%. The reductions in the higher LTV buckets occurred mainly in the RCR book originated by Ulster Bank and CIB, reflecting reductions through repayments, asset sales and write-offs. The reductions were also reflected in the greater than 150% LTV bucket, occurring mainly in Ireland and Western Europe. RCR-Ulster Bank accounted for the growth in minimal security which was at the final stage of a reduction strategy - these are fully provided for.
Interest payable on outstanding performing investment property secured loans was covered 1.4x and 2.9x within RCR and RBS excluding RCR, respectively.
The proportion of the portfolio managed within the bank's standard credit processes increased from 47% at 31 December 2013 to 54% at 30 June 2014, while the proportion of the portfolio in AQ10 decreased from 22% to 18% during the period.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios
Residential mortgages
Total gross mortgage lending of 148.2 billion (31 December 2013 - 148.5 billion) comprised 36% of gross lending of 408.9 billion (31 December 2013 - 417.8 billion). The table below shows LTVs for the bank's major residential mortgage portfolio totalling 147.7 billion (31 December 2013 - 146.7 billion) split between performing (AQ1-AQ9) and non-performing (AQ10), with the average LTV calculated on a weighted value basis. Loan balances are shown at the end of the period whereas property values are calculated using property index movements since the last formal valuation.
UK PBB
Ulster Bank
Private Banking
CFG
Loan-to-value ratio by value
Non-
Non-
Non-
Non-
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
m
m
m
m
m
m
m
m
m
m
m
m
30 June 2014
<= 50%
28,641
321
28,962
2,078
163
2,241
3,486
8
3,494
4,532
91
4,623
> 50% and <= 70%
36,288
661
36,949
1,885
175
2,060
3,546
15
3,561
5,489
81
5,570
> 70% and <= 90%
27,961
814
28,775
2,416
257
2,673
1,344
39
1,383
5,559
103
5,662
> 90% and <= 100%
4,352
269
4,621
1,248
142
1,390
86
9
95
1,212
36
1,248
> 100% and <= 110%
1,344
149
1,493
1,313
174
1,487
70
10
80
680
23
703
> 110% and <= 130%
399
72
471
2,397
428
2,825
24
6
30
530
14
544
> 130% and <= 150%
29
5
34
2,139
525
2,664
12
4
16
127
3
130
> 150%
-
-
-
1,777
1,020
2,797
39
7
46
60
3
63
Total with LTVs
99,014
2,291
101,305
15,253
2,884
18,137
8,607
98
8,705
18,189
354
18,543
Other (2)
506
27
533
-
-
-
46
1
47
382
3
385
Total
99,520
2,318
101,838
15,253
2,884
18,137
8,653
99
8,752
18,571
357
18,928
Total portfolio average LTV (3)
61%
73%
61%
99%
128%
104%
52%
80%
53%
66%
69%
66%
Average LTV on new originations
during the half year (3)
71%
70%
59%
68%
For the notes to this table refer to the following page.
Appendix 1 Capital and risk management
Key loan portfolios: Residential mortgages (continued)
UK PBB
Ulster Bank
Private Banking
CFG
Loan-to-value ratio by value
Non-
Non-
Non-
Non-
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
m
m
m
m
m
m
m
m
m
m
m
m
31 December 2013
<= 50%
26,392
313
26,705
2,025
170
2,195
3,400
16
3,416
4,669
98
4,767
> 50% and <= 70%
34,699
591
35,290
1,837
195
2,032
3,397
20
3,417
5,529
89
5,618
> 70% and <= 90%
28,920
854
29,774
2,326
288
2,614
1,337
44
1,381
5,553
110
5,663
> 90% and <= 100%
4,057
315
4,372
1,214
162
1,376
87
7
94
1,309
39
1,348
> 100% and <= 110%
1,790
182
1,972
1,302
182
1,484
87
15
102
752
22
774
> 110% and <= 130%
552
100
652
2,509
461
2,970
27
6
33
637
17
654
> 130% and <= 150%
37
5
42
2,202
549
2,751
4
4
8
183
5
188
> 150%
-
-
-
2,385
1,227
3,612
24
6
30
102
4
106
Total with LTVs
96,447
2,360
98,807
15,800
3,234
19,034
8,363
118
8,481
18,734
384
19,118
Other (2)
511
20
531
-
-
-
215
5
220
463
3
466
Total
96,958
2,380
99,338
15,800
3,234
19,034
8,578
123
8,701
19,197
387
19,584
Total portfolio average LTV (3)
62%
75%
62%
103%
130%
108%
51%
77%
51%
67%
69%
67%
Average LTV on new originations
during the year (3)
67%
73%
52%
68%
Notes:
(1)
Includes residential mortgages and home equity loans and lines (refer to page 46 for a breakdown of balances).
(2)
Where no indexed LTV is held.
(3)
Average LTV weighted by value is calculated using the LTV on each individual mortgage and applying a weighting based on the value of each mortgage.
Appendix 1 Capital and risk management
Key loan portfolios: Residential mortgages* (continued)
Key points
UK PBB
The UK PBB mortgage portfolio was 101.8 billion at 30 June 2014. This showed an increase of 2.5% from 31 December 2013. The portfolio included 10.0 billion (31 December 2013 - 9.1 billion) of residential buy-to-let lending.
At 30 June 2014, approximately 51% of the portfolio consisted of fixed rate mortgages. Mortgages featuring a combination of fixed and variable rates made up 4% of the portfolio. The remainder were variable rate mortgages (including those on managed rates). The interest only proportion of the total portfolio was 24%. A further 7% of mortgages were on a combination of interest only plus capital and interest repayments.
Based on the Halifax Price Index at March 2014, the portfolio average indexed LTV by volume was 53.4% (31 December 2013 - 54.1%) and 61.0% by weighted value of debt outstanding (31 December 2013 - 62.0%). The ratio of total outstanding balances to total indexed property valuations was 44.5% (31 December 2013 - 45.1%).
Gross new mortgage lending amounted to 9.8 billion in H1 2014 and included 873 million of lending with an LTV of greater than 90% under the government-guaranteed Help To Buy scheme. The new mortgage business average LTV by volume was 68.2% compared to 62.7% at 31 December 2013, including the effect of the Help-to-Buy scheme. The average LTV calculated by weighted value was 70.8% (31 December 2013 - 66.6%).
All new mortgage business was subject to a comprehensive assessment. This included: i) an affordability test which featured a stressed interest rate that is higher than the customer pay rate; ii) loan to income ratio caps; iii) credit scoring; iv) a maximum loan-to-value of 90% with the exception of the government-backed Help-To-Buy mortgages (from the fourth quarter of 2013), New Buy and My New Home products where lending of up to 95% is provided; and v) a range of policy rules that restricted the availability of credit to borrowers with higher risk characteristics, for example those exhibiting a high level of indebtedness or adverse payment behaviour on previous borrowings.
The arrears rate (defined as more than three payments in arrears, excluding repossessions and shortfalls post property sale), fell to 1.1% (31 December 2013 - 1.3%). The number of properties repossessed in H1 2014 was 657 compared with 796 in H2 2013. Arrears rates remained sensitive to economic developments and the interest rate environment.
The impairment charge for mortgage loans was 5 million in H1 2014 compared with 26 million in H1 2013 and 5 million in H2 2013. The decline reflected stable default rates and one-off reductions in loss rates as valuations improved on properties held as security on defaulted debt.
