Half Yearly Report: Part 2

RNS Number : 5088U
Royal Bank of Scotland Group PLC
30 July 2015
 



 

 

 

 

 

 

 

 

 

Appendix 1

 

Capital and risk management


Appendix 1 Capital and risk management

 

Presentation of information

1

General overview

2

 

Capital management

Pillar 2A and MDA

5

Capital resources

7

Leverage exposure

8

Risk-weighted assets

9

 

Liquidity and funding risk

Liquidity risk

13

Funding risk

15

 

Credit risk

Loans and related credit metrics

17

Debt securities

22

Derivatives

23

Key loan portfolios

25

 

Market risk

Trading portfolios

34

Non-trading portfolios

36

 

Country risk

Key points

40

Country exposures

42

 

 

 

 

Presentation of information

The assets and liabilities of disposal groups are presented as single lines in the consolidated balance sheet as required by IFRS. As allowed by IFRS, exposures, measures and ratios in this Appendix include disposal groups, primarily relating to CFG and international private banking, on a line-by-line basis. A summary of this presentation is set out in Appendix 2.

 

The disclosures in this appendix supplement disclosures in Analysis of results - Balance sheet related key metrics and ratios; Impairment losses; Capital and leverage ratios. An overview by risk type is included in the General overview, supporting analyses and additional detailed commentary are included in specific risk sections.

 

Appendix 1 Capital and risk management

 

General overview*

RBS's main risks are described in Capital and risk management - Risk coverage in the 2014 Annual Report and Accounts. The table below is an overview of these risks, including any developments during H1 2015.

 

Risk type

Overview

Capital and leverage

·      RBS's CET1 ratio: continued to strengthen from 11.2% at the end of 2014 to 12.3% at 30 June 2015, an improvement of 110 basis points.

·      Key milestones were:

o  the reduction of CFG ownership interest to 40.8%; and

o  the continued run down of RCR and CIB assets.

·      RWAs: continued to decline with a £30 billion reduction from the 2014 year end to £326 billion, £26 billion above the year end 2015 target of £300 billion, following reductions in CIB (£19.1 billion) and RCR (£7.6 billion).

·      Leverage ratio (under the revised 2014 Basel III leverage ratio framework and the 2015 CRR Delegated Act): 4.6% compared with 4.2% at the end of 2014 reflecting capital strength and leverage exposure reduction, from £940 billion to £875 billion, principally in CIB.

·      RBS plans to issue £4-5 billion of end-point CRR compliant Additional Tier 1, of which £2 billion is planned to be issued in 2015.

Liquidity and funding

·      Liquidity position continues to be robust: the liquidity portfolio of £161 billion at 30 June 2015 covered short-term wholesale funding by more than six times. Excluding CFG, the liquidity portfolio was £148 billion. Short-term wholesale funding reduced to £25 billion, due to term debt maturities.

·      Liquidity portfolio increased by £10.8 billion in the six months to 30 June 2015 mainly driven by CIB and RCR run-down, Citizens share disposals and continuation of sales from RBS N.V. treasury portfolio.

·      Liquidity coverage ratio (LCR) improved by five percentage points to 117% since the year end; excluding Citizens the LCR was 118%. From 1 October 2015, RBS will be required by the PRA to have a LCR of at least 80%.

·      Net stable funding ratio (NSFR) at 30 June 2015 was 115% in total and 112%  excluding Citizens, broadly unchanged from 2014 year end.

·      The loan:deposit ratio fell to 92% at 30 June 2015, primarily reflecting asset reductions and a stable deposit base.

·      Based on its current assessment of the Financial Stability Board's proposals, RBS may issue £3-£5 billion of qualifying debt per annum between 2015 and 2019 to meet future total loss absorbing capacity requirements.

Conduct and legal

RBS continued to remediate historical conduct issues. RBS co-operated with global regulators on investigations into the foreign exchange market and the more significant penalties were settled. Litigation and conduct costs were £1.3 billion in H1 2015 compared with £0.25 billion in H1 2014. The conduct risk framework was further embedded in Conduct and Regulatory Affairs' new operating model, focussing assurance coverage and testing towards customer outcomes.

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

General overview* (continued)

 

Risk type

Overview

Credit

·      RBS's credit risk exposures continued to fall overall, with an improvement in credit quality and a net release of impairment provisions in H1 2015. RCR disposals - particularly in the commercial real estate sector in Ireland - contributed significantly to the reductions in exposure and to the provision release. These results also reflect benign economic and market conditions in the UK and Ireland, better liquidity and increased collateral values. Lower sector and asset/product class limits were implemented following the new CIB strategy.

·      The growth in UK PBB gross mortgage lending was within credit risk appetite and against a backdrop of sustained house price growth in 2015 that has outstripped earnings growth. Economic fundamentals continue to look strong, helping to underpin mild improvements in the UK housing and mortgage market.

·      From a low of US$45 per barrel in January 2015, oil prices recovered to US$61 per barrel by the end of June 2015. However, the market is still considered to be oversupplied and the outlook is uncertain. Risk appetite to the oil and gas sector was further reduced during H1 2015 following a review in March 2015, with continued focus on ensuring that the portfolio remains high investment grade.

·      Overall credit metrics strengthened in the first half of 2015 principally reflecting RCR disposals but also improvements in economic conditions: 

o  Credit risk RWAs fell by £23 billion or 8% to £273 billion at 30 June 2015 from

     £295 billion at the 2014 year end primarily reflecting CIB portfolio sales and

     risk reduction and RCR disposal strategy. 

o  Impairment provisions of £11.3 billion (2014 - £18.0 billion) covered risk      elements in lending (REIL) of £18.7 billion (2014 - £28.2 billion) by 60% (2014      - 64%).

o  CRE lending fell to £36.4 billion from £43.3 billion at the end of 2014, of which      £7.2 billion (2014 - £13.3 billion) was in REIL with provision coverage of 64%      (2014 - 68%).

Market

Average trading internal VaR decreased to £21.8 million (H1 2014 - £30.6 million; FY 2014 - £27.8 million), largely in credit spread VaR, reflecting the continued exit from the US asset-backed products trading business. Market risk RWAs decreased by £1.7 billion to £22.3 billion, driven by a decline in the standardised risk capital charge reflecting reduced securitisation exposures in the trading book, partly offset by a small increase in the Pillar 1 risk capital charge.

 

Non-trading interest rate VaR was lower as RBS positioned its structural interest rate closer to the neutral position prescribed by its risk management policy

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

 

Appendix 1 Capital and risk management

 

General overview* (continued)

 

Risk type

Overview

Country

RBS continued to maintain a cautious stance as it becomes a UK-centred bank with a focus on Western Europe. Total eurozone net balance sheet exposure decreased by £12 billion or 12% to £85.6 billion in the first half of 2015. Eurozone periphery exposures decreased by £7.4 billion or 24%, to £24.0 billion. Most of this reduction was in Italy, driven by maturity of derivative transactions and higher short positions due to uncertainty around Greece, and in Ireland, reflecting RCR portfolio sales and currency movements. Total exposure to Greece was reduced from £0.4 billion to £110 million and £86 million after the effect of credit mitigation. Exposure to Russia remained under strict control and continued to be reviewed regularly against international sanctions.

Operational

The risks associated with RBS's transformation plan are being closely monitored. Separate to this activity, in June, there was a one or two day delay to payments applied to some customer accounts. A detailed investigation is underway into the root cause of the problem - the findings will be used to reduce the risk of recurrence.

Regulatory

The level of regulatory risk remained high, given the large volume of regulatory change still impacting the industry. Various legacy conduct issues also continued to be managed.

Reputational

The most material threats to RBS's reputation continued to be as a result of conduct and operational-related matters: RBS was the subject of investigations and review by a number of regulators, some of which resulted in fines and public censure. The failure of IT systems in June 2015 also impacted customers, with reputational damage to the bank.

Business

RBS further reduced its business risk profile by continuing to scale back CIB's business activities and by pursuing RCR's asset disposal strategy.

Strategic

2015 has seen further progress in RBS's shift towards the UK and the retail and commercial banking segments to achieve a lower risk profile. Capital ratios continued to increase further towards targets which, when attained, will provide RBS with increased strategic options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Capital management

RBS aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements, and operates within an agreed risk appetite. The appropriate level of capital is determined based on the dual aims of: (i) meeting minimum regulatory capital requirements; and (ii) ensuring RBS maintains sufficient capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting its business franchises and funding capacity. For a description of the capital management framework, governance and basis of preparation refer to Capital management in the 2014 Annual Report and Accounts.

 

Pillar 2A and MDA

RBS's current Pillar 2A requirement is 3.4% of RWAs (31 December 2014 - 3.5%). From 1 January 2015, 56% of the total Pillar 2A or 1.9% of RWAs is required to be met from CET1 capital. Pillar 2A is a point in time regulatory assessment of the amount of capital that is required to be held to meet the overall financial adequacy rules. This PRA assessment may change over time, including as a result of at least an annual assessment and supervisory review of RBS's Internal Capital Adequacy Assessment Process (ICAAP); the latest ICAAP based on the end of 2014 data was completed in May 2015.

 

RBS's capital risk appetite framework, which informs its capital targets, includes consideration of the maximum distributable amount (MDA) requirements. These requirements are expected to be phased in from 2016, with full implementation by 2019.

 

Based on current capital requirements, on the illustrative assumption that current estimates of Pillar 2A remain constant, RBS estimates that its 'fully phased' CET1 MDA requirement would be 10.4% in 2019, assuming RBS's current risk profile is unchanged. It should be noted that this estimate does not reflect the anticipated impact of RBS's planned restructuring and balance sheet risk reduction programmes, changes in the regulatory framework or other factors that could impact target CET1 ratios. This estimated 2019 MDA requirement comprises:

●

4.5% Pillar 1 minimum CET1 ratio;

●

2.5% Capital conservation buffer;

●

1.9% Pillar 2A CET1 ratio; and

●

1.5% Global Systemically Important Institution buffer.

 

Based on the assumptions above, assuming a 13% steady state CET1 capital ratio is achieved, RBS currently estimates that it would have headroom of 2.6% to fully phased MDA trigger in 2019. This headroom will be subject to ongoing review to accommodate regulatory and other changes.

 

 

 

 

 

 

 

 

 

 

 

Appendix 1 Capital and risk management

 

Developments in prudential regulation

The European Union Capital Requirements Regulation (CRR) is in transition until 2019. Recent developments are set out below.

 

Capital

The Basel Committee on Banking Supervision (BCBS) has consulted on implementing capital floors, and the expectation is that the framework design will be based on a standardised methodology that is currently being revised.

 

Systemic capital buffers - Global Systemically Important Banks (G-SIB) are assessed according to methodology set out by BCBS, and an additional loss absorbency requirement has been set according to the size. An annual assessment of size is undertaken and RBS is currently required to hold a 1.5% buffer. Additional requirements are being set for domestic (D-SIB) by the EBA (up to 2%) and for ring-fenced banks by the Financial Policy Committee of the Bank of England (up to 3%).

 

BCBS is still considering its proposals on the possible inclusion of interest rate risk in the banking book within Pillar 1 capital rather than the existing Pillar 2 treatment. Similarly, there is a possibility that operational risk charges will be moved from Pillar 2 to Pillar 1 capital.

 

A comprehensive review by BCBS into the market risk framework (Fundamental Review of the Trading Book) is likely to result in changes to the banking book/trading book boundary, replacing VaR with an expected shortfall model and new, more risk sensitive standardised methodologies which will need to be calculated for the entire book, regardless of whether a firm has permission to use a modelled approach.

 

BCBS has finalised rules for the capital requirements of securitisation positions. There is a new hierarchy of methods, as well as changes to the methodologies. The new rules, effective from 1 January 2018, aim to reduce reliance on credit rating agencies, although their use will still be permitted subject to local approval, reduce cliff effects seen in the current rules, and enhance risk sensitivity.

 

PRA has published a new approach to setting Pillar 2 capital requirements, replacing the capital planning buffer with a 'PRA buffer'. Broadly this follows the consultation paper of January 2015.

 

Disclosure requirements required by regulators will be more frequent, more extensive and much more standardised (Pillar 3). BCBS requirements will be introduced from the end of 2016 and the more detailed EU requirements are being phased in during late 2015.

 

Leverage ratio

The PRA is consulting on implementation of a UK leverage ratio framework, expected to come into force from 2016, which will incorporate a systemic capital buffer and a countercyclical buffer when establishing the minimum leverage ratio for banks. There will also be disclosures and related measurement bases for exposures.

 

Recovery & resolution planning

The Financial Stability Board is continuing impact studies on Total Loss Absorbency Capacity (TLAC) for G-SIBs with an expectation of final proposals to be issued in late 2015 for implementation in 2019. Minimum requirement for eligible liabilities (MREL) is the EU equivalent of TLAC but is not restricted to G-SIBs. The required amount will be set on a case by case basis by resolution authorities, with the Bank of England proposing that MREL be aligned to TLAC.

Appendix 1 Capital and risk management

 

Capital resources









End-point CRR basis (1)


PRA transitional basis (1)


30 June

31 March

31 December


30 June

31 March

31 December

2015 

2015 

2014 


2015 

2015 

2014 


£m 

£m 

£m 


£m 

£m 

£m 









Shareholders' equity (excluding








  non-controlling interests)








 Shareholders' equity

56,064 

56,808 

57,246 


56,064 

56,808 

57,246 

 Preference shares - equity

(4,313)

(4,313)

(4,313)


(4,313)

(4,313)

(4,313)

 Other equity instruments

(634)

(634)

(784)


(634)

(634)

(784)


51,117 

51,861 

52,149 


51,117 

51,861 

52,149 









Regulatory adjustments and deductions








 Own credit

345 

609 

500 


345 

609 

500 

 Defined benefit pension fund








   adjustment

(250)

(245)

(238)


(250)

(245)

(238)

 Cash flow hedging reserve

(435)

(1,109)

(1,029)


(435)

(1,109)

(1,029)

 Deferred tax assets

(1,206)

(1,140)

(1,222)


(1,206)

(1,140)

(1,222)

 Prudential valuation adjustments

(366)

(393)

(384)


(366)

(393)

(384)

 Goodwill and other intangible assets

(7,198)

(7,619)

(7,781)


(7,198)

(7,619)

(7,781)

 Expected losses less impairments

(1,319)

(1,512)

(1,491)


(1,319)

(1,512)

(1,491)

 Other regulatory adjustments

(635)

(327)

(585)


(612)

(305)

(855)










(11,064)

(11,736)

(12,230)


(11,041)

(11,714)

(12,500)









CET1 capital

40,053 

40,125 

39,919 


40,076 

40,147 

39,649 









Additional Tier 1 (AT1) capital








 Qualifying instruments and related








   share premium subject to phase out

- 

- 

- 


6,709 

5,092 

5,820 

 Qualifying instruments issued by








   subsidiaries and held by third parties

- 

- 

- 


- 

1,114 

1,648 









AT1 capital

- 

- 

- 


6,709 

6,206 

7,648 









Tier 1 capital

40,053 

40,125 

39,919 


46,785 

46,353 

47,117 









Qualifying Tier 2 capital








 Qualifying instruments and related








   share premium

5,433 

5,734 

5,542 


10,141 

6,254 

6,136 

 Qualifying instruments issued by








   subsidiaries and held by third parties

2,748 

2,955 

3,175 


3,432 

6,716 

7,490 









Tier 2 capital

8,181 

8,689 

8,717 


13,573 

12,970 

13,626 









Total regulatory capital

48,234 

48,814 

48,636 


60,358 

59,323 

60,743 

 

Note:

(1)

Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on available-for-sale (AFS) securities which has been included from 2015 for the PRA transitional basis.

 

 

Appendix 1 Capital and risk management

 

Capital resources (continued)

 

Capital flow statement*

The table below analyses the movement in end-point CRR CET1 and Tier 2 capital for the half year ended 30 June 2015.

CET1

Tier 2

Total


£m

£m

£m





At 1 January 2015

39,919 

8,717 

48,636 

Loss for the year net of movements in fair value of own credit

(308)

- 

(308)

Share capital and reserve movements in respect of employee share schemes

161 

- 

161 

Ordinary shares issued

150 

- 

150 

Foreign exchange reserve

(1,166)

- 

(1,166)

AFS reserves

(55)

- 

(55)

Decrease in goodwill and intangibles deduction

583 

- 

583 

Deferred tax assets

16 

- 

16 

Prudential valuation adjustments

18 

- 

18 

Excess of expected loss over impairment provisions

172 

- 

172 

Dated subordinated debt issues/(maturities)

- 

(50)

(50)

Net dated subordinated debt/grandfathered instruments

- 

(76)

(76)

Foreign exchange movements

- 

(400)

(400)

Other movements

563 

(10)

553 





At 30 June 2015

40,053 

8,181 

48,234 

 

Leverage exposure

 

Basis of preparation*

The leverage exposure set out on page 24 of the main announcement is based on the revised 2014 Basel III leverage ratio framework and the 2015 CRR Delegated Act. Additional analysis of derivative notionals and undrawn commitments, two of the major components contributing to the leverage exposure is set out below.

 

The table below analyses the derivative notionals by maturity for contracts other than credit derivatives, and credit derivatives by qualifying and non-qualifying.





Credit derivatives (2)



Derivatives other than credit derivatives (1)



Non-



<1 year

1-5 years

>5 years


Qualifying

qualifying

Total

Derivative notionals

£bn

£bn

£bn


£bn

£bn

£bn

30 June 2015








Interest rate

9,642 

6,631 

3,850 




20,123 

Exchange rate

3,403 

505 

288 




4,196 

Equity

42 

16 

2 




60 

Credit





78 

22 

100 









Total

13,087 

7,152 

4,140 


78 

22 

24,479 









31 December 2014
















Interest rate

11,069 

10,423 

5,839 




27,331 

Exchange rate

3,649 

720 

306 




4,675 

Equity

42 

33 

2 




77 

Commodities

1 

- 

- 




1 

Credit





99 

26 

125 









Total

14,761 

11,176 

6,147 


99 

26 

32,209 

 

Notes:

(1)

Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements.

(2)

The PFE on credit derivatives is based on add-on factors determined by the asset quality of the referenced instrument. Qualifying credit derivatives attract a PFE add-on of 5% and have reference securities issued by public sector entities, multilateral development banks or other investment grade issuers. Non-qualifying credit derivatives attract a PFE add-on of 10%.

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Leverage exposure (continued)

 

Weighted undrawn commitments*











Ulster

Commercial

Private


Central




UK PBB

Bank

Banking

Banking

CIB

items

CFG

RCR

Total

30 June 2015

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn











Unconditionally cancellable items (1)

3.2 

0.4 

1.2 

0.1 

3.6 

2.6 

1.8 

- 

12.9 

Items with a 20% CCF

0.1 

- 

0.4 

- 

2.0 

0.1 

0.3 

- 

2.9 

Items with a 50% CCF

5.4 

0.6 

15.0 

0.7 

22.5 

0.8 

7.9 

0.3 

53.2 

Items with a 100% CCF

0.1 

0.1 

2.2 

0.4 

7.7 

3.6 

1.4 

0.2 

15.7 












8.8 

1.1 

18.8 

1.2 

35.8 

7.1 

11.4 

0.5 

84.7 











31 December 2014




















Unconditionally cancellable items (1)

3.1 

0.1 

1.0 

0.2 

2.4 

- 

1.8 

- 

8.6 

Items with a 20% CCF

0.4 

- 

0.7 

0.1 

3.2 

- 

0.4 

- 

4.8 

Items with a 50% CCF

4.8 

1.0 

9.8 

1.4 

36.8 

1.6 

7.8 

0.5 

63.7 

Items with a 100% CCF

0.1 

0.3 

2.2 

0.8 

10.2 

3.9 

1.5 

0.3 

19.3 












8.4 

1.4 

13.7 

2.5 

52.6 

5.5 

11.5 

0.8 

96.4 

 

Note:

(1)

Based on a 10% credit conversion factor.

 


Risk-weighted assets*

The tables below analyse the movement in RWAs on the end-point CRR basis during H1 2015, by key drivers.

Credit risk RWAs


Non-counterparty 

Counterparty 

Total


£bn 

£bn 

£bn 





At 1 January 2015

264.7 

30.4 

295.1 

Foreign exchange movement

(3.5)

0.1 

(3.4)

Business movements

(12.9)

(3.3)

(16.2)

Risk parameter changes

(4.1)

- 

(4.1)

Methodology changes

(0.2)

- 

(0.2)

Model updates

0.7 

(0.1)

0.6 

Other changes

0.3 

0.4 

0.7 





At 30 June 2015

245.0 

27.5 

272.5 





Modelled (1)

143.7 

24.2 

167.9 

Non-modelled

101.3 

3.3 

104.6 






245.0 

27.5 

272.5 

 

Market risk RWAs

Operational



CIB

Other

Total

risk RWAs

Total


£bn 

£bn 

£bn 

£bn 

£bn 







At 1 January 2015

18.9 

5.1 

24.0 

36.8 

60.8 

Business and market movements

(0.8)

(0.9)

(1.7)

(5.2)

(6.9)







At 30 June 2015

18.1 

4.2 

22.3 

31.6 

53.9 







Modelled (1)

15.4 

3.3 

18.7 

- 

18.7 

Non-modelled

2.7 

0.9 

3.6 

31.6 

35.2 








18.1 

4.2 

22.3 

31.6 

53.9 

 

Note:

(1)

Modelled refers to advanced internal ratings (AIRB) basis for non-counterparty credit risk, internal model method (IMM) for counterparty credit risk, and value-at-risk and related models for market risk. These principally relate to CIB (£71.8 billion) and Commercial Banking (£50.5 billion).

 

 

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

Risk-weighted assets* (continued)

The table below analyses the movement in end-point CRR RWAs by segment during the half year.













Ulster

Commercial

Private


Central





UK PBB

Bank

Banking

Banking

CIB

 items

CFG

RCR

Total

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn











At 1 January 2015

42.8 

23.8 

64.0 

11.5 

107.1 

16.3 

68.4 

22.0 

355.9 

Foreign exchange movement

- 

(1.5)

(0.3)

0.1 

(1.0)

- 

(0.3)

(0.4)

(3.4)

Business movements

(0.6)

(0.4)

1.1 

(0.8)

(18.3)

(0.6)

1.7 

(5.2)

(23.1)

Risk parameter changes (1)

(1.3)

(0.7)

(0.2)

- 

0.3 

(0.2)

- 

(2.0)

(4.1)

Methodology changes (2)

- 

- 

(0.2)

- 

- 

- 

- 

- 

(0.2)

Model updates (3)

(0.2)

- 

- 

- 

1.4 

(0.6)

- 

- 

0.6 

Other changes

0.3 

- 

2.5 

(1.0)

(1.5)

0.4 

- 

- 

0.7 











At 30 June 2015

41.0 

21.2 

66.9 

9.8 

88.0 

15.3 

69.8 

14.4 

326.4 











Credit risk










  - non-counterparty

32.0 

19.6 

60.7 

8.2 

38.6 

14.1 

64.0 

7.8 

245.0 

  - counterparty

- 

0.1 

- 

- 

22.9 

0.6 

0.9 

3.0 

27.5 

Market risk

- 

- 

- 

0.1 

18.1 

0.1 

- 

4.0 

22.3 

Operational risk

9.0 

1.5 

6.2 

1.5 

8.4 

0.5 

4.9 

(0.4)

31.6 











Total RWAs

41.0 

21.2 

66.9 

9.8 

88.0 

15.3 

69.8 

14.4 

326.4 

 

Key points

·

RWAs fell by £29.5 billion to £326.4 billion in the first half of 2015 principally in CIB and RCR.

·

CIB reduced RWAs by £19 billion to £88 billion in line with expected business run-off as it implemented the new strategy. These reductions included:


○

regional loan portfolio disposals and run-offs (£6.8 billion), including US corporate loan portfolio sales to Mizuho (£3.2 billion);


○

US asset-backed product exit (£2.3 billion);


○

other trading portfolio disposals (£2.1 billion);


○

restructuring of certain derivative transactions (£1.7 billion); and


○

run down of the trade finance in GTS in line with contractual maturities (£3.2 billion).

·

RCR disposal and run-off strategy continued to progress, resulting in RWA reductions of £7.6 billion.

·

Improvements in credit quality metrics contributed to RWA decreases in Ulster Bank and UK PBB.

·

Sterling strengthening against the euro and US dollar resulted in lower RWAs in Ulster Bank and CIB.

·

Commercial Banking RWAs at 30 June 2015 included the transfer of UK Corporate coverage from CIB (£2.3 billion) and Private Banking RBSI (£1.5 billion).

·

Annual recalculation of operational risk resulted in a £5.2 billion RWA reduction, primarily £3.4 billion in CIB and £0.4 billion in both UK PBB and Private Banking.

·

In terms of RWA density for AIRB portfolios:


○

other sovereign density decreased from 25% to 17% following the sale of term loans in RCR;


○

non-bank financial institution density increased from 38% to 45% primarily reflecting close-out of a large low risk-weighted exposure and implementation of new LGD and PD models;


○

commercial property RWA density increased overall principally due to the impact of RCR disposals, including defaulted assets; and


○

the increase in RWA density for oil and gas and mining and metal sectors reflected implementation of the new large corporate PD model for mining exposures.

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Risk-weighted assets* (continued)

 

EAD and RWA density  

The tables below show exposure at default (EAD) after credit risk mitigation (CRM), RWAs, and related RWA density by sector cluster.














EAD post CRM (1,2)


RWAs (1)


RWA density


AIRB

STD

Total 


AIRB

STD

Total 


AIRB

STD

Total 

30 June 2015

£m 

£m 

£m 


£m 

£m 

£m 


%

%

%













Sector cluster












Sovereign












Central banks

47,477 

55,729 

103,206 


1,868 

1 

1,869 


4 

- 

2 

Central government

16,564 

12,287 

28,851 


1,652 

162 

1,814 


10 

1 

6 

Other sovereign

3,958 

7,473 

11,431 


671 

327 

998 


17 

4 

9 













Total sovereign

67,999 

75,489 

143,488 


4,191 

490 

4,681 


6 

1 

3 













Financial institutions (FI)












Banks

27,831 

2,387 

30,218 


12,822 

569 

13,391 


46 

24 

44 

Other FI (2)

35,420 

20,727 

56,147 


15,982 

9,380 

25,362 


45 

45 

45 

SSPEs (3)

14,282 

2,326 

16,608 


5,480 

4,078 

9,558 


38 

175 

58 













Total FI

77,533 

25,440 

102,973 


34,284 

14,027 

48,311 


44 

55 

47 













Corporates












Property












  - UK

42,808 

3,493 

46,301 


21,824 

3,478 

25,302 


51 

100 

55 

  - Ireland

4,077 

15 

4,092 


912 

15 

927 


22 

100 

23 

  - Other Western Europe

3,526 

484 

4,010 


1,520 

503 

2,023 


43 

104 

50 

  - US

1,036 

8,024 

9,060 


519 

8,059 

8,578 


50 

100 

95 

  - RoW

1,639 

361 

2,000 


1,115 

335 

1,450 


68 

93 

73 













Total property

53,086 

12,377 

65,463 


25,890 

12,390 

38,280 


49 

100 

58 

Natural resources












  - Oil and gas

11,145 

2,043 

13,188 


5,401 

1,856 

7,257 


48 

91 

55 

  - Mining and metals

2,438 

613 

3,051 


2,058 

641 

2,699 


84 

105 

88 

  - Other

13,793 

974 

14,767 


5,227 

759 

5,986 


38 

78 

41 

Transport












  - Shipping

6,322 

2,731 

9,053 


4,186 

2,745 

6,931 


66 

101 

77 

  - Other

19,794 

3,091 

22,885 


8,310 

2,734 

11,044 


42 

88 

48 

Manufacturing

25,070 

8,408 

33,478 


10,801 

8,219 

19,020 


43 

98 

57 

Retail and leisure

21,388 

8,095 

29,483 


12,786 

7,981 

20,767 


60 

99 

70 

Services

21,919 

7,973 

29,892 


12,901 

8,028 

20,929 


59 

101 

70 

TMT (4)

10,131 

2,785 

12,916 


5,513 

2,671 

8,184 


54 

96 

63 













Total corporates

185,086 

49,090 

234,176 


93,073 

48,024 

141,097 


50 

98 

60 













Personal












Mortgages












  - UK

117,153 

7,803 

124,956 


10,123 

3,188 

13,311 


9 

41 

11 

  - Ireland

13,992 

35 

14,027 


11,416 

16 

11,432 


82 

46 

81 

  - Other Western Europe

198 

324 

522 


16 

136 

152 


8 

42 

29 

  - US

132 

20,629 

20,761 


10 

10,061 

10,071 


8 

49 

49 

  - RoW

422 

724 

1,146 


37 

284 

321 


9 

39 

28 













Total mortgages

131,897 

29,515 

161,412 


21,602 

13,685 

35,287 


16 

46 

22 

Other personal

30,446 

17,239 

47,685 


12,366 

12,801 

25,167 


41 

74 

53 













Total personal

162,343 

46,754 

209,097 


33,968 

26,486 

60,454 


21 

57 

29 

Other items

4,118 

17,885 

22,003 


2,364 

15,543 

17,907 


57 

87 

81 













Total

497,079 

214,658 

711,737 


167,880 

104,570 

272,450 


34 

49 

38 













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*: EAD and RWA density (continued)

 

EAD post CRM (1,2)


RWAs (1)


RWA density


AIRB

STD

Total 


AIRB

STD

Total 


AIRB

STD

Total 

31 December 2014

£m 

£m 

£m 


£m 

£m 

£m 


%

%

%













Sector cluster












Sovereign












Central banks

44,007 

50,539 

94,546 


1,632 

78 

1,710 


4 

- 

2 

Central government

16,373 

9,944 

26,317 


1,775 

61 

1,836 


11 

1 

7 

Other sovereign

4,936 

6,548 

11,484 


1,250 

386 

1,636 


25 

6 

14 













Total sovereign

65,316 

67,031 

132,347 


4,657 

525 

5,182 


7 

1 

4 













Financial institutions (FI)












Banks

32,777 

2,081 

34,858 


15,089 

488 

15,577 


46 

23 

45 

Other FI (2)

41,420 

22,535 

63,955 


15,585 

9,960 

25,545 


38 

44 

40 

SSPEs (3)

17,504 

2,634 

20,138 


6,216 

4,410 

10,626 


36 

167 

53 













Total FI

91,701 

27,250 

118,951 


36,890 

14,858 

51,748 


40 

55 

44 













Corporates












Property












  - UK

48,081 

3,463 

51,544 


23,736 

3,390 

27,126 


49 

98 

53 

  - Ireland

7,541 

31 

7,572 


1,283 

33 

1,316 


17 

106 

17 

  - Other Western Europe

4,625 

431 

5,056 


2,321 

445 

2,766 


50 

103 

55 

  - US

1,334 

7,481 

8,815 


722 

7,551 

8,273 


54 

101 

94 

  - RoW

2,048 

284 

2,332 


1,296 

249 

1,545 


63 

88 

66 













Total property

63,629 

11,690 

75,319 


29,358 

11,668 

41,026 


46 

100 

54 

Natural resources












  - Oil and gas

15,704 

1,876 

17,580 


6,864 

1,665 

8,529 


44 

89 

49 

  - Mining and metals

3,744 

635 

4,379 


2,602 

660 

3,262 


69 

104 

74 

  - Other

16,173 

1,070 

17,243 


6,367 

861 

7,228 


39 

80 

42 

Transport












  - Shipping

8,332 

2,571 

10,903 


5,790 

2,575 

8,365 


69 

100 

77 

  - Other

21,268 

3,297 

24,565 


9,176 

2,865 

12,041 


43 

87 

49 

Manufacturing

29,450 

8,430 

37,880 


12,673 

8,257 

20,930 


43 

98 

55 

Retail and leisure

24,564 

8,262 

32,826 


14,940 

8,027 

22,967 


61 

97 

70 

Services

23,489 

8,426 

31,915 


13,327 

8,350 

21,677 


57 

99 

68 

TMT (4)

13,555 

2,790 

16,345 


7,079 

2,806 

9,885 


52 

101 

60 













Total corporates

219,908 

49,047 

268,955 


108,176 

47,734 

155,910 


49 

97 

58 













Personal












Mortgages












  - UK

113,884 

7,794 

121,678 


10,651 

3,121 

13,772 


9 

40 

11 

  - Ireland

15,544 

37 

15,581 


13,137 

18 

13,155 


85 

49 

84 

  - Other Western Europe

193 

311 

504 


16 

124 

140 


8 

40 

28 

  - US

131 

21,088 

21,219 


10 

10,352 

10,362 


8 

49 

49 

  - RoW

407 

589 

996 


39 

232 

271 


10 

39 

27 













Total mortgages

130,159 

29,819 

159,978 


23,853 

13,847 

37,700 


18 

46 

24 

Other personal

31,628 

15,971 

47,599 


13,233 

11,805 

25,038 


42 

74 

53 













Total personal

161,787 

45,790 

207,577 


37,086 

25,652 

62,738 


23 

56 

30 

Other items

4,465 

18,363 

22,828 


3,012 

16,580 

19,592 


67 

90 

86 













Total

543,177 

207,481 

750,658 


189,821 

105,349 

295,170 


35 

51 

39 

 

Notes:

(1)

Regulatory permissions to model counterparty credit risk exposure is independent from the scope of applying AIRB methodology. As such, standardised EAD and RWA will incorporate an element of modelled counterparty credit risk exposure.

(2)

Exposure at default post credit risk mitigation reflects an estimate of the extent to which a bank will be exposed under a specific facility, in the event of the default of a counterparty; AIRB: advanced internal ratings based; STD: standardised.

(3)

Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks.

(4)

Securitisation structured purpose entities primarily relate to securitisation related vehicles.

(5)

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 RBS is unable to meet its financial obligations, including financing wholesale maturities or customer deposit withdrawals, as and when they fall due. The risk arises through the maturity transformation role that banks perform. It is dependent on RBS 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 market factors, such as wholesale market conditions alongside depositor and investor behaviour. For a description of the liquidity and funding risk framework, governance and basis of preparation refer to Capital and risk management - Liquidity and funding risk in the 2014 Annual Report and Accounts.

 

Liquidity and related metrics*

The table below sets out the key liquidity and related metrics monitored by RBS.

 

30 June 2015





RBS

31 March

31 December

RBS

 excluding CFG

2015 

2014 






Liquidity portfolio

£161bn

£148bn

£157bn

£151bn

Stressed outflow coverage (SCR) (1)

215%

235%

187%

186%

LCR (2)

117%

118%

112%

112%

NSFR (3)

115%

112%

110%

112%

Loan:deposit ratio

92%

91%

95%

95%

 

Notes:

(1)

RBS's liquidity risk appetite is measured by reference to the liquidity portfolio as a percentage of stressed contractual and behavioural outflows under the worst of three internal severe stress scenarios (a market-wide stress, an idiosyncratic stress and a combination of both) in accordance with PRA guidance on Individual Liquidity Adequacy Assessment.

(2)

Within the EU, the LCR is due to come into effect from 1 October 2015 on a phased basis, and replace the current PRA regime from this date. RBS monitors the LCR based on its internal interpretations of the EU Delegated Act rules for the implementation of the LCR. Consequently, RBS's ratio may change over time and may not be comparable with those of other financial institutions.

(3)

Pending further guidelines from the EU and the PRA, RBS uses its own interpretation of the proposals from the BCBS recommendations to calculate the NSFR. Consequently RBS's ratio may change over time and may not be comparable with those of other financial institutions. The ratio is due to come into effect from 1 January 2018.