Ulster Bank
Ulster Bank's residential mortgage portfolio was 18.1 billion at 30 June 2014, with 88% held in the Republic of Ireland and 12% in Northern Ireland. At constant exchange rates, the portfolio decreased 1.4 % from 31 December 2013 (19.0 billion) as a result of amortisations exceeding the value of new business in the period. The portfolio included 2.1 billion (12%) of residential buy-to-let loans.
Approximately 66% of the portfolio consisted of tracker rate loans, 23% variable rate loans and 11% fixed rate loans. Interest only represented the remaining 8% of the portfolio.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Residential mortgages* (continued)
Key points (continued)
Ulster Bank(continued)
The portfolio average indexed LTV fell 4% during H1 2014 to 104% (31 December 2013 - 108%) reflecting positive house price index trends over the previous 12 months.
The average individual LTV on new originations was 70% in 2014 (31 December 2013 - 73%).
The arrears rate (defined as more than three payments in arrears, excluding repossessions and shortfalls after property sale), fell to 15.9% (31 December 2013 - 17.0%). The number of properties repossessed in H1 2014 was 169 compared with 262 for the full year of 2013. Arrears rates remained sensitive to economic developments.
The impairment charge for mortgage loans for H1 was 36 million for H1 2014, compared with 91 million at H1 2013.
CFG
CFG'sreal estate portfolio consisted of 6.4 billion (31 December 2013 - 5.9 billion) of residential mortgages (1% in second lien position) and 12.5 billion (31 December 2013 - 13.5 billion) of home equity loans and lines (first and second liens). Home equityloans and lines included 44% in first lien position. CFG continued to focus on its 'footprint states' of New England, Mid Atlantic and Mid West regions. At 30June 2014, 82% of the portfoliowas within footprint (31 December 2013 -84%).
Theserviced-by-others (SBO) book decreased from 1.4 billion at 31 December 2013 to 1.3 billion at 30June 2014. The arrears rate of the SBO portfolioremained stable at 1.5% during the period. Thereduction in the charge-off ratefrom 4.4% annualisedduring the fourth quarter of 2013to 2.3% during the second quarter of 2014 was driven by better than expected recoveries.
The weighted average LTV of the portfoliowas broadly stable during the period. The weighted average LTV of the portfolio, excluding theSBO portfolio, was59% (31 December 2013 - 64%).
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios (continued)
Interest only retail loans*
The bank's interest only retail loan portfolios include interest only mortgage lending in PBB, CPB and CFG portfolios of home equity lines of credit (HELOC) and interest only mortgage portfolios.
30 June 2014
31 December 2013
Mortgages
Other loans
Mortgages
Other loans
bn
bn
bn
bn
Variable rate
32.2
1.9
34.8
1.3
Fixed rate
9.3
0.1
8.0
0.1
Interest only loans
41.5
2.0
42.8
1.4
Mixed repayment (1)
8.5
-
8.3
-
Total
50.0
2.0
51.1
1.4
Note:
(1)
Mortgages with partial interest only and partial capital repayments.
Key points
The bank continued to reduce its exposure to interest only mortgages in H1. UK PBB ceased offering interest only mortgages to residential owner occupied customers with effect from 1 December 2012. Interest only repayment terms remain an option for buy-to-let mortgages.
Ulster Bank withdrew interest only as a standard mortgage offering for new lending in the Republic of Ireland in 2010 and in Northern Ireland in 2012.Interest only mortgages are now granted on a very limited basis to high net worth customers or those granted forbearance.
CFG offers its customers interest only mortgages and conventional HELOC which enter an amortising repayment period after the interest only period.
CPB offers interest only mortgages to its high net worth customers.
Based on its historical analyses of customers' behaviour, the bank recognises impairment provisions in respect of loans in its interest only portfolios (PBB - two years; CFG - one year) that are approaching their contractual maturity.These impairment provisions are reassessed as new trends and data become available.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Interest only retail loans*(continued)
The tables below analyse the bank's interest only mortgage and HELOC portfolios (excluding mixed repayment mortgages) by originating business, by type, and by contractual year of maturity.
Bullet
Total
Proportion of
principal
Conversion
mortgage
repayment
toamortising
lending
30 June 2014
bn
bn
bn
%
UK PBB
24.6
-
24.6
24.2
Ulster Bank
0.7
0.9
1.6
8.8
Private Banking
6.0
-
6.0
68.6
CFG
0.2
9.1
9.3
49.1
Total
31.5
10.0
41.5
31 December 2013
UK PBB
25.4
-
25.4
25.6
Ulster Bank
0.7
1.4
2.1
11.0
Private Banking
6.0
-
6.0
69.0
CFG
0.4
8.9
9.3
47.5
Total
32.5
10.3
42.8
2014(1)
2015-16
2017-21
2022-26
2027-31
2032-41
After
Total
2041
30 June 2014
bn
bn
bn
bn
bn
bn
bn
bn
Bullet principal repayment (2)
1.0
2.7
6.7
5.7
7.6
7.4
0.4
31.5
Conversion to amortising (2,3)
0.5
2.3
5.0
2.2
-
-
-
10.0
Total
1.5
5.0
11.7
7.9
7.6
7.4
0.4
41.5
2014(1)
2015-16
2017-21
2022-26
2027-31
2032-41
After
Total
2041
31 December 2013
bn
bn
bn
bn
bn
bn
bn
bn
Bullet principal repayment (2)
0.9
2.1
6.0
7.6
7.9
7.5
0.5
32.5
Conversion to amortising (2,3)
1.9
6.0
2.2
0.1
-
0.1
-
10.3
Total
2.8
8.1
8.2
7.7
7.9
7.6
0.5
42.8
Notes:
(1)
2014 includes pre-2014 maturity exposure.
(2)
Includes 2.2 billion (31 December 2013 - 2.3 billion) of repayment mortgages that have been granted interest only concessions (forbearance).
(3)
Maturity date relates to the expiry of the interest only period.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Interest only retail loans*(continued)
UK PBB
UK PBB's interest only mortgages require full principal repayment (a 'bullet' payment) at the time of maturity. Typically such loans have remaining terms of between 14 and 19 years. Customers are reminded of the need to have an adequate repayment vehicle in place during the mortgage term.
Of the bullet loans that matured in the six months to 31 December 2013, 63% had been fully repaid by 30 June 2014. The unpaid balance totalled 48 million, of which 96% of loans continued to meet agreed payment arrangements (including balances with a term extension agreed on either a capital and interest or interest only basis). Of the 48 million unpaid balance, 66% of the loans had an indexed LTV of 70% or less with 10% above 90%. Customers may be offered an extension to the term of an interest only mortgage or a conversion of such a mortgage to a capital and interest mortgage, subject to affordability and characteristics such as their income and ultimate repayment vehicle. The majority of term extensions in UK PBB are classified as forbearance and subject to the associated higher provision cover.
Ulster Bank
Ulster Bank's interest only mortgages require full principal repayment (a 'bullet' payment) at the time of maturity; or payment of both capital and interest from the end of the interest only period - typically seven years - so that customers meet their contractual repayment obligations. Contact strategies are in place for appropriate customers to remind them of the need to repay the principal at the end of the mortgage term.
Of the bullet mortgages that matured in the six months to 31 December 2013 (2.3 million), 36% had fully repaid by 30 June 2014 leaving residual balances of 1.5 million, 80% of which were meeting the terms of a revised repayment schedule. Of the amortising loans that matured in the six months to 31 December 2013 (109 million), 64% were either fully repaid or meeting the terms of a revised repayment schedule.
CFG
CFG had a closed book of interest only HELOC loans at 30 June 2014 of 0.3 billion at 30 June 2014, for which repayment of principal is due at maturity. It also had an interest only portfolio comprising loans that convert to amortising after an interest only period that is typically 10 years (10.0 billion at 30 June 2014 of which 9.1 billion were HELOCs). The majority of the bullet loans are due to mature between 2014 and 2015.
Of the bullet loans that matured in the six months to 31 December 2013, 74% had fully been refinanced or repaid by 30 June 2014 with residual balances of 22 million. 65% (of 22 million) of which were up-to-date with their payments. For those loans that convert to amortising, the typical uplift in payments was 169% (average uplift calculated at 139 per month).
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Key loan portfolios: Interest only retail loans*(continued)
The tables below analyse the bank's retail mortgage and HELOC portfolios split between interest only mortgages (excluding mixed repayment mortgages) and other mortgage loans.
Interest only
30 June 2014
Bullet principal
Conversion
repayment
to amortising
Other
Total
bn
bn
bn
bn
Arrears status
Current
30.4
9.4
99.5
139.3
1 to 90 days in arrears
0.6
0.4
2.9
3.9
90+ days in arrears
0.5
0.2
3.8
4.5
Total
31.5
10.0
106.2
147.7
31 December 2013
Arrears status
Current
31.2
9.6
97.0
137.8
1 to 90 days in arrears
0.7
0.4
2.8
3.9
90+ days in arrears
0.6
0.3
4.1
5.0
Total
32.5
10.3
103.9
146.7
30 June 2014
Interest
only
Other
Total
bn
bn
bn
Current LTV
<= 50%
12.1
27.2
39.3
> 50% and <= 70%
14.7
33.4
48.1
> 70% and <= 90%
9.5
29.0
38.5
> 90% and <= 100%
2.3
5.1
7.4
> 100% and <= 110%
1.3
2.5
3.8
> 110% and <= 130%
0.8
3.1
3.9
> 130% and <= 150%
0.4
2.4
2.8
> 150%
0.4
2.5
2.9
Total with LTVs
41.5
105.2
146.7
Other
-
1.0
1.0
Total
41.5
106.2
147.7
31 December 2013
Current LTV
<= 50%
10.8
26.3
37.1
> 50% and <= 70%
14.6
31.8
46.4
> 70% and <= 90%
10.8
28.6
39.4
> 90% and <= 100%
2.6
4.6
7.2
> 100% and <= 110%
1.5
2.8
4.3
> 110% and <= 130%
0.9
3.4
4.3
> 130% and <= 150%
0.5
2.5
3.0
> 150%
0.7
3.1
3.8
Total with LTVs
42.4
103.1
145.5
Other
0.4
0.8
1.2
Total
42.8
103.9
146.7
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Credit risk assets*
RBS uses a range of measures for credit risk exposures. The internal measure used is credit risk assets. The balance sheet related credit risk analyses on pages 23 to 50 supplement this material. Credit risk assets (CRA) consist of lending, counterparty exposure and contingent obligations. Refer to page 230 of the 2013 Annual Report and Accounts for a full description.
30 June
31 December
2014
2013
Analysis by business unit
m
m
UK PBB
129,027
127,586
Ulster Bank
29,647
33,129
PBB
158,674
160,715
Commercial Banking
79,483
81,142
Private Banking
19,297
19,819
CPB
98,780
100,961
CIB
141,984
147,784
Central items
56,297
66,745
CFG
56,756
53,411
RCR
39,150
n/a
Non-Core
n/a
43,340
551,641
572,956
Key points
There was an overall reduction of 4% in CRA. This was driven by falls in exposure to sovereigns (11.6 billion), property (5.2 billion) and other FIs (4 billion).
CIB CRAs fell 4%, driven by a reduction in exposure to the sovereigns and other FI sectors.
UK PBB CRA increased by 1.4 billion reflecting a 2.5 billion increase in mortgages offset by decreasing unsecured lending.
CFG CRAs increased by 6%. This was driven by the transfer of personal exposure previously managed by the Non-Core division and an increase in exposure to the sovereign sector.
The RCR portfolio included 21.4 billion of property-related CRAs, 4.3 billion in the transport sector, 2.6 billion to retail & leisure and 2.7 billion to other FIs. Geographically, 43% of the portfolio was located in Western Europe (excluding the UK), 40% in the UK, 10% in Central and Eastern Europe and the Middle East and Africa, and 7% in the rest of the world. Refer to the RCR section for further information.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Credit risk assets*(continued)
Sector and geographical regional analyses
Western
RBS
Europe
North
Asia
Latin
excl.
UK
(excl. UK)
America
Pacific
America
Other (1)
Total
RCR
RCR
30 June 2014
m
m
m
m
m
m
m
m
m
Personal
128,592
17,619
28,265
1,553
67
797
176,893
176,647
246
Banks
2,523
26,415
4,220
8,310
1,220
1,956
44,644
42,699
1,945
Other financial institutions
21,626
8,954
8,358
2,383
1,359
958
43,638
40,977
2,661
Sovereign (2)
39,640
7,371
23,922
2,859
24
674
74,490
73,872
618
Property
47,502
15,491
6,543
1,118
221
479
71,354
49,915
21,439
Natural resources
7,536
4,558
5,927
3,647
406
2,258
24,332
21,974
2,358
Manufacturing
9,213
4,716
6,348
2,580
95
1,176
24,128
23,396
732
Transport (3)
10,211
3,989
3,860
1,597
97
8,619
28,373
24,030
4,343
Retail and leisure
16,904
3,484
5,036
896
52
514
26,886
24,265
2,621
Telecommunications, media
and technology
2,833
2,470
3,258
1,338
9
420
10,328
9,760
568
Business services
16,245
2,539
5,545
728
1,230
288
26,575
24,956
1,619
302,825
97,606
101,282
27,009
4,780
18,139
551,641
512,491
39,150
Western
Europe
North
Asia
Latin
RBS excl.
Non-
UK
(excl. UK)
America
Pacific
America
Other (1)
Total
Non-Core
Core
31 December 2013
m
m
m
m
m
m
m
m
m
Personal
127,620
18,751
28,616
1,418
61
656
177,122
174,798
2,324
Banks
2,506
25,085
3,133
9,670
1,192
1,771
43,357
43,010
347
Other financial institutions
23,080
10,363
9,164
2,633
1,320
1,100
47,660
43,849
3,811
Sovereign (2)
55,041
8,685
18,203
3,394
37
687
86,047
84,726
1,321
Property
49,639
18,673
6,206
929
286
795
76,528
53,569
22,959
Natural resources
6,698
4,587
6,189
3,669
214
2,087
23,444
21,412
2,032
Manufacturing
8,843
4,962
6,208
2,278
120
1,397
23,808
23,276
532
Transport (3)
10,332
3,936
3,959
1,800
163
9,435
29,625
24,086
5,539
Retail and leisure
16,338
3,924
4,977
738
91
517
26,585
24,562
2,023
Telecommunications, media
and technology
3,356
2,591
3,401
1,403
29
491
11,271
9,810
1,461
Business services
16,527
2,733
6,053
757
1,233
206
27,509
26,518
991
319,980
104,290
96,109
28,689
4,746
19,142
572,956
529,616
43,340
Notes:
(1)
Comprises Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.
(2)
Includes central bank exposures.