 

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 2015

30 June 2015

£m 

£m 

£m 

£m 


£m 

£m 









Cash and balances at central banks

73,218 

1,183 

1,406 

75,807 


71,113 

66,392 

Central and local government bonds








  AAA rated governments

3,932 

12 

1,033 

4,977 


5,609 

6,529 

  AA- to AA+ rated governments and US agencies

10,202 

9,845 

2,852 

22,899 


21,154 

20,285 

  Below AA rated governments

- 

- 

- 

- 


80 

91 

  Local government

- 

- 

- 

- 


- 

24 










14,134 

9,857 

3,885 

27,876 


26,843 

26,929 









Primary liquidity

87,352 

11,040 

5,291 

103,683 


97,956 

93,321 

Secondary liquidity (2)

54,667 

2,085 

1,022 

57,774 


57,586 

57,024 









Total liquidity value

142,019 

13,125 

6,313 

161,457 


155,542 

150,345 









Total carrying value

177,485 

14,199 

7,262 

198,946 




 

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 portfolio (continued)

Liquidity value


Period end


Average 


UK DLG (1)

CFG

Other

Total


Quarter

Year

31 December 2014

£m

£m

£m

£m


£m

£m









Cash and balances at central banks

66,409 

1,368 

633 

68,410 


61,777 

61,956 

Central and local government bonds








  AAA rated governments and US agencies

5,609 

- 

2,289 

7,898 


8,729 

5,935 

  AA- to AA+ rated governments

6,902 

9,281 

1,448 

17,631 


16,589 

12,792 

  Below AA rated governments

- 

- 

100 

100 


- 

- 

  Local government

- 

- 

82 

82 


79 

21 










12,511 

9,281 

3,919 

25,711 


25,397 

18,748 









Primary liquidity

78,920 

10,649 

4,552 

94,121 


87,174 

80,704 

Secondary liquidity (2)

53,055 

2,290 

1,189 

56,534 


57,582 

56,017 









Total liquidity value

131,975 

12,939 

5,741 

150,655 


144,756 

136,721 









Total carrying value

167,016 

13,914 

6,055 

186,985 




 

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 RBS'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)

Comprises 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 businesses. Active management of both asset and liability portfolios is designed to optimise the liquidity profile, while ensuring adequate coverage of all cash requirements under extreme stress conditions.

 

The table below summarises the key funding metrics.











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 2015

25.0 

47.0 


76.4 

98.4 


13.5 

(12.3)

1.2 

31 March 2015

27.2 

55.3 


84.0 

112.1 


14.3 

(14.8)

(0.5)

31 December 2014

27.8 

53.3 


90.5 

116.0 


15.4 

(13.3)

2.1 

30 September 2014

31.4 

53.9 


94.4 

116.9 


16.5 

(18.2)

(1.7)

30 June 2014

33.6 

55.1 


101.6 

123.1 


17.7 

(19.3)

(1.6)

 

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.

 









The table below shows RBS's principal funding sources excluding repurchase agreements (repos).










30 June 2015


31 December 2014


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

21,993 

- 

21,993 


25,503 

- 

25,503 

 other deposits

11,938 

1,521 

13,459 


13,137 

2,294 

15,431 










33,931 

1,521 

35,452 


38,640 

2,294 

40,934 

Debt securities in issue








 commercial paper

154 

- 

154 


625 

- 

625 

 certificates of deposit

1,413 

196 

1,609 


1,695 

149 

1,844 

 medium-term notes

7,842 

22,199 

30,041 


7,741 

29,007 

36,748 

 covered bonds

2,625 

3,861 

6,486 


1,284 

5,830 

7,114 

 securitisations

8 

4,699 

4,707 


10 

5,564 

5,574 










12,042 

30,955 

42,997 


11,355 

40,550 

51,905 

Subordinated liabilities

1,057 

18,852 

19,909 


3,274 

19,857 

23,131 









Notes issued

13,099 

49,807 

62,906 


14,629 

60,407 

75,036 









Wholesale funding

47,030 

51,328 

98,358 


53,269 

62,701 

115,970 









Customer deposits








 derivative cash collateral (1)

11,133 

- 

11,133 


13,003 

- 

13,003 

 financial institution deposits

47,274 

1,547 

48,821 


46,359 

1,422 

47,781 

 personal deposits

188,191 

5,337 

193,528 


185,781 

6,121 

191,902 

 corporate deposits

157,200 

1,832 

159,032 


159,782 

2,403 

162,185 









Total customer deposits

403,798 

8,716 

412,514 


404,925 

9,946 

414,871 









Total funding excluding repos

450,828 

60,044 

510,872 


458,194 

72,647 

530,841 









Of which CFG:








Wholesale funding

4,529 

1,332 

5,861 





Total customer deposits

62,064 

1,727 

63,791 





Total funding excluding repos

66,593 

3,059 

69,652 





 

Note:

(1)

Cash collateral includes £10,220 million (31 December 2014 - £12,036 million) from financial institutions.

 

 

Appendix 1 Capital and risk management

 

Funding risk (continued)

Repos totalled £68.8 billion at 30 June 2015, of which £2.4 billion related to CFG compared with £64.6 billion and £2.4 billion respectively at 31 December 2014.

 

Customer deposits insured through deposit guarantee schemes totalled £163 billion (2014 - £160 billion), the more material of them being UK Financial Services Compensation Scheme (FSCS), £113 billion (2014 - £112 billion); US Federal Insurance Corporation relating to CFG, £40 billion (2014 - £37 billion) and Republic of Ireland's Deposit Guarantee Scheme, £6 billion (2014 - £7 billion). FSCS deposit protection will decrease from the current limit of £85,000 to £75,000 with effect from 1 January 2016.

RBS is currently subject to the UK bank levy on its consolidated liabilities and equity after taking account of certain exemptions such as regulatory Tier 1 capital, insured deposits and liabilities subject to legally enforceable netting arrangements. The July 2015 Budget Statement, proposed a phased reduction of the bank levy rate from the existing rate of 0.21% to 0.18% from 1 January 2016 and subsequent annual reductions to 0.1% from January 2021. There will also be a change in the bank levy's scope from 1 January 2021, such that UK headquartered banks will be subject to bank levy only on their UK balance sheet liabilities. Total liabilities at 30 June 2015 excluding CFG were £829 billion (2014 - £919 billion) of which 82% (2014 - 81%) related to transactions recorded in UK offices.


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 Capital and risk management - Credit risk in the 2014 Annual Report and Accounts.


 

Loans and related credit metrics

The tables below show gross loans and advances (excluding reverse repos) and related credit metrics by segment. Risk elements in lending (REIL) comprise impaired loans and accruing loans past due 90 days or more as to principal or interest. Impaired loans are all loans (including loans subject to forbearance) for which an impairment provision has been established. For collectively-assessed loans, impairment loss provisions are not allocated to individual loans and the entire portfolio is included in impaired loans. Accruing loans past due 90 days or more comprise loans past due 90 days where no impairment loss is expected.




Credit metrics




Gross loans to

REIL

Provisions

REIL as a %


Provisions

YTD


of gross

Provisions

as a % of

Impairment

YTD

loans to

as a %

gross loans

losses/

Amounts

Banks

Customers

customers

of REIL

to customers

(releases)

written-off

30 June 2015

£m

£m

£m

£m

%

%

%

£m

£m











UK PBB

1,023 

130,688 

3,232 

2,131 

2.5 

66 

1.6 

(17)

439 

Ulster Bank

2,495 

22,603 

4,190 

2,410 

18.5 

58 

10.7 

(52)

46 











PBB

3,518 

153,291 

7,422 

4,541 

4.8 

61 

3.0 

(69)

485 











Commercial Banking

510 

91,009 

2,284 

898 

2.5 

39 

1.0 

27 

120 

Private Banking

1,176 

13,520 

150 

47 

1.1 

31 

0.3 

(3)

1 











CPB

1,686 

104,529 

2,434 

945 

2.3 

39 

0.9 

24 

121 











CIB

13,717 

57,956 

221 

143 

0.4 

65 

0.2 

(29)

28 

Central items

2,385 

2,039 

1 

1 

- 

100 

- 

(2)

- 

CFG

1,438 

61,960 

1,240 

532 

2.0 

43 

0.9 

89 

156 

RCR

567 

11,006 

7,396 

5,141 

67.2 

69 

46.7 

(355)

4,981 












23,311 

390,781 

18,714 

11,303 

4.8 

60 

2.9 

(342)

5,771 











31 December 2014




















UK PBB

641 

129,848 

3,778 

2,604 

2.9 

69 

2.0 

268 

728 

Ulster Bank

1,381 

24,719 

4,775 

2,711 

19.3 

57 

11.0 

(365)

131 











PBB

2,022 

154,567 

8,553 

5,315 

5.5 

62 

3.4 

(97)

859 











Commercial Banking

486 

86,008 

2,506 

955 

2.9 

38 

1.1 

77 

436 

Private Banking

972 

16,599 

226 

76 

1.4 

34 

0.5 

(5)

37 











CPB

1,458 

102,607 

2,732 

1,031 

2.7 

38 

1.0 

72 

473 











CIB

16,910 

72,957 

197 

206 

0.3 

105 

0.3 

(7)

- 

Central items

2,178 

619 

7 

6 

1.1 

86 

1.0 

(12)

55 

CFG

1,728 

60,142 

1,330 

536 

2.2 

40 

0.9 

194 

300 

RCR

516 

21,909 

15,400 

10,946 

70.3 

71 

50.0 

(1,320)

3,591 












24,812 

412,801 

28,219 

18,040 

6.8 

64 

4.4 

(1,170)

5,278 


 

Appendix 1 Capital and risk management

 

Loans and related credit metrics (continued)

 

Key points 

·

Loans to banks decreased by £1.5 billion with a strategy-driven reduction of £3.2 billion in CIB, which was partially offset by some increases in other segments. Liquidity management saw an increase in Ulster Bank of £1.1 billion and £0.4 billion in UK PBB.



·

Customer loans fell by £22.0 billion: CIB decreased by £15.0 billion and RCR by £10.9 billion;  Commercial Banking and UK PBB saw net growth of £5.0 billion and £0.8 billion respectively.



·

Risk elements in lending (REIL) at £18.7 billion was 4.8% of gross customer loans, a significant improvement on the £28.2 billion (or 6.8%) six months ago. This reflects the success of RCR's disposal strategy, particularly in relation to Irish assets. REIL is now covered 60% by impairment provisions, lower than 64% as a result of the disposals.



·

In UK PBB, gross customer loans increased by £0.8 billion to £130.7 billion. Mortgage lending was up by £2.2 billion, £1.8 billion in Q2 2015, reflecting targeted growth partially offset by decreases in unsecured lending. Impairments and credit metrics continued to improve. REIL as a percentage of gross loans fell from 2.9% to 2.5% due to repayments of £494 million, reflecting improved asset quality and write-offs of £439 million. Impairment release reflected recoveries on the back of improved economic conditions.



·

Ulster Bank: gross customers lending was £2.1 billion lower primarily driven by the weakening euro. Significant growth in new lending volumes was more than offset by continued customer deleveraging including a reduction in the tracker mortgage portfolio. Improved economic conditions and lower observable defaults have resulted in recoveries contributing to an impairment release of £52 million.



·

In Commercial Banking, gross customer lending increased by £5.0 billion, of which £2.4 billion related to transfers from Private Banking and £2.1 billion to transfers from CIB, partially offset by a £0.5 billion decrease in legacy portfolios. REIL as a percentage of gross loans continued to decrease falling from 2.9% to 2.5%. The overall reduction in REIL reflects a low number of new individual cases.



·

CIB: gross loans fell by £15.0 billion largely through asset disposals throughout the regions, repayments and exit of non-strategic clients in GTS and included sectors such as oil and gas and shipping. There were also transfers to Commercial Banking (£2.1 billion). REIL increases were seen in shipping, electric and gas sectors.



·

CFG gross loans to customers increased by £1.8 billion or 3.0% to £62.0 billion, reflecting growth in the retail and wholesale portfolio. Impairments and REIL were broadly unchanged.



·

RCR saw a significant reduction in gross customer loans - £6.5 billion in commercial real estate, £3.3 billion in other corporate and £1.1 billion in asset finance - as the execution of its disposal and run-down strategy continued. REIL fell by £8.0 billion to £7.4 billion and provisions decreased by £5.8 billion to £5.1 billion as a consequence. This contributed to the significant improvements in credit metrics in both RCR and RBS overall.

 


Appendix 1 Capital and risk management

 

Loans and related credit metrics: Risk elements in lending








RBS




UK

Ulster

Commercial

Private


Central


excluding




PBB

Bank

Banking

Banking

CIB

items

CFG

RCR

RCR

Total


£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 












At 1 January 2015

3,778 

4,775 

2,506 

226 

197 

7 

1,330 

12,819 

15,400 

28,219 

Currency translation











  and other adjustments

(17)

(384)

91 

(80)

(18)

(6)

(5)

(419)

(784)

(1,203)

Additions

687 

294 

397 

10 

90 

- 

140 

1,618 

692 

2,310 

Transfers (1)

(121)

- 

4 

1 

- 

- 

- 

(116)

(5)

(121)

Transfers to











  performing book

(162)

(41)

(93)

- 

- 

- 

- 

(296)

(28)

(324)

Repayments











  and disposals

(494)

(408)

(501)

(6)

(20)

- 

(69)

(1,498)

(2,898)

(4,396)

Amounts written-off

(439)

(46)

(120)

(1)

(28)

- 

(156)

(790)

(4,981)

(5,771)












At 30 June 2015

3,232 

4,190 

2,284 

150 

221 

1 

1,240 

11,318 

7,396 

18,714 

 

Note:

(1)

Represents transfers between REIL and potential problem loans.

 

Impairment provisions

The movement in loan impairment provisions by segment is shown in the table below.








RBS




UK

Ulster

Commercial

Private


Central 


excluding 




PBB

Bank

 Banking

Banking

CIB

items 

CFG

RCR

RCR

Total


£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 












At 1 January 2015

2,604 

2,711 

955 

76 

206 

6 

536 

7,094 

10,946 

18,040 

Currency translation 











  and other adjustments

(7)

(209)

37 

(24)

(10)

(3)

(5)

(221)

(466)

(687)

Disposal of subsidiaries

- 

- 

- 

- 

- 

- 

(1)

(1)

- 

(1)

Amounts written-off

(439)

(46)

(120)

(1)

(28)

- 

(156)

(790)

(4,981)

(5,771)

Recoveries of amounts 











  previously written-off

21 

24 

8 

- 

4 

- 

69 

126 

22 

148 

Charged to income statement











  - continuing operations

(17)

(52)

27 

(3)

(29)

(2)

- 

(76)

(355)

(431)

  - discontinued operations

- 

- 

- 

- 

- 

- 

89 

89 

- 

89 

Unwind of discount

(31)

(18)

(9)

(1)

- 

- 

- 

(59)

(25)

(84)












At 30 June 2015

2,131 

2,410 

898 

47 

143 

1 

532 

6,162 

5,141 

11,303 












Individually assessed











  - banks

- 

- 

- 

- 

1 

- 

- 

1 

25 

26 

  - customers

6 

32 

481 

44 

111 

1 

82 

757 

4,966 

5,723 

Collectively assessed

1,890 

2,118 

329 

- 

- 

- 

171 

4,508 

100 

4,608 

Latent

235 

260 

88 

3 

31 

- 

279 

896 

50 

946 













2,131 

2,410 

898 

47 

143 

1 

532 

6,162 

5,141 

11,303 


Appendix 1 Capital and risk management

 

Loans and related credit metrics: Loans, REIL, provisions and impairments

The tables below show 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 2015




REIL as a

Provisions

Provisions


Impairment


Gross



% of gross

as a %

as a % of


losses/

Amounts

loans

REIL

Provisions

loans

of REIL

gross loans


(releases)

written-off

£m

£m

£m

%

%

%


£m

£m











Central and local government

7,644 

15 

10 

0.2 

67 

0.1 


9 

- 

Finance

37,464 

258 

172 

0.7 

67 

0.5 


(5)

52 

Personal

- mortgages

150,222 

4,951 

1,319 

3.3 

27 

0.9 


17 

120 


- unsecured

30,187 

1,705 

1,389 

5.6 

81 

4.6 


144 

351 

Property

44,127 

7,105 

4,559 

16.1 

64 

10.3 


(45)

3,952 

Construction

5,639 

489 

335 

8.7 

69 

5.9 


(44)

216 

of which: CRE

36,396 

7,191 

4,608 

19.8 

64 

12.7 


(65)

3,948 

Manufacturing

20,127 

351 

243 

1.7 

69 

1.2 


4 

65 

Finance leases (1)

13,835 

119 

90 

0.9 

76 

0.7 


(3)

16 

Retail, wholesale and repairs

16,860 

655 

444 

3.9 

68 

2.6 


- 

173 

Transport and storage

11,233 

625 

254 

5.6 

41 

2.3 


- 

252 

Health, education and leisure

14,995 

512 

234 

3.4 

46 

1.6 


- 

122 

Hotels and restaurants

7,475 

581 

315 

7.8 

54 

4.2 


10 

240 

Utilities

4,698 

100 

45 

2.1 

45 

1.0 


(15)

20 

Other

26,275 

1,220 

922 

4.6 

76 

3.5 


(83)

183 

Latent

- 

- 

946 

- 

- 

- 


(331)

n/a











Customers

390,781 

18,686 

11,277 

4.8 

60 

2.9 


(342)

5,762 











Geographic regional analysis










UK - residential mortgages

115,661 

1,235 

174 

1.1 

14 

0.2 


15 

23 

      - personal lending

14,964 

1,454 

1,254 

9.7 

86 

8.4 


84 

287 

      - property

34,009 

3,760 

1,768 

11.1 

47 

5.2 


65 

1,957 

      - construction

3,915 

398 

245 

10.2 

62 

6.3 


48 

169 

      - other

112,252 

2,431 

1,684 

2.2 

69 

1.5 


(295)

474 












Total


280,801 

9,278 

5,125 

3.3 

55 

1.8 


(83)

2,910 












Europe - residential mortgages

14,052 

2,801 

1,001 

19.9 

36 

7.1 


(42)

16 

            - personal lending

1,171 

57 

52 

4.9 

91 

4.4 


(6)

3 

            - property

3,967 

3,271 

2,747 

82.5 

84 

69.2 


(101)

1,993 

            - construction

1,251 

86 

86 

6.9 

100 

6.9 


(91)

47 

            - other

12,515 

1,658 

1,510 

13.2 

91 

12.1 


(86)

615 












Total


32,956 

7,873 

5,396 

23.9 

69 

16.4 


(326)

2,674 












US - residential mortgages

20,508 

915 

144 

4.5 

16 

0.7 


44 

81 

      - personal lending

12,306 

177 

66 

1.4 

37 

0.5 


66 

61 

      - property

5,574 

50 

20 

0.9 

40 

0.4 


(8)

2 

      - construction

450 

- 

- 

- 

- 

- 


(1)

- 

      - other

29,505 

157 

346 

0.5 

220 

1.2 


(32)

12 












Total


68,343 

1,299 

576 

1.9 

44 

0.8 


69 

156 












RoW - residential mortgages

1 

- 

- 

- 

- 

- 


- 

- 

        - personal lending

1,746 

17 

17 

1.0 

100 

1.0 


- 

- 

        - property

577 

24 

24 

4.2 

100 

4.2 


(1)

- 

        - construction

23 

5 

4 

21.7 

80 

17.4 


- 

- 

        - other

6,334 

190 

135 

3.0 

71 

2.1 


(1)

22 












Total


8,681 

236 

180 

2.7 

76 

2.1 


(2)

22 












Customers

390,781 

18,686 

11,277 

4.8 

60 

2.9 


(342)

5,762 












Banks

23,311 

28 

26 

0.1 

93 

0.1 


- 

9 

 

Note:

(1)

Includes instalment credit.