(3)
Excludes net investment in operating leases in shipping and aviation portfolios as they are accounted for as property, plant and equipment. However, operating leases are included in the monitoring and management of these portfolios.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Credit risk assets*: Sector and geographical regional analyses (continued)
Key points
Market conditions and the development of the bank's strategy had a significant impact on the composition of its portfolios during H1 2014, there was:
An 11.6 billion decrease in exposures to sovereign counterparties, driven by a decrease in RBS's deposits with central banks;
A 5.2 billion fall in exposures to the property sector; and
A 4.0 billion decline in exposures to other financial institutions.
The sovereign portfolio comprised exposures to central governments, central banks and sub-sovereigns such as local authorities, primarily in the bank's key markets in the UK, Western Europe and the US. Exposure predominantly comprised cash balances placed with central banks such as the Bank of England, the Federal Reserve and the European Central Bank. Consequently, the asset quality of this portfolio remained high with 92% assigned an internal rating in the AQ1 asset quality band. Exposure to sovereigns fluctuates according to the bank's liquidity requirements and cash positions, which determine the level of cash placed with central banks.
Exposure to the property sector totalled 71.4 billion at 30 June 2014, the majority of which related to commercial real estate. The remainder comprised lending to housing associations (12%), construction companies (10%), and building material groups (3%), which remained stable during the period. See the commercial real estate section for further details.
The banking sector was one of the largest in the RBS portfolio with exposure totalling 44.6 billion. Exposures were well diversified geographically, largely collateralised, and tightly controlled through the combination of a single name concentration framework and a suite of credit policies specifically tailored to ensure compliance with sector and country limits. The increase in exposure during H1 2014 was primarily due to increased activity with counterparties located in Western Europe. This was offset by falls in exposure to counterparties in the Asia & Pacific region.
Exposure to other financial institutions was made up of exposures to a range of financial companies, the largest of which were funds (24%) securitisation vehicles (22%) and financial intermediaries (13%) including broker dealers and central counterparties (CCPs). The fall in exposure took place across a number of areas, and was caused by idiosyncratic factors and market developments.
Exposure to the transport sector included asset-backed exposure to ocean-going vessels. A 1.3 billion fall in exposure was achieved during the period due to disposals, run-off and foreign exchange movements. Defaulted assets (AQ10) in the shipping sector represented 9% of the total exposure to this sector (31 December 2013 - 9%).
Appendix 1 Capital and risk management
Credit risk assets* (continued)
Asset quality
30 June 2014
31 December 2013
RBS excl.
RBS excl.
Probability of
RCR
RCR
Total
Total
Non-Core
Non-Core
Total
Total
AQ band
default range
m
m
m
%
m
m
m
%
AQ1
0% - 0.034%
117,853
2,542
120,395
21.8
129,197
3,319
132,516
23.1
AQ2
0.034% - 0.048%
22,913
766
23,679
4.3
22,942
1,485
24,427
4.3
AQ3
0.048% - 0.095%
40,632
568
41,200
7.5
41,325
700
42,025
7.3
AQ4
0.095% - 0.381%
127,618
1,751
129,369
23.5
114,258
5,737
119,995
20.9
AQ5
0.381% - 1.076%
79,575
1,837
81,412
14.8
77,676
2,585
80,261
14.0
AQ6
1.076% - 2.153%
35,610
2,514
38,124
6.9
44,476
3,138
47,614
8.3
AQ7
2.153% - 6.089%
28,608
3,164
31,772
5.8
31,504
2,060
33,564
5.9
AQ8
6.089% - 17.222%
7,983
1,575
9,558
1.7
9,492
899
10,391
1.8
AQ9
17.222% - 100%
4,753
987
5,740
1.0
6,741
771
7,512
1.3
AQ10
100%
14,396
22,891
37,287
6.8
21,814
20,743
42,557
7.4
Other (1)
32,550
555
33,105
6.0
30,191
1,903
32,094
5.6
512,491
39,150
551,641
100
529,616
43,340
572,956
100
Note:
(1)
Largely comprises assets covered by the standardised approach, for which a probability of default equivalent to those assigned to assets covered by the internal ratings based approach is not available.
RCR
RBS excl. RCR
Total
% of
% of
% of
sector
sector
sector
credit risk
credit risk
credit risk
AQ10
assets
AQ10
assets
AQ10
assets
AQ10 credit risk assets by sector
m
%
m
%
m
%
30 June 2014
Property
17,459
81.4
3,268
6.5
20,727
29.0
Personal
223
90.6
8,140
4.6
8,363
4.7
Retail & Leisure
1,658
63.3
1,086
4.5
2,744
10.2
Transport
1,384
31.9
295
1.2
1,679
5.9
Business Services
857
52.9
792
3.2
1,649
6.2
Other
1,310
14.7
815
0.4
2,125
1.0
Total
22,891
58.5
14,396
2.8
37,287
6.8
Non-Core
RBS excl. Non-Core
Total
% of
% of
% of
sector
sector
sector
credit risk
credit risk
credit risk
AQ10
assets
AQ10
assets
AQ10
assets
31 December 2013
m
%
m
%
m
%
Property
17,437
75.9
6,907
12.9
24,344
31.8
Personal
230
9.9
8,736
5.0
8,966
5.1
Retail & Leisure
1,166
57.6
1,820
7.4
2,986
11.2
Transport
553
10.0
1,262
5.2
1,815
6.1
Business Services
298
30.1
1,421
5.4
1,719
6.2
Other
1,059
11.1
1,668
0.7
2,727
1.2
Total
20,743
47.9
21,814
4.1
42,557
7.4
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Credit risk assets*: Asset quality(continued)
Key points
Changes in asset quality of credit risk exposures in H1 2014 reflected the changes in composition of the portfolio, market conditions and the run-off of RCR assets.
The decrease in the AQ1 band reflected the decrease in exposure to sovereigns. The increase in the AQ4 band was caused by the recalibration of models for UK personal mortgages to reflect continued improvements in observed default rates.
The proportion of exposure in the AQ10 band fell to 6.8% of the total portfolio. This was driven by RCR's accelerated disposal strategy and the economic climate. The proportion of exposure in AQ10 fell in all sectors that have experienced difficult market conditions in the past few years, including the shipping portfolio.
*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 the Risk and balance sheet management - Market risk section in the 2013 Annual Report and Accounts. There were no material changes to market risk methodologies or models during H1 2014.
Trading portfolios
Value-at-risk
The tables below analyse the internal value-at-risk (VaR) for RBS trading portfolios segregated by type of market risk exposure, and between CIB and RCR or Non-Core.