 

Appendix 1 Capital and risk management

 

Loans and related credit metrics: Loans, REIL, provisions and impairments (continued)














Credit metrics



31 December 2014




REIL as a

Provisions

Provisions

Impairment


Gross



% of gross

as a %

as a % of

losses/

Amounts

loans

REIL

Provisions

loans

of REIL

gross loans

(releases)

written-off

£m

£m

£m

%

%

%

£m

£m










Central and local government

9,079 

1 

1 

- 

100 

- 

(1)

- 

Finance

39,611 

364 

234 

0.9 

64 

0.6 

(5)

23 

Personal

- mortgages

150,572 

5,634 

1,521 

3.7 

27 

1.0 

36 

236 


- unsecured

29,155 

1,964 

1,585 

6.7 

81 

5.4 

401 

737 

Property

51,546 

13,021 

8,918 

25.3 

68 

17.3 

(1,083)

2,625 

Construction

5,657 

971 

612 

17.2 

63 

10.8 

76 

202 

of which: CRE

43,317 

13,345 

9,027 

30.8 

68 

20.8 

(1,067)

2,750 

Manufacturing

22,035 

461 

322 

2.1 

70 

1.5 

(26)

188 

Finance leases (1)

14,030 

156 

113 

1.1 

72 

0.8 

- 

75 

Retail, wholesale and repairs

18,498 

956 

645 

5.2 

67 

3.5 

106 

160 

Transport and storage

14,299 

1,146 

500 

8.0 

44 

3.5 

37 

211 

Health, education and leisure

15,932 

734 

366 

4.6 

50 

2.3 

9 

349 

Hotels and restaurants

7,969 

1,094 

574 

13.7 

52 

7.2 

(40)

109 

Utilities

4,825 

156 

85 

3.2 

54 

1.8 

16 

5 

Other

29,593 

1,519 

1,208 

5.1 

80 

4.1 

(10)

349 

Latent

- 

- 

1,316 

- 

- 

- 

(676)

- 










Customers

412,801 

28,177 

18,000 

6.8 

64 

4.4 

(1,160)

5,269 










Geographic regional analysis








UK - residential mortgages

113,521 

1,394 

191 

1.2 

14 

0.2 

(23)

76 

     - personal lending

15,923 

1,674 

1,452 

10.5 

87 

9.1 

290 

546 

     - property

37,547 

6,026 

3,676 

16.0 

61 

9.8 

(221)

1,917 

     - construction

4,098 

676 

361 

16.5 

53 

8.8 

(1)

175 

     - other

113,782 

3,287 

2,467 

2.9 

75 

2.2 

(146)

847 











Total


284,871 

13,057 

8,147 

4.6 

62 

2.9 

(101)

3,561 











Europe - residential mortgages

15,629 

3,268 

1,178 

20.9 

36 

7.5 

(10)

10 

            - personal lending

1,051 

76 

66 

7.2 

87 

6.3 

9 

66 

            - property

8,021 

6,907 

5,197 

86.1 

75 

64.8 

(862)

699 

            - construction

1,055 

289 

245 

27.4 

85 

23.2 

78 

24 

            - other

19,104 

2,860 

2,361 

15.0 

83 

12.4 

(440)

561 











Total


44,860 

13,400 

9,047 

29.9 

68 

20.2 

(1,225)

1,360 











US - residential mortgages









     - residential mortgages

21,203 

957 

150 

4.5 

16 

0.7 

69 

150 

     - personal lending

11,164 

195 

49 

1.7 

25 

0.4 

102 

125 

     - property

5,332 

64 

19 

1.2 

30 

0.4 

2 

7 

     - construction

413 

1 

1 

0.2 

100 

0.2 

- 

1 

     - other

31,338 

200 

342 

0.6 

171 

1.1 

1 

39 











Total


69,450 

1,417 

561 

2.0 

40 

0.8 

174 

322 











RoW - residential mortgages

219 

15 

2 

6.8 

13 

0.9 

- 

- 

        - personal lending

1,017 

19 

18 

1.9 

95 

1.8 

- 

- 

        - property

646 

24 

26 

3.7 

108 

4.0 

(2)

2 

        - construction

91 

5 

5 

5.5 

100 

5.5 

(1)

2 

        - other

11,647 

240 

194 

2.1 

81 

1.7 

(5)

22 











Total


13,620 

303 

245 

2.2 

81 

1.8 

(8)

26 










Customers

412,801 

28,177 

18,000 

6.8 

64 

4.4 

(1,160)

5,269 










Banks

24,812 

42 

40 

0.2 

95 

0.2 

(10)

9 

 

Note:

(1)

Includes instalment credit.

 


Appendix 1 Capital and risk management

 

Debt securities

The table below shows debt securities by issuer, IFRS measurement classifications and external rating. Ratings are based on the lowest of Standard & Poor's, Moody's and Fitch. US central and local government includes US federal agencies. The other financial institutions category includes US government-sponsored agencies and securitisation entities, the latter principally relating to asset-backed securities (ABS).

Central and local government

Banks

Other

Corporate

Total



financial


Of which

UK

US

Other

institutions


ABS

30 June 2015

£m

£m

£m

£m

£m

£m

£m


£m











Held-for-trading (HFT)

4,352 

4,624 

23,129 

1,446 

5,100 

825 

39,476 


982 

Designated as at fair value

- 

- 

109 

- 

1 

- 

110 


- 

Available-for-sale (AFS)

7,021 

12,631 

10,721 

1,916 

13,506 

147 

45,942 


18,937 

Loans and receivables

- 

- 

- 

249 

2,541 

122 

2,912 


2,496 

Held-to-maturity (HTM)

4,932 

- 

- 

- 

- 

- 

4,932 


- 











Long positions

16,305 

17,255 

33,959 

3,611 

21,148 

1,094 

93,372 


22,415 











AAA

- 

6 

9,366 

1,867 

5,827 

- 

17,066 


4,707 

AA to AA+

16,305 

17,249 

10,695 

422 

9,997 

101 

54,769 


15,037 

A to AA-

- 

- 

9,204 

1,058 

2,303 

198 

12,763 


476 

BBB- to A-

- 

- 

4,537 

64 

828 

247 

5,676 


434 

Non-investment grade

- 

- 

157 

49 

1,045 

514 

1,765 


862 

Unrated

- 

- 

- 

151 

1,148 

34 

1,333 


899 












16,305 

17,255 

33,959 

3,611 

21,148 

1,094 

93,372 


22,415 











Of which US agencies

- 

6,945 

- 

- 

8,077 

- 

15,022 


14,202 











Short positions (HFT)

(6,104)

(4,897)

(12,123)

(531)

(736)

(163)

(24,554)


- 











Available-for-sale










Gross unrealised gains

353 

185 

290 

6 

266 

6 

1,106 


286 

Gross unrealised losses

(9)

(151)

(10)

(1)

(131)

(1)

(303)


(213)











31 December 2014




















Held-for-trading

6,218 

7,709 

24,451 

1,499 

7,372 

1,977 

49,226 


3,559 

Designated as at fair value

- 

- 

111 

2 

4 

- 

117 


- 

Available-for-sale

4,747 

11,011 

11,058 

3,404 

14,585 

161 

44,966 


18,884 

Loans and receivables

- 

- 

- 

185 

2,774 

137 

3,096 


2,734 

Held-to-maturity

4,537 

- 

- 

- 

- 

- 

4,537 


- 











Long positions

15,502 

18,720 

35,620 

5,090 

24,735 

2,275 

101,942 


25,177 











AAA

- 

6 

15,533 

1,319 

6,086 

77 

23,021 


4,762 

AA to AA+

15,502 

18,714 

9,879 

283 

12,215 

117 

56,710 


16,956 

A to AA-

- 

- 

4,958 

2,670 

2,534 

340 

10,502 


688 

BBB- to A-

- 

- 

4,822 

277 

1,184 

772 

7,055 


853 

Non-investment grade

- 

- 

331 

61 

1,247 

603 

2,242 


1,060 

Unrated

- 

- 

97 

480 

1,469 

366 

2,412 


858 












15,502 

18,720 

35,620 

5,090 

24,735 

2,275 

101,942 


25,177 











Of which US agencies

- 

6,222 

- 

- 

10,860 

- 

17,082 


16,053 











Short positions (HFT)

(4,167)

(6,413)

(10,276)

(557)

(674)

(731)

(22,818)


- 











Available-for-sale










Gross unrealised gains

451 

210 

541 

8 

361 

6 

1,577 


389 

Gross unrealised losses

(1)

(117)

(3)

(1)

(158)

(2)

(282)


(257)


 

Appendix 1 Capital and risk management

 

Debt securities (continued)

 

Key points

·

HFT: Holdings of government and ABS decreased, principally in US bonds, following continuing exits from US asset-backed products business, focus on balance sheet and RWA reduction and risk mitigation. The decrease in other government bonds was driven by a decrease in Germany as bund yields reached historic lows in Q1 2015, largely offset by higher Japanese treasury bills, reflecting favourable rates, used for collateral upgrades. The increase in short positions (largely Italy, Germany and Spain) reflected hedging of reverse repo collateral following liquidity concerns and uncertainty around Greece. The increase in UK government short positions reflected positioning ahead of expected interest rate rise.



·

AFS: Holdings of UK and US government bonds increased due to purchases by Treasury reflecting liquidity portfolio mix management and price optimisation. CFG switched from asset-backed securities to US government bonds as part of RWA and liquidity coverage ratio management.



·

Market concerns and consequent lower bond prices resulted in lower gross unrealised gains and higher gross unrealised losses relating to AFS debt securities. Lower gains also reflected sales and redemptions in Treasury.

 


 

Derivatives

The table below shows derivatives by type of contract. The master netting agreements and collateral shown below do not result in a net presentation on the balance sheet under IFRS.










30 June 2015


31 December 2014



Notional (1)

Assets

Liabilities


Notional (1)

Assets

Liabilities



£bn

£m

£m


£bn

£m

£m











Interest rate (2)

20,123 

216,983 

204,738 


27,331 

269,912 

259,971 


Exchange rate

4,196 

61,566 

65,228 


4,675 

78,707 

83,781 


Credit

100 

1,704 

1,681 


125 

2,254 

2,615 


Equity and commodity

60 

2,032 

2,133 


78 

3,119 

3,582 













282,285 

273,780 



353,992 

349,949 


Counterparty mark-to-market netting


(228,780)

(228,780)



(295,315)

(295,315)


Cash collateral


(28,295)

(25,627)



(33,272)

(30,203)


Securities collateral


(6,999)

(8,299)



(7,013)

(14,437)











Net exposure


18,211 

11,074 



18,392 

9,994 











Net exposure by sector









Banks


1,357 

2,065 



1,875 

1,534 


Other financial institutions


6,205 

5,313 



4,035 

3,721 


Corporate


9,820 

3,585 



11,186 

4,382 


Government


829 

111 



1,296 

357 













18,211 

11,074 



18,392 

9,994 











Net exposure by region of counterparty








UK


9,708 

4,524 



9,037 

3,233 


Europe


4,818 

2,395 



5,628 

3,521 


US


1,344 

1,867 



1,544 

1,280 


RoW


2,341 

2,288 



2,183 

1,960 













18,211 

11,074 



18,392 

9,994 


 

 

Notes:

(1)

Includes exchange traded contracts of £2,620 billion (31 December 2014 - £2,436 billion) principally interest rate. Trades are generally closed out daily hence carrying values were insignificant; assets £3 million (31 December 2014 - £8 million); liabilities £81 million (31 December 2014 - £119 million).

(2)

Interest rate notional includes £12,007 billion (31 December 2014 - £18,452 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.


Appendix 1 Capital and risk management

 

Derivatives (continued)

 

Key points

·

Over-the-counter derivative notionals reduced from £29.8 trillion to £21.9 trillion in the six months to 30 June 2015 reflecting active participation in trade compression cycles, as well as targeted bilateral tear-ups.

·

The carrying value of derivative assets and liabilities at 30 June 2015 have been materially impacted by changes in market rates:


○

Interest rate contracts: Fair values decreased by approximately 20% in the first half of 2015 due to an upward shift in yields, based on the expectation of interest rate rises in the US and UK. Eurozone yields also increased following favourable economic outlook.


○

Foreign exchange contracts: Fair value decreases from targeted tear-ups and risk reductions have more than offset the impact of US dollar strengthening against the euro (9%) and Japanese yen (3%).


○

Credit derivatives: fair values decreased despite widening credit spreads due to Greek debt crisis concerns as RBS continued to de-risk the credit default swap portfolio.

 


Appendix 1 Capital and risk management

 

Key loan portfolios*

The internal measure used for credit risk management is credit risk assets (CRA) and consists of lending, derivatives after the effect of enforceable netting arrangements and contingent obligations.

 

The table below summarises CRA by sector and geographic region.

 

30 June 2015


Wholesale




Banks and



Natural

Retail and



Of which:

Personal

other FIs

Sovereign

Property

resources

leisure

Other

Total

  RCR

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 











UK

 130,302 

25,382 

50,922 

39,438 

8,099 

14,618 

40,062 

308,823 

7,168 

Western Europe (excl. UK)

 15,113 

33,644 

11,025 

7,523 

3,232 

2,418 

11,485 

84,440 

6,241 

North America

 33,113 

12,779 

22,465 

7,308 

5,057 

5,945 

19,892 

106,559 

556 

RoW (1)

 3,383 

9,916 

3,599 

1,511 

3,703 

597 

11,933 

34,642 

2,936 











Total

 181,911 

81,721 

88,011 

55,780 

20,091 

23,578 

83,372 

534,464 

16,901 











of which: RCR

90 

2,621 

30 

7,458 

2,746 

796 

3,160 

16,901 

n/a











Flow into forbearance (2)

1,625 

88 

- 

1,934 

412 

454 

902 

5,415 

 1,420 

of which: RCR

- 

11 

- 

1,060 

36 

145 

168 

1,420 

n/a











AQ10

7,477 

715 

1 

8,003 

258 

1,278 

2,397 

20,129 

7,662 

of which: RCR

75 

304 

- 

5,540 

150 

483 

1,110 

7,662 

n/a

 

31 December 2014




















UK

129,091 

27,560 

45,308 

44,401 

7,825 

15,539 

40,199 

309,923 

11,579 

Western Europe (excl. UK)

16,802 

37,156 

6,855 

11,858 

4,030 

3,221 

13,162 

93,084 

12,159 

North America

32,449 

13,367 

27,162 

6,846 

7,070 

5,736 

21,642 

114,272 

851 

RoW (1)

2,406 

13,406 

3,039 

1,875 

5,685 

1,188 

17,187 

44,786 

5,061 











Total

180,748 

91,489 

82,364 

64,980 

24,610 

25,684 

92,190 

562,065 

29,650 











of which: RCR

203 

3,587 

536 

14,819 

2,910 

1,828 

5,767 

29,650 

n/a











Flow into forbearance (2)

4,350 

60 

- 

5,416 

377 

984 

1,956 

13,143 

4,839 

of which: RCR

- 

29 

- 

3,551 

28 

535 

696 

4,839 

n/a











AQ10

8,424 

638 

1 

14,743 

263 

2,329 

3,662 

30,060 

16,099 

of which: RCR

182 

423 

- 

11,886 

112 

1,355 

2,141 

16,099 

n/a

 

Notes:

(1)

Rest of World comprises Asia Pacific, Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.

(2)

Completed during the period.

 

 

Key points

·

The CRA decrease reflected a continued focus on risk reduction and improving overall credit quality.



·

CRA decreased in all regions and sectors except sovereign where CRA increased by 7%, reflecting   Treasury activity. UK CRA (excluding RCR) increased by 1%, in personal (mainly mortgage lending).



·

For wholesale loans, the flow into forbearance decreased during H1 2015 compared with H2 2014 in line with improving market conditions and RCR's disposal strategy. Of the total forbearance granted, 54% related to non-performing loans with a provision coverage of 48% (2014 - 62%).

·

The property sector remained the most significant contributor to the forborne portfolio. There was an increase in forbearance granted in the natural resources sector driven by counterparties in the oil and gas sector (refer to page 28 for further sector information).