Half year ended
Year ended
30 June 2014
30 June 2013
31 December 2013
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
16.7
14.9
39.8
10.9
40.3
30.3
78.2
24.6
37.2
44.1
78.2
19.1
Credit spread
28.3
24.4
42.8
20.9
72.9
57.9
86.8
55.8
60.0
37.3
86.8
33.3
Currency
5.4
3.0
8.5
2.0
11.2
9.3
20.6
4.6
8.6
6.5
20.6
3.6
Equity
3.5
2.5
6.0
2.1
6.8
4.8
12.8
4.2
5.8
4.1
12.8
3.2
Commodity
0.6
0.7
1.4
0.3
1.3
0.9
3.7
0.5
0.9
0.5
3.7
0.3
Diversification (1)
(24.8)
(23.4)
(23.7)
Total
30.6
20.7
58.2
20.7
96.4
79.8
118.8
69.5
79.3
68.8
118.8
42.1
CIB
28.2
21.3
48.8
20.5
80.1
64.1
104.6
57.6
64.2
52.4
104.6
35.6
RCR (2)
6.0
3.5
16.2
3.3
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Non-Core
n/a
n/a
n/a
n/a
21.1
19.2
24.9
18.1
19.3
15.2
24.9
14.9
Appendix 1 Capital and risk management
Market risk: Trading portfolios:Value-at-risk (continued)
Quarter ended
30 June 2014
31 March 2014
31 December 2013
Average
Period end
Maximum
Minimum
Average
Period end
Maximum
Minimum
Average
Period end
Maximum
Minimum
Trading VaR
m
m
m
m
m
m
m
m
m
m
m
m
Interest rate
14.3
14.9
17.0
12.0
19.1
14.0
39.8
10.9
32.3
44.1
44.1
19.1
Credit spread
25.0
24.4
31.8
20.9
31.4
25.6
42.8
24.1
40.5
37.3
48.4
33.3
Currency
4.4
3.0
8.3
2.0
6.4
3.7
8.5
3.7
5.9
6.5
9.6
3.6
Equity
3.2
2.5
4.9
2.1
3.8
4.5
6.0
2.7
4.3
4.1
12.6
3.2
Commodity
0.6
0.7
1.4
0.4
0.5
0.4
0.8
0.3
0.7
0.5
2.5
0.4
Diversification (1)
(24.8)
(21.1)
(23.7)
Total
24.8
20.7
28.5
20.7
36.3
27.1
58.2
25.8
58.6
68.8
69.7
42.1
CIB
23.8
21.3
28.7
20.5
32.4
23.6
48.8
22.6
44.1
52.4
54.4
35.6
RCR (2)
4.0
3.5
6.8
3.3
8.0
7.5
16.2
3.5
n/a
n/a
n/a
n/a
Non-Core
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
15.7
15.2
17.7
14.9
Notes:
(1)
The Group 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.
(2)
The detailed RCR perimeter was not finalised at the start of the year. As average, maximum and minimum VaR are measures that require daily data, they have been prepared on a best efforts basis.
Key points
Theperiod end and averagetotal VaRwere lower in H1 2014 than in H2 2013, driven bycontinued reductions in credit spread and interest rate VaR, notably during Q12014.
The reduction in credit spread VaRwasprimarily driven by credit valuation adjustments (CVA) and funding valuation adjustments being included in the internal VaR measure in February 2014. Previously, only associated hedges were included. This approach reflects a more comprehensive economic view of the risk. Continued risk reduction also contributed to the decline in VaR.
The reduction in interest rate VaRwas driven by de-risking and repositioning in CIB, primarily in the Rates business.
Appendix 1 Capital and risk management
Market risk: Trading portfolios (continued)
Capital charges*
The total market risk minimum capital requirement calculated in accordance with CRD IV, 2,669 million at 30 June 2014, represents 8% of the corresponding RWA amount, 33.4 billion. It comprises a number of regulatory capital requirements split into two categories: (i) the Pillar 1 model-based position risk requirement (PRR) of 1,717 million, which in turn comprises several modelled charges and (ii) the standardised PRR of 952 million, which also has several components.
The contributors to the Pillar 1 model-based PRR are presented in the table below.
Following the implementation of CRD IV on 1 January 2014, credit hedges eligible for CVA are no longer included in the modelled market risk capital charges, namely VaR, stressed VaR and the incremental risk charge. Such hedges are now included in the CVA capital charge, which forms part of the capital calculation for counterparty credit risk.
CRD IV
Basel 2.5
31 March
31 December
CRD IV
2014
2013
Average
Maximum
Minimum
Period end
Period end
Period end
Half year ended 30 June 2014
m
m
m
m
m
m
Value-at-risk
372
527
264
264
367
576
Stressed VaR
791
856
650
650
856
841
Incremental risk charge
429
530
360
360
420
443
All price risk
4
6
-
-
5
8
Risk not in VaR (RNIV)
435
472
406
443
456
218
Total
1,717
2,104
2,086
Key points
Overall, the Pillar 1 model-based PRR declined 18% to 1.7 billion in H1 2014, driven by reductions in the VaR and Stressed VaR charges, offset somewhat by an increase in the RNIV charge.
The decrease in the VaR charge in H1 was primarily driven by the removal of the CVA eligible hedges (as noted above) and ongoing risk reduction.
The decreases in the VaR and Stressed VaR charges in Q2 were driven primarily by a reduction of the asset backed product portfolio in line with risk reduction strategy.
Given the reduction in the size of the correlation trading portfolio, RBS ceased using an internal model for all price risk during Q2. With the PRA's approval, all remaining open risk is now capitalised under standardised rules.
The RNIV charge increased in H1 as, following an agreement with the PRA, the materiality threshold previously in place was removed and all RNIVs are now capitalised.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Market risk: Non-trading portfolios (continued)
Non-trading portfolios
Non-trading VaR
The average VaR for the Group's non-trading book, predominantly comprising available-for-sale portfolios, was 4.8 million during H1 2014 compared with 7.8 million during H2 2013. This was largely driven by a decline in the credit spread VaR in Q1, which partly reflected a decision to switch some of the securities that RBS holds as collateral from floating-rate notes issued by financial institutions to government bonds during March as part of efforts to reduce RWAs. The period end VaR decreased from 5.0 million at 31 December 2013 to 3.3 million at 31 March 2014, forthe reasonexplained above.It increased to 5.8 million at 30 June 2014,largely due to data quality improvements that expanded the scope of positionscapturedinRBS's non-traded VaR metrics.
Structured credit portfolio
The structured credit portfolio is measured on a notional and fair value basis because of its illiquid nature. Notional and fair value decreased to 0.5 billion and 0.4 billion respectively (31 December 2013 - 0.7 billion and 0.5 billion), reflecting the sale of underlying assets, primarily consumer ABS (student loans), RMBS and a small amount of CLOs, in line withRCRstrategy.
Non-trading interest rate risk
Non-traded interest rate risk impacts earnings arising from the Group's 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 the 2013 Annual Report and Accounts.
Non-traded interest rate risk VaR metrics are based on interest rate repricing gap reports as at the reporting date. These incorporate customer products and associated funding and hedging transactions as well as non-financial assets and liabilities such as property, plant and equipment, capital and reserves. Behavioural assumptions are applied as appropriate.
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
m
m
m
m
30 June 2014
64
68
79
45
31 December 2013
45
51
57
30
30 June
31 December
2014
2013
m
m
Euro
3
4
Sterling
8
19
US dollar
73
44
Other
3
2
Appendix 1 Capital and risk management
Market risk: Non-trading portfolios (continued)
Key points
The increase in period end VaR mainly reflects an increase in the duration of the Group's balance sheet, largely due to action taken by CFG to reduce earnings sensitivity to movements in short-term dollar interest rates.
The decline in sterling VaRover the period did not reflect a reduction in RBS's underlying exposure to sterling fixed rate assets, whichwas broadly unchanged.Instead, it reflected reduced volatility in sterling interest rates over the period and a smoother maturity profile of the underlying exposures.
These movements remained well within the Group's approved market risk appetite.
Sensitivity of net interest income*
Earnings sensitivity to rate movements is derived from a central forecast over a twelve 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.
The following table shows the sensitivity of net interest income, over the next twelve months, to an immediate upward or downward change of 100 basis points to all interest rates. 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.