·

RCR is on track to complete its targeted run-down by the end of 2015, with CRA down by 43% to £16.9 billion. Non-performing exposures decreased significantly to £7.7 billion (2014 - £16.1 billion) driven by the disposal strategy and the improving economic climate.

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

Key loan portfolios* (continued)

The following key portfolios are discussed in more detail: commercial real estate (within property); oil and gas (within natural resources); shipping (within other); and personal portfolios.


 

Commercial real estate (CRE)

The CRE sector comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders). The analysis of lending below is gross of impairment provisions and excludes rate risk management and contingent obligations

 

Investment


Development



Commercial

Residential

Total 


Commercial

Residential

Total 

Total

By geography

£m

£m

£m


£m

£m

£m

£m










30 June 2015









UK (excluding NI (1))

15,959 

4,351 

20,310 


541 

3,393 

3,934 

24,244 

Ireland (ROI and NI (1))

1,519 

312 

1,831 


614 

2,022 

2,636 

4,467 

Western Europe (other)

947 

29 

976 


110 

22 

132 

1,108 

US

4,489 

1,362 

5,851 


- 

5 

5 

5,856 

RoW (1)

415 

16 

431 


41 

249 

290 

721 











23,329 

6,070 

29,399 


1,306 

5,691 

6,997 

36,396 










31 December 2014


















UK (excluding NI (1))

17,327 

4,757 

22,084 


600 

3,446 

4,046 

26,130 

Ireland (ROI and NI (1))

2,864 

740 

3,604 


1,499 

4,469 

5,968 

9,572 

Western Europe (other)

1,222 

53 

1,275 


189 

24 

213 

1,488 

US

4,063 

1,358 

5,421 


- 

59 

59 

5,480 

RoW (1)

406 

22 

428 


34 

185 

219 

647 











25,882 

6,930 

32,812 


2,322 

8,183 

10,505 

43,317 

 

Note:

(1)

ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.

 

Key points                                                    

·

Overall gross CRE lending fell in the first half of 2015 mostly in RCR (£6.5 billion) due to asset sales, repayments, and write-offs. 



·

The RCR portfolio contains legacy CIB, Commercial Bank and Ulster Bank assets and now represents 17% of the total portfolio (2014 - 29%). Geographically, 57% (£3.5 billion) of the remaining RCR portfolio is located in Ireland (ROI and NI), with the UK (excluding NI) accounting for 28% (£1.7 billion) and the remainder (£1.0 billion) in Western Europe and the RoW.   



·

The reduction of the commercial investment UK sub-sector is almost entirely driven by reductions of £1.3 billion in RCR. RCR divestments in the development sub-sector have also led to the portfolio being more weighted towards the investment sub-sector.



·

The increase in US exposure was predominantly driven by higher business volumes in CFG, in line with risk appetite and business strategy. 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

Key loan portfolios*: Commercial real estate (continued)

 

RBS excluding RCR


RCR


Total

LTV ratio by value


Non-




Non-




Non-


Performing

 performing

Total


Performing

 performing

Total

Performing

 performing

Total

£m

 £m

£m


£m

 £m

£m

£m

 £m

£m













30 June 2015












<= 50%

10,147 

139 

10,286 


243 

18 

261 


10,390 

157 

10,547 

> 50% and <= 70%

8,500 

249 

8,749 


387 

87 

474 


8,887 

336 

9,223 

> 70% and <= 90%

1,944 

356 

2,300 


76 

391 

467 


2,020 

747 

2,767 

> 90% and <= 100%

374 

106 

480 


79 

42 

121 


453 

148 

601 

> 100% and <= 110%

185 

145 

330 


42 

173 

215 


227 

318 

545 

> 110% and <= 130%

174 

156 

330 


29 

385 

414 


203 

541 

744 

> 130% and <= 150%

77 

128 

205 


2 

120 

122 


79 

248 

327 

> 150%

331 

410 

741 


44 

1,582 

1,626 


375 

1,992 

2,367 













Total with LTVs

21,732 

1,689 

23,421 


902 

2,798 

3,700 


22,634 

4,487 

27,121 

Minimal security (1)

13 

38 

51 


- 

1,206 

1,206 


13 

1,244 

1,257 

Other

6,316 

420 

6,736 


16 

1,266 

1,282 


6,332 

1,686 

8,018 













Total

28,061 

2,147 

30,208 


918 

5,270 

6,188 


28,979 

7,417 

36,396 













Total portfolio












  average LTV (2)

56%

140%

62%


74%

287%

236%


56%

232%

85%

 

31 December 2014
























<= 50%

9,833 

220 

10,053 


300 

45 

345 


10,133 

265 

10,398 

> 50% and <= 70%

8,750 

301 

9,051 


602 

173 

775 


9,352 

474 

9,826 

> 70% and <= 90%

2,285 

409 

2,694 


220 

554 

774 


2,505 

963 

3,468 

> 90% and <= 100%

343 

134 

477 


41 

116 

157 


384 

250 

634 

> 100% and <= 110%

168 

148 

316 


56 

211 

267 


224 

359 

583 

> 110% and <= 130%

326 

201 

527 


49 

438 

487 


375 

639 

1,014 

> 130% and <= 150%

135 

128 

263 


6 

404 

410 


141 

532 

673 

> 150%

305 

495 

800 


65 

4,160 

4,225 


370 

4,655 

5,025 













Total with LTVs

22,145 

2,036 

24,181 


1,339 

6,101 

7,440 


23,484 

8,137 

31,621 

Minimal security (1)

33 

38 

71 


- 

3,168 

3,168 


33 

3,206 

3,239 

Other

5,956 

546 

6,502 


34 

1,921 

1,955 


5,990 

2,467 

8,457 













Total

28,134 

2,620 

30,754 


1,373 

11,190 

12,563 


29,507 

13,810 

43,317 













Total portfolio












  average LTV (2)

56%

133%

62%


75%

338%

291%


57%

287%

116%

 

Notes:

(1)

Total portfolio average LTV is presented net of loans with minimal security given that the anticipated recovery rate is less than 10%. Provisions are marked against these loans where required to reflect the relevant asset quality and recovery profile.

(2)

Weighted average by exposure.

 

Key points

·

The reductions in the higher LTV bands occurred mostly in the RCR book originated by Ulster Bank, Commercial Banking and CIB, reflecting valuation improvements, reductions through repayments, asset sales and write-offs - principally for non-performing assets.



·

Interest payable by customers on performing loans secured by investment property was covered 1.8x (2014 - 1. 6x) and 3.1x (2014 - 2.9x) within RCR and rest of RBS, respectively. 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Key loan portfolios* (continued)

 

Oil and gas

RBS's exposure to oil and gas sector in terms of CRA and total exposure (including committed but undrawn facilities), is set out below.

30 June 2015


31 December 2014


CRA

Total


CRA

Total

By segment

£m

£m


£m

£m







CIB

5,311 

12,801 


8,297 

20,278 

Commercial Banking

1,033 

2,202 


671 

1,035 

CFG

1,362 

2,323 


1,251 

2,134 

RCR

257 

295 


352 

457 

Others

63 

200 


101 

243 








8,026 

17,821 


10,672 

24,147 

 

The tables below provide a breakdown of CIB's oil and gas sector exposure which represents 72% of RBS's exposure to this sector (including committed but undrawn exposure) split by sub-sector and geography. The analysis is based on RBS's sector concentration framework.

 


Western








 Europe

North

Asia

Latin




UK

(excl. UK)

America

America

Pacific

CEEMA (1)

Total

30 June 2015

£m

£m

£m

£m

£m

£m

£m









Producers (incl. integrated oil companies)

285 

903 

2,129 

231 

118 

594 

4,260 

Oilfield service providers

312 

801 

701 

252 

- 

138 

2,204 

Other wholesale and trading activities

147 

486 

465 

747 

- 

47 

1,892 

Refineries

1 

102 

2,022 

287 

21 

6 

2,439 

Pipelines

1 

372 

1,542 

36 

- 

55 

2,006 










746 

2,664 

6,859 

1,553 

139 

840 

12,801 









Including committed undrawn exposures
















Of which: exploration and production

5 

43 

1,131 

99 

43 

- 

1,321 









31 December 2014
















Producers (incl. integrated oil companies)

833 

1,101 

4,822 

263 

115 

848 

7,982 

Oilfield service providers

153 

675 

1,007 

742 

- 

535 

3,112 

Other wholesale and trading activities

295 

794 

683 

907 

- 

122 

2,801 

Refineries

1 

177 

2,700 

591 

141 

67 

3,677 

Pipelines

96 

48 

2,359 

49 

33 

121 

2,706 










1,378 

2,795 

11,571 

2,552 

289 

1,693 

20,278 









Including committed undrawn exposures








Of which: exploration and production

145 

3 

3,118 

115 

150 

37 

3,568 

 

Note:

(1)

Includes exposures to Central and Eastern Europe as well as the Middle East and Africa.

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

 

Appendix 1 Capital and risk management

 

Key loan portfolios*: Oil and gas (continued)

 

Key points

·

Overall exposure decreased by £2.6 billion (CRA) and £6.3 billion (total exposure), in line with strategy as a result of active portfolio management and asset disposals, principally in CIB. The small increase in CPB reflected transfers from CIB.

·

The price of crude oil recovered from a low of US$45 per barrel in January 2015 to US$61 per barrel at 30 June 2015. The price of natural gas is not highly correlated to oil prices and is determined regionally. US natural gas prices have been relatively stable compared with the recent price of crude oil. 

·

Exposures continue to be closely managed through ongoing customer and sub-sector reviews, and stress testing. Risk appetite was reduced during 2014 with further reductions in 2015 (in part due to asset disposals). Further stress analysis of the portfolio was carried out in 2015 and limits were again reduced with a continued focus on ensuring that the portfolio remains heavily weighted towards investment grade customers. As part of the bank's strategic review, limits for Americas and Asia-Pacific have been significantly reduced.

·

The sub-sector in which a customer operates is a primary consideration for assessing credit risk. Current areas of focus for stress testing and more active credit risk management include those customers involved in exploration and production (E&P) and oilfield service providers. E&P customers represent approximately 10% of CIB's exposure to the oil and gas sector. 

·

Customers involved in E&P are most immediately exposed to the oil price decline. At 30 June 2015, 97% of these were within the producers sub-sector. Companies involved in this area have already introduced capital spending reductions to conserve cash. In turn, this reduced spending is likely to have an adverse impact on oilfield service providers. This is due to the E&P companies buying less products and services from the oilfield service providers, and demanding lower prices for those they do purchase.

·

The other principal components of CIB's exposure to producers are Integrated Oil Companies (IOCs) and National Oil Companies (NOCs). IOCs and NOCs are less vulnerable to the oil price decline due to scale, diversification and in the case of NOC, explicit support from governments.

·

At 30 June 2015 78% (2014 - 83%) of the CIB total portfolio exposure was investment grade (AQ1-AQ4 or equivalent to BBB- and above). 

·

The committed lending exposure included legal commitments to syndicated bank facilities, with tenors up to five years. These committed facilities are for general corporate purposes - including funding operating needs and capital expenditures - and are available as long as counterparties comply with the terms of the credit agreement. Contingent obligations relate to guarantees, letters of credit and suretyships provided to customers.

·

RBS had no high-yield bond or loan underwriting positions as at 30 June 2015 (2014 - US$86 million high-yield loan underwritings in the Americas).

·

There has been a small number of forbearance events, usually involving the relaxation of financial covenants to give customers more financial flexibility. Most forbearance has involved customers in the E&P and oilfield services sub-sectors where earnings have been more immediately and materially impacted by the downturn.

·

At 30 June 2015, Watchlist Red (performing customers who show signs of declining creditworthiness and so require active management) outside RCR totalled £310 million (2014 - £88 million), of which £98 million (2014 - £5 million) was managed by Restructuring.

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

 

Appendix 1 Capital and risk management

 

Key loan portfolios*

 

Shipping

RBS's exposure to the shipping sector is as follows:

30 June

31 December


2015 

2014 

By segment

£m

£m




CIB

6,338 

6,700 

RCR

1,463 

2,855 

Other

828 

803 





8,629 

10,358 

 

Key points

·

Of the total exposure to shipping, £6.6 billion (2014 - £7.9 billion) related to asset-backed ocean-going vessels, the rest predominantly related to shipbuilding and inland water transport. The decrease during H1 2015 reflected scheduled loan repayments, secondary sales and prepayments. £5.3 billion (2014 - £5.7 billion) of the asset-backed ocean-going vessel exposure was in CIB. The main concentration risks were in the dry bulk sector which represented 36% of our exposure (2014 - 38%); tankers at 27% (2014 - 29%) and containers at 17% (2014 - 17%). The remaining exposures comprise gas (including liquid petroleum and natural gases), 11% (2014 - 10%) and others 7% (2014 - 6%).



·

Conditions remained depressed in the bulk market during H1 2015 as a result of vessel oversupply and a slowdown in commodity demand from China. Tanker market conditions are currently favourable and container markets over the last 12 months have stabilised but remain weak in comparison to historic averages. The container market is subject to oversupply on certain lines such as the Asia - Europe line and carriers are struggling to implement general freight rate rises as a result. Rates remain relatively stable at present but downside risks exist over the next 12-18 months. The majority of the RBS portfolio is insulated by long-term charters, which provide more stable long-term fixed cash flows.



·

The majority of ship-secured exposure is extended against recently-built vessels. Across the portfolio (including RCR) the average age of mortgaged vessels is 7.2 years (2014 - 6.4 years). Less than 3% of the core book is secured by vessels that are more than 15 years old and around 82% (2014 - 87%) is secured by vessels built in the last ten years. Due to strategic considerations, RBS has significantly reduced commitments to new builds and, as a result, the average age of the portfolio has risen. RBS continues to provide new lending against second-hand vessels and on some new-build deliveries.



·

A key protection for RBS is the minimum security covenant. The overall loan-to-value (LTV) of the portfolio at 30 June 2015 was 84% (2014 - 77%) with RCR standing at 101% (2014 - 92%) and RBS excluding RCR at 79% (2014 - 73%). Amortisation across the portfolio is approximately 7% per annum excluding early repayments. Asset values fall as markets deteriorate and rise as they improve. Therefore even if exposure falls, the overall LTV position may rise or fall depending on the underlying value of the vessels. The dry bulk sub-sector has seen asset value reductions of around 20-30% in H1 2015 (15-20% in Q1 2015) with dry bulk market values dropping to a 30-year low in February 2015, which led to a rise in the average LTV.

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Key loan portfolios* (continued)

 

Personal portfolios

This section summarises personal portfolios by type, segment and related credit metrics.

 

Overview of personal portfolios split by product type and segment*





















30 June 2015


31 December 2014


UK

Ulster

Private

Commercial




UK

Ulster

Private

Commercial




PBB

Bank

 Banking

Banking (1)

CFG

Total


PBB

Bank

 Banking

Banking (1)

CFG

Total


£m

£m

£m

£m

£m

£m


£m

£m

£m

£m

£m

£m















Mortgages

105,407 

15,935 

6,521 

2,504 

20,540 

150,907 


103,235 

17,506 

6,414 

2,475 

21,122 

150,752 

Of which:














Interest only variable rate

14,397 

987 

3,944 

823 

9,138 

29,289 


15,165 

1,238 

3,952 

858 

9,637 

30,850 

Interest only fixed rate

9,683 

24 

1,574 

36 

286 

11,603 


9,122 

25 

1,520 

27 

292 

10,986 

Mixed (capital and interest only)

6,425 

178 

10 

- 

987 

7,600 


6,820 

204 

- 

- 

788 

7,812 

Buy-to-let

12,886 

1,896 

403 

822 

140 

16,147 


11,602 

2,091 

538 

850 

147 

15,228 

Forbearance

4,465 

3,557 

48 

42 

403 

8,515 


4,873 

3,880 

51 

49 

409 

9,262 















Forbearance arrears status














  - Current

3,823 

2,168 

47 

36 

330 

6,404 


4,158 

2,231 

51 

40 

310 

6,790 

  - 1-3 months in arrears

330 

624 

1 

3 

19 

977 


364 

689 

- 

3 

34 

1,090 

  - >3 months in arrears

312 

765 

- 

3 

54 

1,134 


351 

960 

- 

6 

65 

1,382 















Other lending

11,724 

517 

4,582 

84 

12,174 

29,081 


12,335 

591 

5,108 

78 

10,924 

29,036 















Total lending

117,131 

16,452 

11,103 

2,588 

32,714 

179,988 


115,570 

18,097 

11,522 

2,553 

32,046 

179,788 















Mortgage LTV ratios














  - Total portfolio

57%

89%

53%

62%

65%

61%


57%

92%

51%

51%

67%

62%

  - New business

70%

77%

45%

65%

67%

67%


71%

75%

45%

56%

68%

68%

  - Performing

57%

85%

53%

60%

65%

61%


57%

88%

51%

51%

67%

61%

  - Non-performing

66%

114%

76%

172%

69%

89%


67%

115%

79%

81%

73%

91%

Mortgage REIL

1,058 

2,887 

26 

65 

912 

4,948 


1,218 

3,362 

95 

1 

946 

5,622 

 

Note:

(1)

Relates to Royal Bank of Scotland International (RBSI) business.

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Key points*                                                                                                                            

 

UK PBB

·

The UK PBB personal mortgage portfolio increased by 2.1% to £105.4 billion, of which £92.5 billion (31 December 2014 - £91.6 billion) was owner occupied and £12.9 billion (31 December 2014 - £11.6 billion) was buy-to-let. Of the total portfolio approximately £26 billion related to properties in the south east of England, while £19 billion related to properties in Greater London.

·

Gross new mortgage lending amounted to £9.1 billion in H1 2015 with an average LTV by weighted value of 70.4% (2014 - 70.5%).  Lending to owner-occupiers during this period was £7.5 billion (2014 - £16.6 billion) and had an average LTV by weighted value of 71.5% (2014 - 71.7%). Buy-to-let lending was £1.6 billion (2014 - £3.1 billion) with an average LTV by weighted value of 65.1% (2014 - 63.9%).

·

Based on the Halifax House Price Index at March 2015, the portfolio average indexed LTV by volume was 50.4% (2014 - 50.4%) and 57.4% by weighted value of debt outstanding (2014 - 57.3%).

·

Fixed interest rate products of varying time durations accounted for approximately 60% of the mortgage portfolio with 3% a combination of fixed and variable rates and the remainder variable rate. Approximately 17% of owner-occupied mortgages were on interest-only terms with a bullet repayment and 7% were on a combination of interest-only and capital and interest. The remainder were capital and interest. 63% of the buy-to-let mortgages were on interest-only terms and 3% on a combination of interest only and capital and interest.

·

The arrears rate fell from 1.0% in December 2014 to 0.9% at the end of June 2015. The number of properties repossessed in H1 2015 was also lower (338 compared with 472 in H2 2014). This reflected improvements in the UK economy and underlying asset quality

·

The flow of new forbearance was £315 million in H1 2015 compared with £367 million in H2 2014. The value of mortgages subject to forbearance has decreased by 8% since the year end to £4.5 billion (equivalent to 4.2% of the total mortgage book) as a result of improved market conditions and methodology changes.

·

There was an overall small release of impairment provision for personal mortgages in H1 2015 compared with a small charge in H1 2014. Reduced REIL balances and a fall in the instances of forborne mortgages drove the release in latent and PD90 provisions as well as lower LGDs.

 

Ulster Bank

·

Ulster Bank's residential mortgage portfolio totalled £15.9 billion at 30 June 2015, with 86% in the Republic of Ireland and 14% in Northern Ireland. Excluding the impact of exchange rate movements, the portfolio decreased by 1.3% from 31 December 2014 as a result of amortisation a portion of which related to the tracker mortgage portfolio. The volume of new business has increased reflecting continuing market demand.

·

The interest-rate product mix was approximately 63% of the mortgage portfolio on tracker-rate products, 23% on variable-rate products and 14% on fixed rate. Interest-only represented 6% of the total portfolio. 

·

The portfolio average indexed LTV decreased from 92% at 31 December 2014 to 89% at 30 June 2015 and reflected positive house price index trends over the last six months. 

·

At 30 June 2015, 22.3% of total mortgage assets (£3.6 billion) were subject to a forbearance arrangement, a decrease of 8.3% (£0.3 billion) from 31 December 2014. Excluding the impact of exchange rate movements, the value of mortgage assets subject to a forbearance arrangement has decreased by £276 million (4.8%).

 

 

 

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

Key points* (continued)

 

Ulster Bank (continued)

·

The number of customers approaching Ulster Bank for the first time in respect to forbearance assistance declined through H1 2015. The majority (78%) of forbearance arrangements were less than 90 days in arrears.

 

·

There was an overall release of impairment provisions for personal mortgages in H1 2015 compared with a charge in H1 2014. Reducing defaulted balances have reduced loss expectations driving collective and latent releases.

 

CFG

·

The mortgage portfolio at 30 June 2015 consisted of £8 billion of residential mortgages (1% in second lien position) and £12.5 billion of home equity loans and lines of credit (HELOC) - first and second liens. Home equity consisted of 46% in first lien position. A Serviced By Others (SBO) portfolio, which is predominantly (95%) second lien, is included in the home equity book. Excluding the effect of exchange rates, the portfolio decreased 2% from the 2014 year end as a result of contraction in HELOC and run-off in the construction legacy serviced by others portfolios.



·

CFG continued to focus on its footprint states of New England, Mid-Atlantic and the Mid-West. At 30 June 2015, £16.7 billion (81% of the total portfolio) was within footprint.



·

The SBO portfolio, which was closed to new purchases in Q3 2007, decreased from £1.3 billion in Q1 2015 to £1.1 billion in Q2 2015.



·

The overall mortgage portfolio credit characteristics are stable with a weighted average LTV of 65% at 30 June 2015. The weighted average LTV of the portfolio, excluding SBO, was 63%.



·

CFG participates in the US-government mandated Home Affordable Modification Program (HAMP), as well as its own proprietary programme. The 12-month default rate, on a value basis, for customers who were granted forbearance, was 17.4% in H1 2015 (2014 - 15%). The increase in default rate was driven by a regulatory requirement to start tracking co-borrower bankruptcies. Additionally, many HAMP mortgages, which receive a below market rate for five years, began to reset at higher rates to adjust to the market rate, increasing defaults.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Market risk

Market risk is the risk of losses arising from fluctuations in interest rates, credit spreads, foreign currency rates, equity prices, commodity prices and other factors, such as market volatilities, that may lead to a reduction in earnings, economic value or both. For a description of market risk framework, governance, policies and methodologies, refer to Capital and risk management - Market risk in the 2014 Annual Report and Accounts. There were no material changes to market risk methodologies or models during H1 2015.

 

Trading portfolios

Value-at-risk

The table below presents the internal value-at-risk (VaR) for trading portfolios split by type of market risk exposure and by business area. The internal traded 99% one-day VaR captures all trading book positions. By contrast, the regulatory VaR-based charges take into account only regulator-approved products, locations and legal entities and are based on a ten-day, rather than a one-day, holding period for market risk capital calculations.
















Half year ended


Year ended


30 June 2015


30 June 2014


31 December 2014


Average 

Period end 

Maximum 

Minimum 


Average 

Period end 

Maximum 

Minimum 


Average 

Period end 

Maximum 

Minimum 

Trading VaR (1-day 99%)

£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 


£m 

£m 

£m 

£m 
















Interest rate

16.0 

11.7 

29.8 

10.8 


16.7 

14.9 

39.8 

10.9 


17.4 

16.9 

39.8 

10.8 

Credit spread

12.5 

7.6 

16.4 

7.5 


28.3 

24.4 

42.8 

20.9 


23.1 

14.2 

42.8 

13.4 

Currency

5.3 

5.4 

7.8 

3.3 


5.4 

3.0 

8.5 

2.0 


4.7 

5.5 

9.7 

1.0 

Equity

2.4 

1.2 

6.1 

1.0 


3.5 

2.5 

6.0 

2.1 


3.0 

3.7 

6.5 

1.2 

Commodity

0.5 

0.7 

2.2 

0.2 


0.6 

0.7 

1.4 

0.3 


0.6 

0.4 

2.5 

0.3 

Diversification (1)


(11.6)





(24.8)





(18.2)


















Total

21.8 

15.0 

30.1 

15.0 


30.6 

20.7 

58.2 

20.7 


27.8 

22.5 

58.2 

17.1 
















CIB

21.1 

14.2 

29.8 

14.0 


28.2 

21.3 

48.8 

20.5 


26.3 

21.3 

48.8 

15.5 

RCR

3.1 

2.8 

4.5 

2.6 


6.0 

3.5 

16.2 

3.3 


4.5 

3.0 

16.2 

2.6 

 

Note:

(1)

RBS benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

 

Key points

·

During H1 2015, trading book exposure continued to decline. The markets exhibited higher volatility and reduced liquidity, resulting from a number of macroeconomic factors, including ongoing political and economic uncertainty in Europe and growing concerns regarding economic slowdown in China.

·

The period end and average total traded internal VaR were lower than in 2014, primarily in credit spread VaR resulting from the ongoing exit of the US asset-backed products (ABP) trading business.

 


Appendix 1 Capital and risk management

 

Trading portfolios (continued)

 

Capital charges*

The total market risk minimum capital requirement calculated in accordance with CRR was £1,786 million at 30 June 2015 (31 December 2014 - £1,917 million), representing RWAs of £22.3 billion (31 December 2014 - £24.0 billion). It comprised two categories: (i) the Pillar 1 model-based position risk requirement (PRR) of £1,497 million (31 December 2014 - £1,458 million), which in turn comprised several modelled charges; and (ii) the standardised PRR of £289 million (31 December 2014 - £459 million), which also had several components.

 

The components of the Pillar 1 model-based PRR are presented in the table below. 












31 December



2014 


Average

Maximum

Minimum

Period end

Period end

30 June 2015

£m

£m

£m

£m

£m







Value-at-risk

362 

400 

333 

400 

329 

Stressed VaR  (SVaR)

527 

555 

492 

555 

511 

Incremental risk charge (IRC)

294 

348 

271 

288 

299 

Risk not in VaR (RNIV)

284 

319 

227 

254 

319 











1,497 

1,458 

 

Key points

·

The total model-based PRR increased by 3% in the half year to 30 June 2015, driven by higher VaR and SVaR based capital charges, offset somewhat by the lower RNIV capital charge.



·

The VaR and SVaR capital charges together increased by 14%, reflecting increased positioning by the rates business during Q2 2015, notably relating to euro rates, following market euro sell-off in May.



·

The RNIV charge fell by 20%, primarily in stressed RNIVs following reductions in inflation basis risk in the rates business.



·

Standardised charges were 37% or £170 million lower than at the 2014 year end, primarily driven by reduced securitisation exposures in the trading book reflecting the continuation of the US ABP exit, UK ABP risk reduction and the continuation of RCR disposals.



·

All entities maintained a green status relating to regulatory back-testing during H1 2015 except for NatWest Plc, which had six exceptions during the 250 business days ending 30 June 2015, mainly driven by market volatility. This resulted in a £49 million increase to market risk RWAs.

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Non-trading portfolios

 

Non-trading VaR

Average VaR for RBS's non-trading book, comprising predominantly available-for-sale portfolios, was £2.9 million for H1 2015 compared with £4.8 million for H1 2014 and £4.4 million for H2 2014. This was largely driven by a decline in the credit spread VaR as a result of the ongoing RCR run-down. The period end VaR decreased from £3.8 million at 31 December 2014 to £2.0 million at 30 June 2015.

 

Non-traded interest rate risk

Non-traded interest rate risk affects earnings arising from banking activities. This excludes positions in financial instruments which are classified as held-for-trading. The methodology relating to interest rate risk is detailed in Capital and risk management - Market risk - Non-traded market risk in the 2014 Annual Report and Accounts.

 

Non-traded interest rate risk VaR metrics are based on interest rate repricing gaps at the reporting date. The table below captures the risk resulting from mismatches in the repricing dates of assets and liabilities. This includes any mismatch between structural hedges and stable non and low interest bearing liabilities such as equity and money transmission accounts as regards their interest rate repricing behavioural profile. Other customer products and associated funding and hedging transactions as well as non-financial assets and liabilities such as property, plant and equipment are also included.

 

VaR does not provide a dynamic measurement of interest rate risk since static underlying repricing gap positions are assumed. Changes in customer behaviour under varying interest rate scenarios are captured by way of earnings at risk measures. VaR relating to non-traded interest rate risk for RBS's retail and commercial banking activities at a 99% confidence level and a currency analysis at the period end were as follows:






Average 

Period end 

Maximum 

Minimum 

Six months ended

£m 

£m 

£m 

£m 






30 June 2015

17 

13 

25 

11 

30 June 2014

64 

68 

79 

45 

31 December 2014

37 

23 

56 

23 








30 June

30 June

31 December


2015 

2014 

2014 


£m 

£m 

£m 






Euro


2 

3 

2 

Sterling


13 

8 

12 

US dollar


14 

73 

27 

Other


4 

3 

3 

 

Key point

·

In H1 2015, interest rate VaR was lower on average than in 2014 as RBS continued to steer its structural interest rate exposure more closely to the neutral duration prescribed in its risk management policy. The reduction in the US dollar VaR reflects reduced exposure to US dollar fixed rate assets, which helped to achieve the alignment to policy.


Appendix 1 Capital and risk management

 

Non-trading portfolios (continued)

 

Sensitivity of net interest income*

Earnings sensitivity to rate movements is derived from a central forecast over a 12 month period. Market implied forward rates and new business volume, mix and pricing consistent with business assumptions are used to generate a base case earnings forecast, which is then subjected to interest rate shocks. The variance between the central forecast and the shock gives an indication of sensitivity to interest rate movements. 

 

The following table shows the sensitivity of net interest income, over the next 12 months, to an immediate upward or downward change of 100 basis points to all interest rates. The main drivers of earnings sensitivity relate to interest rate pass-through assumptions on customer products, reinvestment rate assumptions for maturing product and equity structural hedges and mismatches in the re-pricing dates of loans and deposits. In addition, the table includes the impact of a gradual 400 basis point steepening (bear steepener) and a gradual 300 basis point flattening (bull flattener) of the yield curve at tenors greater than a year.

 

The scenarios represent annualised interest rate stresses of a scale deemed sufficient to trigger a modification in customer behaviour. The asymmetry in the steepening and flattening scenarios reflects the difference in the expected behaviour of interest rates as they approach zero.













Of which


Euro 

Sterling 

US dollar 

Other 

Total 

CFG

30 June 2015

£m 

£m 

£m 

£m 

£m 

£m 








+ 100 basis point shift in yield curves

7 

365 

135 

12 

519 

155 

- 100 basis point shift in yield curves

(9)

(397)

(109)

(30)

(545)

(104)

Bear steepener





377 

112 

Bull flattener





(130)

(85)








31 December 2014














+ 100 basis point shift in yield curves

(28)

347 

214 

(17)

516 

154 

- 100 basis point shift in yield curves

(34)

(298)

(87)

(12)

(431)

(85)

Bear steepener





406 

105 

Bull flattener





(116)

(58)

 

Key points

·

Excluding Citizens, £258 million of the benefit of the immediate 100 basis point upward change in interest rates relates to interest rate pass-through assumptions on customer savings accounts.  

·

Earnings sensitivity for the downward change of 100 basis points increased from December 2014, due to higher interest rate expectations in the market for the next 12 months.

 

Structural hedging*

Banks generally have the benefit of a significant pool of stable, non and low interest bearing liabilities, principally comprising equity and money transmission accounts. These balances, known as net free funds are usually hedged, either by investing directly in longer-term fixed rate assets or by the use of interest rate swaps, in order to provide a consistent and predictable revenue stream.

 

After hedging the net interest rate exposure of the bank externally, Treasury allocates income to products or equity in structural hedges by reference to the relevant interest rate swap curve. Over time, the hedging programme has built up a portfolio of interest rate swaps that provide a basis for stable income attribution to the product and equity hedges.

 

 

*Not within the scope of Deloitte LLP's review report

 

Appendix 1 Capital and risk management

 

Non-trading portfolios (continued)

 

Product hedging*

Product structural hedges are used to reduce the volatility on earnings related to specific products, primarily customer deposits. The balances are primarily hedged with medium-term interest rate swaps, so that reported income is less sensitive to movements in short-term interest rates.

 

The table below shows the impact on net interest income associated with product hedges managed by Treasury. These relate to the main UK banking businesses except Private Banking. The figures shown represent the incremental contribution of the hedge relative to short-term wholesale cash rates.





Six months ended

Net interest income

30 June

30 June

31 December

2015 

2014 

2014 

£m 

£m 

£m 





Product hedges




UK Personal & Business Banking

210 

184 

209 

Commercial Banking

101 

81 

99 

Corporate & Institutional Banking

39 

37 

38 





Total product hedges

350 

302 

346 

 

Key points

·

As short-term interest rates remained close to historically low levels in H1 2015, the incremental impact of product hedges relative to wholesale cash rates remained positive.

·

In H1 2015, the all-in yield was 1.5%, slightly lower than in H2 2014 (1.6%), due to low levels of interest rates, and similar to H1 2014 (1.5%).

 

Equity hedging*

Equity structural hedges are also used to reduce the volatility on earnings arising from returns on equity. The hedges managed by Treasury relate mainly to the UK banking businesses and contributed £0.4 billion to these businesses in H1 2015 (H1 2014 and H2 2014 - £0.4 billion), which is an incremental benefit relative to short-term wholesale cash rates. In H1 2015, the all-in yield was 2.4%, slightly lower than in H1 2014 (2.6%) and H2 2014 (2.5%) due to the low levels of interest rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

Non-trading portfolios (continued)

 

Foreign exchange risk

The only material non-traded open currency positions are the structural foreign exchange exposures arising from investments in foreign subsidiaries, branches and associates and their related currency funding. These exposures are assessed and managed by Treasury to predefined risk appetite levels under delegated authority from the ALCo. Treasury seeks to limit the potential volatility impact on RBS's CET1 ratio from exchange rate movements by maintaining a structural open currency position. Gains or losses arising from the retranslation of net investments in overseas operations are recognised in equity and reduce the sensitivity of capital ratios to foreign exchange rate movements primarily arising from the retranslation of non-sterling-denominated RWAs. Sensitivity is minimised where, for a given currency, the ratio of the structural open position to RWAs equals RBS's CET1 ratio. The sensitivity of the CET1 capital ratio to exchange rates is monitored monthly and reported to the ALCo at least quarterly.

 

Foreign exchange exposures arising from customer transactions are sold down by businesses on a regular basis in line with RBS policy.





Structural






Net assets


foreign currency


Residual


Net assets


of overseas

Net

 exposures


structural

of overseas


operations

 investment

pre-economic

Economic

foreign currency

 operations

NCI (1)

excluding NCI

 hedges

 hedges

 hedges (2)

 exposures

30 June 2015

£m

£m

£m

£m

£m

£m

£m









US dollar

11,302 

(4,968)

6,334 

(1,910)

4,424 

(3,605)

819 

Euro

5,210 

(56)

5,154 

(205)

4,949 

(1,894)

3,055 

Other non-sterling

3,962 

(483)

3,479 

(2,777)

702 

- 

702 










20,474 

(5,507)

14,967 

(4,892)

10,075 

(5,499)

4,576 









31 December 2014
















US dollar

11,402 

(2,321)

9,081 

(3,683)

5,398 

(4,034)

1,364 

Euro

6,076 

(39)

6,037 

(192)

5,845 

(2,081)

3,764 

Other non-sterling

4,178 

(456)

3,722 

(2,930)

792 

- 

792 










21,656 

(2,816)

18,840 

(6,805)

12,035 

(6,115)

5,920 

 

Notes:

(1)

Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners' equity, which consisted mainly of CFG in US dollar.