Euro
Sterling
US dollar
Other
Total
30 June 2014
m
m
m
m
m
+ 100 basis point shift in yield curves
27
413
140
23
603
- 100 basis point shift in yield curves
(66)
(280)
(53)
(28)
(427)
Bear steepener
387
Bull flattener
(229)
31 December 2013
+ 100 basis point shift in yield curves
59
416
175
31
681
- 100 basis point shift in yield curves
(29)
(333)
(82)
(15)
(459)
Bear steepener
403
Bull flattener
(273)
Key points
The Group's interest rate exposure remains asset sensitive, such that rising rates will have a positive impact on its net interest income.
The reduction in interest income sensitivity over the period largely reflects action taken by CFG to reduce earnings sensitivity to movements in short-term dollar interest rates.
*Not within the scope of Deloitte LLP's review report
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. For other types of concentration risks such as product, sector or single-name concentration, refer to the Credit risk section. For a description of the governance, monitoring and management of RBS's country risk framework and definitions, refer to Risk and balance sheet management - Country risk of RBS's 2013 Annual Report and Accounts.
Overview*
The comments below relate to changes in the six months to 30 June 2014 unless indicated otherwise.
Net balance sheet and off-balance sheet exposure to most countries shown in the summary tables declined across most broad product categories. RBS maintained a cautious stance, many clients continued to reduce debt levels, and the US dollar and the euro depreciated against sterling by 3.3% and 3.9% respectively.
Total eurozone net balance sheet exposure decreased by 4.9 billion or 5% to 97.6 billion. This was caused largely by reductions in cash deposits held with central banks in Germany and the Netherlands, in corporate lending in Ireland and Germany, and in net held-for-trading (HFT) government bond positions in the Netherlands and Spain. CDS net bought protection on eurozone exposure increased by 1.1 billion. Net HFT debt securities in Germany, France, Belgium, Austria and Finland increased while exposure to the Netherlands, Italy and Spain decreased, driven by market opportunities. Net lending in RCR was 4.3 billion for the eurozone as a whole, including 1.4 billion in Germany, 0.8 billion in Spain and 0.6 billion in both France and Ireland. Commercial real estate sector accounted for broadly half of the total.
Eurozone periphery net balance sheet exposure decreased by 1.5 billion to 40.3 billion.
Ireland - Ulster Bank Ireland moved 2.0 billion of cash deposits with RBS to the Central Bank of Ireland in anticipation of the new CRD IV liquidity coverage ratio requirements, which will come into effect in 2015. Net lending to corporates and households decreased by 1.4 billion and 0.8 billion respectively, reflecting currency movements, repayments, sales and write-offs.
Spain - net balance sheet exposure decreased by 1.8 billion, largely as a result of reductions in net HFT and AFS debt securities and lower lending to the commercial real estate sector. The reduction in AFS securities reflected the sale of some of the covered bonds ('cedulas') in the RBS NV liquidity buffer.
Italy - net derivatives to banks increased by 1.2 billion, driven by the novation of a portfolio from a counterparty. The novated exposure is fully cash collateralised. Net HFT government bonds exposure declined by 0.8 billion.
Portugal - net HFT debt securities increased by nearly 0.2 billion reflecting greater appetite for Portuguese trading exposure.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Country risk: Overview* (continued)
Germany - net balance sheet exposure fell by 3.8 billion, mainly due to a decrease of 2.7 billion in cash deposits with the Bundesbank. Other significant reductions were in commercial real estate lending (1.3 billion) and in derivatives, notably to banks, by 0.6 billion reflecting market movements. Off-balance exposure decreased by 1.0 billion, mostly owing to a reduction in the insurance sector.
France - net balance sheet exposure rose by 0.8 billion, reflecting business fluctuations. Off-balance exposure decreased by 0.4 billion, largely due to reductions in the oil and gas, industrials and insurance sectors.
Netherlands - net balance sheet exposure fell by 2.8 billion as a result of a drop in HFT government bonds, a decrease in cash deposits held with the central bank, and reductions in AFS debt securities. RBS NV's liquidity needs have decreased in line with balance sheet reductions, and sales are being executed dependent on market conditions, which were relatively benign in H1. Off-balance sheet exposure increased by 0.2 billion, primarily in the non-bank financial institutions sector.
Belgium - net balance sheet exposure increased by 1.0 billion, in HFT government bonds. Off balance exposure decreased by 0.3 billion, mostly in the electricity sector.
Other eurozone - net HFT government bonds increased by 0.6 billion reflecting increased long positions.
China - lending to banks increased by 0.2 billion, while off-balance sheet exposure to banks fell by a similar amount. The bank undertakes stress testing across both financial institutions and corporate portfolios, with early warning indicators and action plans for a possible economic downturn.
Japan - net balance sheet exposure decreased by 0.9 billion as a result of reductions in derivatives exposure to banks and other financial institutions and lower corporate lending.
India - net balance sheet exposure fell by 0.9 billion, with reductions in lending and AFS debt exposure to banks and in lending to corporate clients.These reductions in part reflected securities and loans sales to reduce risk-weighted assets in favourable market conditions.
Russia - net balance sheet exposure decreased by 0.1 billion to 1.8 billion, including 0.9 billion of corporate lending and 0.6 billion of lending to banks. Nearly half of the latter exposure was fully hedged. Following developments in Ukraine, ratings were reviewed, limits adjusted and additional credit restrictions placed on new business. Exposures are also reviewed against any international sanctions.
Turkey - lending to banks increased by 0.3 billion, partly reflecting drawings under committed limits.
Funding mismatches - material estimated funding mismatches at risk of redenomination at 30 June 2014 were: Ireland 7.5 billion (up from 6.5 billion at 31 December 2013 largely due to the 2.0 billion increase in cash held with the central bank and reduced central bank funding); Spain 5.0 billion (down from 6.5 billion); Italy 0.5 billion (broadly unchanged as assets fell and a central bank funding line was no longer used); and Portugal 0.5 billion (slightly up due to higher debt trading). The net positions for Greece and Cyprus were minimal. Risks of eurozone break-up (redenomination events) have materially fallen since 2011-2012 owing to major improvements in liquidity conditions, driven by the availability of substantial new tools for the ECB, the establishment of the European Stability Mechanism and member countries' progress on reducing imbalances.