(2)

Economic hedges mainly represent US dollar and euro preference shares in issue that are treated as equity under IFRS and do not qualify as hedges for accounting purposes.

 

Key points

·

Structural foreign currency exposures before and after economic hedges were £2.0 billion and £1.3 billion respectively lower, mainly due to changes below:


○

Net assets of overseas operations declined by £1.2 billion, largely due to the strength of sterling against other currencies, especially the euro, which depreciated significantly during the period.


○

Non-controlling interests increased by £2.7 billion, mainly as a result of the partial disposal of Citizens during Q1 2015.


○

Net investment hedges decreased by £1.9 billion, mainly due to the partial disposal of Citizens, partly offset by an increase in the hedging of the remaining Citizens holdings.

·

Economic hedges, which consist of equity capital securities in issue, decreased by £0.6 billion reflecting redemptions of certain equity securities during Q1 2015.

·

A 5% strengthening in foreign currencies against sterling would result in a gain or loss of £0.5 billion in equity (2014 - £0.6 billion).

 


Appendix 1 Capital and risk management

 

Country risk

Country risk is the risk of losses occurring as a result of either a country event or unfavourable country operating conditions. As country events may simultaneously affect all or many individual exposures to a country, country event risk is a concentration risk. Refer to Capital and risk management - Credit risk in the 2014 Annual Report and Accounts for other types of concentration risk such as product, sector or single-name concentration and Country risk for governance, monitoring, management and definitions.

 

Key points*

The comments below relate to changes in country exposures in H1 2015 unless indicated otherwise.

 

●

Net balance sheet and off-balance sheet exposure to most countries declined across most products. RBS continues to maintain a cautious stance as it becomes a more UK-centred bank with an international focus on Western Europe. In addition, many clients continued to reduce debt levels. The US dollar and the euro depreciated against sterling by 0.7% and 8.9% respectively, contributing to the decline in exposure.



●

Total eurozone net balance sheet exposure decreased by £12.0 billion or 12%, to £85.6 billion.


○

The depreciation of the euro played a significant role in the reduction.


○

The main reductions were in HFT government bonds in Germany, Italy and Spain; in derivatives exposure (mostly to banks) in the Netherlands, Italy and Germany; and in lending in Ireland, Italy and Spain.


○

Notional bought and sold credit default swaps (CDS) continued its downward trend in line with the bank's general reduction in trading. Net bought CDS protection on eurozone exposures was broadly unchanged.


○

Net lending in RCR roughly halved to £2.0 billion for the eurozone as a whole, including £0.8 billion in Ireland and £0.5 billion in Spain, with CRE accounting for broadly half of the total.



●

Eurozone periphery net balance sheet exposure decreased by £7.4 billion or 24%, to £24.0 billion.


○

Ireland - exposure fell by £2.5 billion or 11% to £20.2 billion, with exposure to corporates and households (mostly mortgage lending) decreasing by £1.5 billion each, largely reflecting currency movements and portfolio sales in RCR. Provisions fell by £3.3 billion to £5.1 billion, largely as a result of these sales. Ulster Bank's cash deposits with the Central Bank of Ireland increased by £0.7 billion, again reflecting the proceeds of the RCR portfolio sales.


○

Spain - exposure decreased by £1.2 billion to £2.1 billion. This largely reflected reductions in net HFT government bonds, the result of client demand and perceived peripheral eurozone risks triggered by the Greek crisis, and corporate lending (mostly RCR exposure to the commercial real estate, construction and transport sectors). Off-balance sheet exposure, mostly to corporates, decreased by £0.5 billion.


○

Italy - exposure fell by £3.2 billion to £1.1 billion, reflecting reductions in net HFT government bonds, driven by client demand and eurozone risks, and the maturity of a few large derivatives transactions with banks and corporate loans. Off-balance sheet exposure, largely to corporate clients, decreased by £0.7 billion. RBS will continue to service core clients in Italy.


○

Portugal - exposure decreased by £0.3 billion to £0.5 billion, due to decreases in net HFT government bonds, derivatives to banks and corporate lending.

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management

 

Key points* (continued)

○

Greece - net balance sheet exposure decreased to £110 million (down from £0.4 billion), mostly as a result of sales of derivatives positions. The remaining exposure comprised mostly lending and collateralised derivatives exposure to corporate clients, including local subsidiaries of international companies. Total exposure after risk mitigation was approximately £86 million, about a quarter of this in RCR. Contingency planning for any downside scenarios had been refreshed when capital controls were introduced in late June.


○

Estimated funding mismatches at risk of redenomination at 30 June 2015 were:



- Ireland - £3.5 billion, down from £4.0 billion, due principally to lower lending.



- Spain - £0.5 billion (broadly unchanged).



- Italy - minimal, down from £1.5 billion due to lower derivatives and HFT exposure, and lower

  lending.



- Portugal - minimal, down from £0.5 billion, due to lower HFT, derivatives and lending.



The net positions for Greece and Cyprus remained minimal.

·

Germany - net balance sheet exposure fell by £4.3 billion to £22.3 billion, in net HFT bonds, derivatives and SFT exposure to financial institutions and corporate lending. This was partially offset by an increase of £3.9 billion in cash deposits with the Bundesbank. Off-balance sheet exposure, mostly to corporates, decreased by £0.9 billion.

·

France - net balance sheet exposure rose by £1.3 billion to £17.4 billion. Exposure to banks increased by £1.0 billion, principally because of the build-up of cash balances with a French bank for the redemption during Q3 2015 of outstanding notes issued by RBS. AFS bonds rose by £0.5 billion, as part of Treasury liquidity management. Off-balance sheet exposure, largely to corporates, fell by £1.0 billion.

·

Netherlands - net balance sheet exposure decreased by £1.8 billion, mainly because derivatives exposure was reduced to a few major banks. Net HFT debt securities increased by £0.8 billion, driven by client demand and market opportunities. This was largely offset by decreases in AFS debt securities. Off-balance sheet exposure to the corporate sector and financial institutions fell by a combined £1.4 billion.

·

Other eurozone - net HFT government bonds increased by £0.5 billion to £1.4 billion, driven by opportunities in the Finnish and Austrian bond markets.

·

Japan - net HFT government bond exposure increased by £4.2 billion to £7.2 billion. This exposure was driven by collateral trading in London, with the increase in outright holdings reflecting reduced access to local repo markets following RBS's decision to exit its Japanese onshore business. Nostro balances with the central bank also increased, by £1.0 billion. These balances fluctuate on a daily basis depending on RBS excess yen liquidity held in London and Tokyo. Derivatives exposure to banks and in corporate lending decreased by a combined £0.8 billion.

·

China - net balance sheet exposure decreased by £1.2 billion to £2.4 billion, with reductions mostly in corporate lending, driven by the new international strategy. The portfolio is focused on the largest banks and corporates. Stress tests indicate that the impact of an economic downturn scenario on credit losses would be limited.

·

India - net balance sheet exposure fell by £0.3 billion to £1.7 billion, with reductions mostly in corporate lending, reflecting the bank's new UK-centred strategy.

·

Russia - net balance sheet exposure decreased by £0.2 billion to £1.6 billion which included £0.9 billion of corporate lending and £0.7 billion of bank lending. Around one-third of the bank lending risk was transferred to third-party investors through credit-linked notes. The exposure continues to be closely monitored and reviewed against all international sanctions, with strict credit restrictions placed on new business.

 

*Not within the scope of Deloitte LLP's review report


 

Appendix 1 Capital and risk management

 

Country risk: Country exposures


























Net balance sheet exposure


Analysis of net balance sheet exposures


Off-




CDS




Sovereign

Central

Other

Other





Net


Debt securities


Net

balance

Total


notional less


Gross

banks

banks

FI

Corporate

Personal

Total

lending


AFS/LAR

HFT (net)


Derivatives

SFT

sheet

exposure


fair value


Derivatives

SFT

30 June 2015

£m

£m

£m

£m

£m

£m

£m


£m


£m

£m


£m

£m


£m


£m


£m


£m

£m


























Eurozone

























Ireland

292 

1,326 

541 

732 

4,174 

13,116 

20,181 


18,959 


20 

511 


691 

- 


2,429 


22,610 


(38)


2,001 

1,384 

Spain

(168)

1 

447 

44 

1,683 

77 

2,084 


1,579 


- 

(175)


677 

3 


1,449 


3,533 


(294)


2,959 

608 

Italy

(1,338)

12 

1,583 

262 

527 

25 

1,071 


612 


23 

(1,356)


1,790 

2 


1,303 


2,374 


(483)


6,231 

2,020 

Portugal

(41)

- 

165 

73 

263 

7 

467 


226 


18 

(2)


225 

- 


185 


652 


(104)


261 

199 

Greece

6 

- 

3 

1 

80 

20 

110 


64 


- 

6 


40 

- 


21 


131 


(33)


40 

- 

Cyprus

- 

- 

- 

- 

44 

14 

58 


43 


- 

- 


15 

- 


12 


70 


- 


15 

- 


























Eurozone

























  periphery

(1,249)

1,339 

2,739 

1,112 

6,771 

13,259 

23,971 


21,483 


61 

(1,016)


3,438 

5 


5,399 


29,370 


(952)


11,507 

4,211 


























Germany

5,509 

6,538 

3,175 

5,149 

1,871 

83 

22,325 


8,092 


6,377 

(38)


7,650 

244 


5,168 


27,493 


(2,320)


31,029 

6,690 

France

5,775 

2 

8,048 

1,505 

1,965 

83 

17,378 


4,306 


2,404 

3,929 


6,418 

321 


7,562 


24,940 


(2,452)


32,703 

18,824 

Netherlands

612 

803 

3,964 

5,687 

1,751 

31 

12,848 


3,061 


1,079 

3,356 


5,333 

19 


7,940 


20,788 


(716)


16,213 

1,937 

Belgium

1,234 

- 

2,085 

54 

302 

22 

3,697 


442 


539 

642 


1,956 

118 


774 


4,471 


(161)


2,446 

942 

Luxembourg

- 

23 

254 

1,043 

999 

7 

2,326 


1,584 


309 

48 


368 

17 


1,182 


3,508 


(21)


500 

2,461 

Other

1,851 

11 

817 

67 

268 

18 

3,032 


400 


275 

1,424 


864 

69 


810 


3,842 


(523)


3,514 

210 


























Total

























  eurozone

13,732 

8,716 

21,082 

14,617 

13,927 

13,503 

85,577 


39,368 


11,044 

8,345 


26,027 

793 


28,835 


114,412 


(7,145)


97,912 

35,275 


























Japan

7,377 

1,968 

1,324 

550 

99 

31 

11,349 


2,334 


- 

7,200 


1,795 

20 


626 


11,975 


(26)


7,532 

2,752 

China

156 

169 

954 

200 

847 

32 

2,358 


1,982 


90 

- 


255 

31 


152 


2,510 


21 


359 

6,131 

India

476 

60 

44 

199 

867 

34 

1,680 


1,153 


367 

109 


51 

- 


545 


2,225 


(45)


111 

63 

Russia

8 

11 

661 

39 

854 

45 

1,618 


1,545 


8 

(3)


68 

- 


91 


1,709 


(101)


83 

- 

 

These tables show RBS exposure at 30 June 2015 and 31 December 2014 by country of operation of the counterparty, except exposures to governments and individuals which are shown by country of residence. Balance sheet exposures are shown net of loan impairment provisions. 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 2015, 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. Refer to the 2014 Annual Report and Accounts for definitions, including securities financing transactions (SFT).

Appendix 1 Capital and risk management

 

Country exposures (continued)

 


























Net balance sheet exposure


Analysis of net balance sheet exposures


Off-




CDS




Sovereign

Central

Other

Other





Net


Debt securities


Net

balance

Total


 notional

Gross


banks

banks

FI

 Corporate

 Personal

Total

lending


 AFS/LAR

HFT (net)


 Derivatives

SFT

sheet

exposure


less fair value

 Derivatives

SFT


31 December 2014

£m

£m

£m

£m

£m

£m

£m


£m


£m

£m


£m

£m


£m


£m


£m

£m

£m



























Eurozone

























Ireland

239 

587 

726 

839 

5,653 

14,593 

22,637 


21,176 


56 

413 


991 

1 


2,922 


25,559 


(48)

2,330 

1,464 


Spain

251 

- 

583 

164 

2,184 

88 

3,270 


2,024 


47 

364 


835 

- 


1,923 


5,193 


(312)

3,913 

422 


Italy

112 

15 

2,519 

368 

1,187 

25 

4,226 


1,095 


169 

5 


2,957 

- 


2,031 


6,257 


(625)

9,192 

823 


Portugal

111 

- 

246 

97 

322 

8 

784 


282 


20 

152 


330 

- 


222 


1,006 


(155)

390 

613 


Greece

8 

- 

258 

1 

92 

17 

376 


63 


- 

8 


305 

- 


23 


399 


(8)

416 

- 


Cyprus

- 

- 

- 

- 

113 

14 

127 


108 


- 

- 


19 

- 


16 


143 


- 

19 

- 



























Eurozone

























  periphery

721 

602 

4,332 

1,469 

9,551 

14,745 

31,420 


24,748 


292 

942 


5,437 

1 


7,137 


38,557 


(1,148)

16,260 

3,322 



























Germany

12,301 

2,681 

3,940 

5,496 

2,083 

86 

26,587 


4,601 


7,121 

5,653 


8,317 

895 


6,090 


32,677 


(1,749)

39,275 

8,704 


France

5,203 

3 

7,089 

1,924 

1,774 

81 

16,074 


2,931 


1,951 

4,034 


6,392 

766 


8,586 


24,660 


(2,406)

41,132 

17,598 


Netherlands

72 

926 

5,557 

5,981 

2,130 

29 

14,695 


3,582 


1,690 

2,509 


6,830 

84 


9,323 


24,018 


(815)

20,986 

3,573 


Belgium

803 

3 

2,330 

93 

396 

21 

3,646 


579 


274 

375 


2,334 

84 


858 


4,504 


(219)

3,374 

932 


Luxembourg

(1)

19 

556 

645 

781 

5 

2,005 


968 


329 

70 


461 

177 


1,475 


3,480 


(53)

701 

2,628 


Other

1,689 

19 

762 

132 

533 

16 

3,151 


612 


456 

930 


1,148 

5 


1,047 


4,198 


(562)

4,818 

302 



























Total

























  eurozone

20,788 

4,253 

24,566 

15,740 

17,248 

14,983 

97,578 


38,021 


12,113 

14,513 


30,919 

2,012 


34,516 


132,094 


(6,952)

126,546 

37,059 



























Japan

3,257 

1,007 

1,927 

514 

325 

33 

7,063 


1,633 


3 

3,043 


2,358 

26 


844 


7,907 


(25)

10,129 

10,005 


China

329 

130 

1,011 

363 

1,674 

41 

3,548 


2,886 


243 

62 


243 

114 


531 


4,079 


(4)

244 

4,770 


India

526 

85 

133 

156 

1,053 

36 

1,989 


1,336 


415 

132 


106 

- 


639 


2,628 


(47)

180 

- 


Russia

39 

14 

711 

101 

915 

50 

1,830 


1,673 


39 

- 


118 

- 


167 


1,997 


(166)

202 

- 



 

 

 

 

 

 

 

 

Appendix 2

 

Income statement reconciliations

and balance sheet pre and post disposal groups

 

 


Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

Half year ended


30 June 2015


Non-

Reallocation of

Presentational


Statutory

statutory

one-off items

adjustments (1)

CFG (2)

£m

£m 

£m 

£m 

£m







Interest receivable

7,329 

- 

- 

(1,222)

6,107 

Interest payable

(1,807)

- 

- 

118 

(1,689)







Net interest income

5,522 

- 

- 

(1,104)

4,418 







Fees and commissions receivable

2,347 

- 

- 

(389)

1,958 

Fees and commissions payable

(381)

- 

- 

18 

(363)

Income from trading activities

734 

210 

- 

(69)

875 

Other operating income

478 

(57)

- 

(53)

368 







Non-interest income

3,178 

153 

- 

(493)

2,838 







Total income

8,700 

153 

- 

(1,597)

7,256 







Staff costs

(3,075)

- 

(348)

568 

(2,855)

Premises and equipment

(859)

- 

(47)

161 

(745)

Other administrative expenses

(1,133)

- 

(1,523)

290 

(2,366)

Depreciation and amortisation

(418)

- 

(294)

- 

(712)

Restructuring costs

(1,503)

- 

1,503 

- 

- 

Litigation and conduct costs

(1,315)

- 

1,315 

- 

- 

Write down of goodwill and other intangible assets

- 

- 

(606)

- 

(606)







Operating expenses

(8,303)

- 

- 

1,019 

(7,284)







Profit/(loss) before impairment releases

397 

153 

- 

(578)

(28)

Impairment releases

232 

- 

- 

89 

321 







Operating profit

629 

153 

- 

(489)

293 

Own credit adjustments (3)

288 

(288)

- 

- 

- 

Strategic disposals

(135)

135 

- 

- 

- 

Citizens discontinued operations

(489)

- 

- 

489 

- 







Profit before tax

293 

- 

- 

- 

293 

Tax charge

(293)

- 

- 

- 

(293)







Profit for continuing operations

- 

- 

- 

- 

- 







Profit from discontinued operations, net of tax






  - Citizens

354 

- 

- 

- 

354 

  - Other

4 

- 

- 

- 

4 







Profit from discontinued operations, net of tax

358 

- 

- 

- 

358 







Profit for the period

358 

- 

- 

- 

358 

Non-controlling interests

(344)

- 

- 

- 

(344)

Preference share and other dividends

(167)

- 

- 

- 

(167)







Loss attributable to ordinary and B shareholders

(153)

- 

- 

- 

(153)

 

Notes:

(1)

Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense lines.

(2)

The statutory results of Citizens Financial Group (CFG), which is classified as a discontinued operation.