*Not within the scope of Deloitte LLP's review report
Appendix 1 Capital and risk management
Country risk: Summary of country exposures
Net balance sheet exposure
Of which:
Off-
CDS
Govt
Central
Other
Other
Net
Debt securities
Net
balance
Total
Lending
AFS
notional less
banks
banks
FI
Corporate
Personal
Total
lending
AFS/LAR
HFT(net)
Derivatives
SFT
sheet
exposure
provisions
reserves
fair value
30 June 2014
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
Eurozone
Ireland
323
2,082
741
510
7,516
14,972
26,144
24,628
220
372
924
-
2,808
28,952
10,209
(1)
(65)
Spain
133
2
2,984
1,479
2,573
82
7,253
2,309
3,833
140
970
1
1,849
9,102
181
(215)
(279)
Italy
896
16
2,517
671
1,437
27
5,564
1,473
549
501
3,041
-
2,152
7,716
47
(24)
(827)
Portugal
136
-
362
130
254
9
891
213
90
215
373
-
317
1,208
95
(2)
(156)
Greece
-
-
223
5
100
17
345
78
-
4
263
-
24
369
26
-
(13)
Cyprus
9
-
1
2
107
12
131
103
-
9
19
-
15
146
43
-
-
Eurozone
periphery
1,497
2,100
6,828
2,797
11,987
15,119
40,328
28,804
4,692
1,241
5,590
1
7,165
47,493
10,601
(242)
(1,340)
Germany
8,111
851
3,948
4,567
2,388
95
19,960
3,595
5,518
3,002
6,815
1,030
6,195
26,155
42
60
(1,451)
France
3,203
2
6,895
2,205
2,235
92
14,632
4,053
1,749
2,218
5,931
681
9,393
24,025
132
(27)
(2,326)
Netherlands
(224)
892
5,055
5,132
2,264
27
13,146
3,650
3,856
(534)
6,089
85
9,985
23,131
148
646
(552)
Belgium
1,358
1
1,928
96
402
23
3,808
509
369
871
1,994
65
912
4,720
-
(29)
(237)
Luxembourg
-
268
586
465
578
5
1,902
1,024
86
143
526
123
1,201
3,103
47
-
(100)
Other
1,906
22
790
181
871
19
3,789
1,082
500
954
1,248
5
1,040
4,829
-
(21)
(679)
Total
eurozone
15,851
4,136
26,030
15,443
20,725
15,380
97,565
42,717
16,770
7,895
28,193
1,990
35,891
133,456
10,970
387
(6,685)
China
161
126
3,013
282
1,572
45
5,199
4,882
130
12
175
-
1,394
6,593
8
-
(7)
Japan
565
1,416
1,294
561
455
35
4,326
2,288
12
518
1,229
279
792
5,118
2
-
(21)
India
470
77
486
129
1,635
38
2,835
2,304
366
121
44
-
764
3,599
18
(2)
(28)
Russia
81
80
631
45
942
55
1,834
1,738
81
-
15
-
216
2,050
4
(1)
(101)
Turkey
97
67
423
110
1,050
18
1,765
1,654
44
9
57
1
169
1,934
17
-
(40)
South Korea
241
1
830
51
543
3
1,669
1,192
131
138
208
-
520
2,189
-
-
126
Brazil
267
-
901
8
131
3
1,310
966
-
274
70
-
206
1,516
-
-
(3)
These tables show RBS exposure, at 30 June 2014 and 31 December 2013 by country of operation of the counterparty, except exposures to governments and individuals which are shown by country of residence.Balance sheet exposures are now shown net of loan impairment provisions and prior period data are shown on the same basis. Countries shown are those where the balance sheet exposure exceeded 1 billion and which had ratings of A+ or below from Standard and Poor's, Moody's or Fitch at 30 June 2014, as well as selected eurozone countries. The exposures are stated before taking into account risk mitigants, such as guarantees, insurance or collateral (with the exception of reverse repos). Exposures relating to ocean-going vessels are not included as they cannot be meaningfully assigned to specific countries from a country risk perspective.
Appendix 1 Capital and risk management
Country risk: Summary of country exposures
Net balance sheet exposure
Of which:
Off-
Govt
Central
Other
Other
Net
Debt securities
Net
balance
Total
Lending
AFS
CDS notional
banks
banks
FI
Corporate
Personal
Total
lending
AFS/LAR
HFT(net)
Derivatives
SFT
sheet
exposure
provisions
reserves
less fair value
31 December 2013
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
Eurozone
Ireland
188
116
688
561
8,973
15,821
26,347
24,893
233
248
900
73
2,711
29,058
10,701
(9)
(166)
Spain
858
-
3,439
1,405
3,093
293
9,088
3,084
4,162
853
989
-
1,981
11,069
177
(449)
(444)
Italy
1,676
22
1,329
891
1,171
26
5,115
1,582
519
1,240
1,774
-
1,962
7,077
46
(43)
(734)
Portugal
35
-
310
114
312
6
777
290
93
43
351
-
280
1,057
99
(5)
(163)
Greece
-
1
228
1
105
14
349
89
-
-
260
-
38
387
38
-
(12)
Cyprus
2
-
1
-
144
10
157
139
-
2
16
-
18
175
54
-
-
Eurozone
periphery
2,759
139
5,995
2,972
13,798
16,170
41,833
30,077
5,007
2,386
4,290
73
6,990
48,823
11,115
(506)
(1,519)
Germany
7,215
3,588
5,044
4,265
3,520
90
23,722
8,013
5,168
2,524
7,416
601
7,189
30,911
211
29
(1,340)
France
2,806
-
6,714
1,832
2,427
79
13,858
4,197
1,692
1,678
5,660
631
9,807
23,665
123
(32)
(1,747)
Netherlands
1,509
1,713
4,604
5,786
2,303
21
15,936
4,652
4,661
819
5,697
107
9,763
25,699
187
97
(356)
Belgium
106
-
1,995
267
431
2
2,801
713
443
(480)
2,123
2
1,170
3,971
26
(34)
(123)
Luxembourg
(1)
11
524
659
386
4
1,583
741
75
98
581
88
1,043
2,626
50
-
(58)
Other
1,075
22
654
160
783
18
2,712
879
510
331
918
74
1,202
3,914
1
(24)
(476)
Total
eurozone
15,469
5,473
25,530
15,941
23,648
16,384
102,445
49,272
17,556
7,356
26,685
1,576
37,164
139,609
11,713
(470)
(5,619)
China
345
200
2,794
244
1,518
33
5,134
4,584
166
13
370
1
1,689
6,823
16
(1)
(14)
Japan
(129)
1,600
2,240
830
687
34
5,262
2,795
72
(172)
2,365
202
352
5,614
2
-
4
India
536
70
949
91
2,050
36
3,732
2,909
571
160
92
-
813
4,545
18
(4)
(21)
Russia
152
37
754
6
949
53
1,951
1,781
149
2
19
-
364
2,315
2
-
(65)
Turkey
173
59
169
126
1,064
24
1,615
1,404
50
67
94
-
324
1,939
18
-
(32)
South Korea
238
4
755
133
576
2
1,708
1,125
179
154
250
-
681
2,389
-
-
176
Brazil
262
-
914
2
148
3
1,329
977
-
268
84
-
245
1,574
-
-
12
Appendix 2
Income statement reconciliations
Appendix 2 Income statement reconciliations
Half year ended
30 June 2014
30 June 2013
Non-
One-off items
Presentational
Statutory
Non-
One-off items
Presentational
Statutory
statutory
reallocation
adjustments (1)
statutory
reallocation
adjustments (1)
m
m
m
m
m
m
m
m
Interest receivable
7,621
-
-
7,621
8,560
-
-
8,560
Interest payable
(2,125)
(3)
-
(2,128)
(3,118)
(5)
-
(3,123)
Net interest income
5,496
(3)
-
5,493
5,442
(5)
-
5,437
Fees and commissions receivable
2,605
-
-
2,605
2,708
-
-
2,708
Fees and commissions payable
(487)
-
-
(487)
(460)
-
-
(460)
Income from trading activities
1,482
11
-
1,493
1,890
174
-
2,064
Gain on redemption of own debt
-
20
-
20
-
191
-
191
Other operating income
882
154
-
1,036
1,028
304
-
1,332
Non-interest income
4,482
185
-
4,667
5,166
669
-
5,835
Total income
9,978
182
-
10,160
10,608
664
-
11,272
Staff costs
(3,340)
-
(196)
(3,536)
(3,585)
-
(142)
(3,727)
Premises and equipment
(1,079)
-
(196)
(1,275)
(1,079)
-
(25)
(1,104)
Other administrative expenses
(1,292)
(1)
(369)
(1,662)
(1,479)
2
(704)
(2,181)
Depreciation and amortisation
(551)
-
(3)
(554)
(716)
-
(20)
(736)
Restructuring costs
(514)
-
514
-
(271)
-
271
-
Litigation and conduct costs
(250)
-
250
-
(620)
-
620
-
Write-down of goodwill and other intangible assets
(82)
(130)
-
(212)
-
-
-
-
Operating expenses
(7,108)
(131)
-
(7,239)
(7,750)
2
-
(7,748)
Profit before impairment losses
2,870
51
-
2,921
2,858
666
-
3,524
Impairment losses
(269)
-
-
(269)
(2,150)
-
-
(2,150)
Operating profit
2,601
51
-
2,652
708
666
-
1,374
For the notes to this table refer to the following page.
Appendix 2 Income statement reconciliations
Half year ended
30 June 2014
30 June 2013
Non-
One-off items
Presentational
Statutory
Non-
One-off items
Presentational
Statutory
statutory
reallocation
adjustments (1)
statutory
reallocation
adjustments (1)
m
m
m
m
m
m
m
m
Operating profit
2,601
51
-
2,652
708
666
-
1,374
Own credit adjustments (2)
(51)
51
-
-
376
(376)
-
-
Gain on redemption of own debt
20
(20)
-
-
191
(191)
-
-
Write-down of goodwill
(130)
130
-
-
-
-
-
-
Strategic disposals
191
(191)
-
-
-
-
-
-
RFS Holdings minority interest
21
(21)
-
-
99
(99)
-
-
Profit before tax
2,652
-
-
2,652
1,374
-
-
1,374
Tax charge
(733)
-
-
(733)
(678)
-
-
(678)
Profit for continuing operations
1,919
-
-
1,919
696
-
-
696
Profit from discontinued operations, net of tax
35
-
-
35
138
-
-
138
Profit for the period
1,954
-
-
1,954
834
-
-
834
Non-controlling interests
(42)
-
-
(42)
(117)
-
-
(117)
Preference share and other dividends
(487)
-
-
(487)
(182)
-
-
(182)
Profit attributable to ordinary and B shareholders
1,425
-
-
1,425
535
-
-
535
Notes:
(1)
Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense line.
(2)
Reallocation of 11 million gain (2013 - 175 million gain) to income from trading activities and 62 million loss (2013 - 201 million gain) to other operating income.
Appendix 2 Income statement reconciliations
Quarter ended
30 June 2014
31 March 2014
30 June 2013
Non-
One-off items
Presentational
Statutory
Non-
One-off items
Presentational
Statutory
Non-
One-off items
Presentational
Statutory
statutory
reallocation
adjustments (1)
statutory
reallocation
adjustments (1)
statutory
reallocation
adjustments (1)
m
m
m
m
m
m
m
m
m
m
m
m
Interest receivable
3,822
(1)
-
3,821
3,799
1
-
3,800
4,281
-
-
4,281
Interest payable
(1,024)
1
-
(1,023)
(1,101)
(4)
-
(1,105)
(1,511)
(3)
-
(1,514)
Net interest income
2,798
-
-
2,798
2,698
(3)
-
2,695
2,770
(3)
-
2,767
Fees and commissions receivable
1,314
-
-
1,314
1,291
-
-
1,291
1,392
-
-
1,392
Fees and commissions payable
(251)
-
-
(251)
(236)
-
-
(236)
(250)
-
-
(250)
Income from trading activities
626
(85)
-
541
856
96
-
952
874
75
-
949
Gain on redemption of own debt
-
-
-
-
-
20
-
20
-
242
-
242
Other operating income
438
(93)
-
345
444
247
-
691
661
59
-
720
Non-interest income
2,127
(178)
-
1,949
2,355
363
-
2,718
2,677
376
-
3,053
Total income
4,925
(178)
-
4,747
5,053
360
-
5,413
5,447
373
-
5,820
Staff costs
(1,693)
1
(153)
(1,845)
(1,647)
(1)
(43)
(1,691)
(1,764)
-
(76)
(1,840)
Premises and equipment
(485)
-
(137)
(622)
(594)
-
(59)
(653)
(526)
-
(22)
(548)
Other administrative expenses
(605)
(2)
(344)
(951)
(687)
1
(25)
(711)
(801)
1
(618)
(1,418)
Depreciation and amortisation
(282)
1
(1)
(282)
(269)
(1)
(2)
(272)
(346)
-
(3)
(349)
Restructuring costs
(385)
-
385
-
(129)
-
129
-
(149)
-
149
-
Litigation and conduct costs
(250)
-
250
-
-
-
-
-
(570)
-
570
-
Write down of goodwill and other
intangible assets
-
(130)
-
(130)
(82)
-
-
(82)
-
-
-
-
Operating expenses
(3,700)
(130)
-
(3,830)
(3,408)
(1)
-
(3,409)
(4,156)
1
-
(4,155)
Profit before impairment
losses
1,225
(308)
-
917
1,645
359
-
2,004
1,291
374
-
1,665
Impairment losses
93
-
-
93
(362)
-
-
(362)
(1,117)
-
-
(1,117)
Operating profit
1,318
(308)
-
1,010
1,283
359
-
1,642
174
374
-
548
For the notes to this refer to the following page.
Appendix 2 Income statement reconciliations
Quarter ended
30 June 2014
31 March 2014
30 June 2013
Non-
One-off items
Presentational
Statutory
Non-
One-off items
Presentational
Statutory
Non-
One-off items
Presentational
Statutory
statutory
reallocation
adjustments (1)
statutory
reallocation
adjustments (1)
statutory
reallocation
adjustments (1)
m
m
m
m
m
m
m
m
m
m
m
m
Operating profit
1,318
(308)
-
1,010
1,283
359
-
1,642
174
374
-
548
Own credit adjustments (2)
(190)
190
-
-
139
(139)
-
-
127
(127)
-
-
Gain on redemption of own debt
-
-
-
-
20
(20)
-
-
242
(242)
-
-
Write-down of goodwill
(130)
130
-
-
-
-
-
-
-
-
-
-
Strategic disposals
-
-
-
-
191
(191)
-
-
6
(6)
-
-
RFS Holdings minority interest
12
(12)
-
-
9
(9)
-
-
(1)
1
-
-
Profit before tax
1,010
-
-
1,010
1,642
-
-
1,642
548
-
-
548
Tax charge
(371)
-
-
(371)
(362)
-
-
(362)
(328)
-
-
(328)
Profit from continuing operations
639
-
-
639
1,280
-
-
1,280
220
-
-
220
Profit from discontinued operations,
net of tax
26
-
-
26
9
-
-
9
9
-
-
9
Profit for the period
665
-
-
665
1,289
-
-
1,289
229
-
-
229
Non-controlling interests
(23)
-
-
(23)
(19)
-
-
(19)
14
-
-
14
Preference share and other dividends
(412)
-
-
(412)
(75)
-
-
(75)
(101)
-
-
(101)
Profit attributable to ordinary
and B shareholders
230
-
-
230
1,195
-
-
1,195
142
-
-
142
Notes:
(1)
Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense line.
(2)
Reallocation of 84 million loss (Q1 2014 - 95 million gain; Q2 2013 - 76 million gain) to income from trading activities and 106 million loss (Q1 2014 - 44 million gain; Q2 2013 - 51 million gain) to other operating income.
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