(3)

Reallocation of £210 million gain (H1 2014 - £11 million gain; Q2 2015 - £115 million gain; Q1 2015 - £95 million gain; Q2 2014 - £84 million loss) to income from trading activities and £78 million gain (H1 2014 - £62 million loss; Q2 2015 - £53 million gain; Q1 2015 - £25 million gain; Q2 2014 - £106 million loss) to other operating income.


 

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

Half year ended


30 June 2014


Non-

Reallocation of

Presentational


Statutory

statutory

one-off items

adjustments (1)

CFG (2)

£m

£m 

£m 

£m 

£m







Interest receivable

7,621 

- 

- 

(1,077)

6,544 

Interest payable

(2,125)

(3)

- 

90 

(2,038)







Net interest income

5,496 

(3)

- 

(987)

4,506 







Fees and commissions receivable

2,605 

- 

- 

(362)

2,243 

Fees and commissions payable

(487)

- 

- 

12 

(475)

Income from trading activities

1,482 

11 

- 

(43)

1,450 

Gain on redemption of own debt

- 

20 

- 

- 

20 

Other operating income

882 

154 

- 

(231)

805 







Non-interest income

4,482 

185 

- 

(624)

4,043 







Total income

9,978 

182 

- 

(1,611)

8,549 







Staff costs

(3,340)

- 

(196)

539 

(2,997)

Premises and equipment

(1,079)

- 

(196)

149 

(1,126)

Other administrative expenses

(1,292)

(1)

(369)

305 

(1,357)

Depreciation and amortisation

(551)

- 

(3)

88 

(466)

Restructuring costs

(514)

- 

514 

- 

- 

Litigation and conduct costs

(250)

- 

250 

- 

- 

Write down of goodwill and other intangible assets

(82)

(130)

- 

- 

(212)







Operating expenses

(7,108)

(131)

- 

1,081 

(6,158)







Profit before impairment losses

2,870 

51 

- 

(530)

2,391 

Impairment losses

(269)

- 

- 

104 

(165)







Operating profit

2,601 

51 

- 

(426)

2,226 

Own credit adjustments (3)

(51)

51 

- 

- 

- 

Gain on redemption of own debt

20 

(20)

- 

- 

- 

Write down of goodwill

(130)

130 

- 

- 

- 

Strategic disposals

191 

(191)

- 

- 

- 

Citizens discontinued operations

(426)

- 

- 

426 

- 

RFS Holdings minority interest

21 

(21)

- 

- 

- 







Profit before tax

2,226 

- 

- 

- 

2,226 

Tax charge

(592)

- 

- 

- 

(592)







Profit for continuing operations

1,634 

- 

- 

- 

1,634 







Profit from discontinued operations, net of tax






  - Citizens

285 

- 

- 

- 

285 

  - Other

35 

- 

- 

- 

35 







Profit from discontinued operations, net of tax

320 

- 

- 

- 

320 







Profit for the period

1,954 

- 

- 

- 

1,954 

Non-controlling interests

(42)

- 

- 

- 

(42)

Preference share and other dividends

(487)

- 

- 

- 

(487)







Profit attributable to ordinary and B shareholders

1,425 

- 

- 

- 

1,425 

 

For the notes to this table refer to page 1.

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

Quarter ended


30 June 2015


Non-

Reallocation of

Presentational


Statutory

statutory

one-off items

adjustments (1)

CFG (2)

£m

£m 

£m 

£m 

£m







Interest receivable

3,643 

- 

- 

(612)

3,031 

Interest payable

(877)

- 

- 

61 

(816)







Net interest income

2,766 

- 

- 

(551)

2,215 







Fees and commissions receivable

1,169 

- 

- 

(200)

969 

Fees and commissions payable

(195)

- 

- 

9 

(186)

Income from trading activities

464 

115 

- 

(34)

545 

Other operating income

165 

53 

- 

(24)

194 







Non-interest income

1,603 

168 

- 

(249)

1,522 







Total income

4,369 

168 

- 

(800)

3,737 







Staff costs

(1,517)

- 

(293)

280 

(1,530)

Premises and equipment

(372)

- 

(37)

83 

(326)

Other administrative expenses

(622)

- 

(559)

154 

(1,027)

Depreciation and amortisation

(186)

- 

(14)

- 

(200)

Restructuring costs

(1,050)

- 

1,050 

- 

- 

Litigation and conduct costs

(459)

- 

459 

- 

- 

Write down of goodwill and other intangible assets

- 

- 

(606)

- 

(606)







Operating expenses

(4,206)

- 

- 

517 

(3,689)







Profit before impairment releases

163 

168 

- 

(283)

48 

Impairment releases

141 

- 

- 

51 

192 







Operating profit

304 

168 

- 

(232)

240 

Own credit adjustments (3)

168 

(168)

- 

- 

- 

Citizens discontinued operations

(232)

- 

- 

232 

- 







Profit before tax

240 

- 

- 

- 

240 

Tax charge

(100)

- 

- 

- 

(100)







Profit from continuing operations

140 

- 

- 

- 

140 







Profit from discontinued operations, net of tax






  - Citizens

674 

- 

- 

- 

674 

  - Other

- 

- 

- 

- 

- 







Profit from discontinued operations, net of tax

674 

- 

- 

- 

674 







Profit for the period

814 

- 

- 

- 

814 

Non-controlling interests

(428)

- 

- 

- 

(428)

Preference share and other dividends

(93)

- 

- 

- 

(93)







Profit attributable to ordinary and B shareholders

293 

- 

- 

- 

293 

 

For the notes to this table refer to page 1.

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

Quarter ended


31 March 2015


Non-

Reallocation of

Presentational


Statutory

statutory

one-off items

adjustments (1)

CFG (2)

£m

£m 

£m 

£m 

£m







Interest receivable

3,686 

- 

- 

(610)

3,076 

Interest payable

(930)

- 

- 

57 

(873)







Net interest income

2,756 

- 

- 

(553)

2,203 







Fees and commissions receivable

1,178 

- 

- 

(189)

989 

Fees and commissions payable

(186)

- 

- 

9 

(177)

Income from trading activities

270 

95 

- 

(35)

330 

Other operating income

313 

(110)

- 

(29)

174 







Non-interest income

1,575 

(15)

- 

(244)

1,316 







Total income

4,331 

(15)

- 

(797)

3,519 







Staff costs

(1,558)

- 

(55)

288 

(1,325)

Premises and equipment

(487)

- 

(10)

78 

(419)

Other administrative expenses

(511)

- 

(964)

136 

(1,339)

Depreciation and amortisation

(232)

- 

(280)

- 

(512)

Restructuring costs

(453)

- 

453 

- 

- 

Litigation and conduct costs

(856)

- 

856 

- 

- 







Operating expenses

(4,097)

- 

- 

502 

(3,595)







Profit/(loss) before impairment releases

234 

(15)

- 

(295)

(76)

Impairment releases

91 

- 

- 

38 

129 







Operating profit

325 

(15)

- 

(257)

53 

Own credit adjustments (3)

120 

(120)

- 

- 

- 

Strategic disposals

(135)

135 

- 

- 

- 

Citizens discontinued operations

(257)

- 

- 

257 

- 







Profit before tax

53 

- 

- 

- 

53 

Tax charge

(193)

- 

- 

- 

(193)







Loss from continuing operations

(140)

- 

- 

- 

(140)







Loss from discontinued operations, net of tax






  - Citizens

(320)

- 

- 

- 

(320)

  - Other

4 

- 

- 

- 

4 







Loss from discontinued operations, net of tax

(316)

- 

- 

- 

(316)







Loss for the period

(456)

- 

- 

- 

(456)

Non-controlling interests

84 

- 

- 

- 

84 

Preference share and other dividends

(74)

- 

- 

- 

(74)







Loss attributable to ordinary and B shareholders

(446)

- 

- 

- 

(446)

 

For the notes to this table refer to page 1.

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

Quarter ended


30 June 2014


Non-

Reallocation of

Presentational


Statutory

statutory

one-off items

adjustments (1)

CFG (2)

£m

£m 

£m 

£m 

£m







Interest receivable

3,822 

(1)

- 

(542)

3,279 

Interest payable

(1,024)

1 

- 

43 

(980)







Net interest income

2,798 

- 

- 

(499)

2,299 







Fees and commissions receivable

1,314 

- 

- 

(188)

1,126 

Fees and commissions payable

(251)

- 

- 

7 

(244)

Income from trading activities

626 

(85)

- 

(13)

528 

Other operating income

438 

(93)

- 

(191)

154 







Non-interest income

2,127 

(178)

- 

(385)

1,564 







Total income

4,925 

(178)

- 

(884)

3,863 







Staff costs

(1,693)

1 

(153)

287 

(1,558)

Premises and equipment

(485)

- 

(137)

76 

(546)

Other administrative expenses

(605)

(2)

(344)

171 

(780)

Depreciation and amortisation

(282)

1 

(1)

45 

(237)

Restructuring costs

(385)

- 

385 

- 

- 

Litigation and conduct costs

(250)

- 

250 

- 

- 

Write down of goodwill and other intangible assets

- 

(130)

- 

- 

(130)







Operating expenses

(3,700)

(130)

- 

579 

(3,251)







Profit before impairment releases

1,225 

(308)

- 

(305)

612 

Impairment releases

93 

- 

- 

31 

124 







Operating profit

1,318 

(308)

- 

(274)

736 

Own credit adjustments (3)

(190)

190 

- 

- 

- 

Write down of goodwill

(130)

130 

- 

- 

- 

Citizens discontinued operations

(274)

- 

- 

274 

- 

RFS Holdings minority interest

12 

(12)

- 

- 

- 







Profit before tax

736 

- 

- 

- 

736 

Tax charge

(278)

- 

- 

- 

(278)







Profit from continuing operations

458 

- 

- 

- 

458 







Profit from discontinued operations, net of tax






  - Citizens

181 

- 

- 

- 

181 

  - Other

26 

- 

- 

- 

26 







Profit from discontinued operations, net of tax

207 

- 

- 

- 

207 







Profit for the period

665 

- 

- 

- 

665 

Non-controlling interests

(23)

- 

- 

- 

(23)

Preference share and other dividends

(412)

- 

- 

- 

(412)







Profit attributable to ordinary and B shareholders

230 

- 

- 

- 

230 

 

For the notes to this table refer to page 1.


Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

30 June 2015


31 December 2014




Gross of




Gross of

Balance

Disposal

disposal

Balance

Disposal

disposal

sheet

groups (1)

 groups

sheet

groups (2)

 groups


£m

£m

£m


£m

£m

£m









Assets








Cash and balances at central banks

81,900 

842 

82,742 


74,872 

622 

75,494 

Net loans and advances to banks

20,714 

2,571 

23,285 


23,027 

1,745 

24,772 

Reverse repurchase agreements and stock borrowing

20,807 

157 

20,964 


20,708 

- 

20,708 

Loans and advances to banks

41,521 

2,728 

44,249 


43,735 

1,745 

45,480 

Net loans and advances to customers

314,993 

64,511 

379,504 


334,251 

60,550 

394,801 

Reverse repurchase agreements and stock borrowing

46,799 

- 

46,799 


43,987 

- 

43,987 

Loans and advances to customers

361,792 

64,511 

426,303 


378,238 

60,550 

438,788 

Debt securities

77,187 

16,185 

93,372 


86,649 

15,293 

101,942 

Equity shares

3,363 

583 

3,946 


5,635 

572 

6,207 

Settlement balances

9,630 

598 

10,228 


4,667 

- 

4,667 

Derivatives

281,857 

428 

282,285 


353,590 

402 

353,992 

Intangible assets

7,198 

752 

7,950 


7,781 

583 

8,364 

Property, plant and equipment

4,874 

609 

5,483 


6,167 

503 

6,670 

Deferred tax

1,479 

- 

1,479 


1,540 

- 

1,540 

Prepayments, accrued income and








  other assets

4,829 

1,835 

6,664 


5,878 

1,741 

7,619 

Assets of disposal groups

89,071 

(89,071)

- 


82,011 

(82,011)

- 









Total assets

964,701 

- 

964,701 


1,050,763 

- 

1,050,763 









Liabilities








Bank deposits

30,978 

4,474 

35,452 


35,806 

5,128 

40,934 

Repurchase agreements and stock lending

21,612 

1,942 

23,554 


24,859 

1,666 

26,525 

Deposits by banks

52,590 

6,416 

59,006 


60,665 

6,794 

67,459 

Customer deposits

342,023 

70,491 

412,514 


354,288 

60,583 

414,871 

Repurchase agreements and stock lending

44,750 

467 

45,217 


37,351 

706 

38,057 

Customer accounts

386,773 

70,958 

457,731 


391,639 

61,289 

452,928 

Debt securities in issue

41,819 

1,178 

42,997 


50,280 

1,625 

51,905 

Settlement balances

7,335 

8 

7,343 


4,503 

- 

4,503 

Short positions

24,561 

- 

24,561 


23,029 

- 

23,029 

Derivatives

273,589 

191 

273,780 


349,805 

144 

349,949 

Accruals, deferred income and other liabilities

13,962 

834 

14,796 


13,346 

683 

14,029 

Retirement benefit liabilities

1,869 

184 

2,053 


2,579 

197 

2,776 

Deferred tax

363 

393 

756 


500 

362 

862 

Subordinated liabilities

19,683 

226 

19,909 


22,905 

226 

23,131 

Liabilities of disposal groups

80,388 

(80,388)

- 


71,320 

(71,320)

- 









Total liabilities

902,932 

- 

902,932 


990,571 

- 

990,571 

 

Notes:

(1)

Primarily Citizens and international private banking.

(2)

Primarily Citizens.

(3)

Excludes reverse repos.

 

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups

 

30 June 2015


31 December 2014




Gross of




Gross of

Balance

Disposal

disposal

Balance

Disposal

disposal

sheet

groups (1)

 groups

sheet

groups (2)

 groups

Selected financial data

£m

£m

£m


£m

£m

£m









Gross loans and advances to customers

325,718 

65,063 

390,781 


351,711 

61,090 

412,801 

Customer loan impairment provisions

(10,725)

(552)

(11,277)


(17,460)

(540)

(18,000)

Net loans and advances to customers (3)

314,993 

64,511 

379,504 


334,251 

60,550 

394,801 









Gross loans and advances to banks

20,740 

2,571 

23,311 


23,067 

1,745 

24,812 

Bank loan impairment provisions

(26)

- 

(26)


(40)

- 

(40)

Net loans and advances to banks (3)

20,714 

2,571 

23,285 


23,027 

1,745 

24,772 









Total loan impairment provisions

(10,751)

(552)

(11,303)


(17,500)

(540)

(18,040)









Customer REIL

17,426 

1,260 

18,686 


26,842 

1,335 

28,177 

Bank REIL

28 

- 

28 


42 

- 

42 

REIL

17,454 

1,260 

18,714 


26,884 

1,335 

28,219 









Gross unrealised gains on debt securities

895 

211 

1,106 


1,316 

261 

1,577 

Gross unrealised losses on debt securities

(174)

(129)

(303)


(145)

(137)

(282)

 

For the notes to this table refer to page 6.


 

 

 

 

 

 

 

 

Appendix 3

 

Go-forward Bank profile

 

 

 


Appendix 3 Go-forward Bank profile

 

RBS is committed to a leaner, less volatile business based around its core franchises of PBB and CPB. To achieve this goal a number of initiatives have been announced which include, but are not limited to, the restructuring of CIB into CIB Go-forward and CIB Capital Resolution, the divestment of the remaining stake in Citizens, the exit of Williams & Glyn and the continued run down of RCR. Significant progress towards these exits is expected in 2015. The following table illustrates the impact on certain key performance measures of these initiatives by showing the 'Go-forward' profile of the bank and the segments, businesses and portfolios which it intends to exit. This information is presented to illustrate the strategy and its impact on the business and is on a non-statutory basis and should be read in conjunction with the notes below as well as the section titled Forward-looking statements.

















 


Go-forward Bank profile


Exit Bank


 










CIB


International




Total


 


UK

Ulster

Commercial

Private

CIB Go-

Other Go-

Total Go-


Capital

Williams

private



Other

Exit

Total

 


PBB (1)

Bank

Banking

Banking (2)

forward (3)

forward (4)

forward


Resolution (3)

& Glyn (5)

banking

Citizens

RCR

investments

 Bank

RBS

 

Quarter ended 30 June 2015

£bn

£bn

£bn

£bn

£bn

£bn

£bn


£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

 


















 

Total income

1.3 

0.2 

0.9 

0.2 

0.4 

0.1 

3.1 


0.1 

0.2 

0.1 

0.8 

0.1 

- 

1.3 

4.4 

 

Operating expenses

















 

  - adjusted (6)

(0.7)

(0.2)

(0.4)

(0.1)

(0.4)

0.1 

(1.7)


(0.3)

(0.1)

- 

(0.5)

(0.1)

- 

(1.0)

(2.7)

 

Impairment (losses)/releases

- 

- 

- 

- 

- 

- 

- 


- 

- 

- 

(0.1)

0.2 

- 

0.1 

0.1 

 


















 

Operating profit/(loss) - adjusted (6)

0.6 

- 

0.5 

0.1 

- 

0.2 

1.4 


(0.2)

0.1 

0.1 

0.2 

0.2 

- 

0.4 

1.8 

 


















 

Funded assets

116 

26 

95 

12 

149 

105 

503 


62 

20 

5 

83 

8 

1 

179 

682 

 

Net loans and advances to 

















 

  customers

109 

20 

90 

11 

27 

2 

259 


31 

20 

3 

61 

6 

- 

121 

380 

 

Customer deposits

128 

19 

97 

23 

22 

2 

291 


27 

23 

7 

64 

1 

- 

122 

413 

 

Risk-weighted assets (7)

31 

21 

67 

8 

43 

8 

178 


45 

11 

2 

70 

14 

6 

148 

326 

 

Return on equity - adjusted (6,8,9)

36%

11%

14%

5%

nm

nm

16%


nm

nm

9%

7%

nm

10%

5%

11%

 


















Quarter ended 31 March 2015


































Total income

1.2 

0.2 

0.8 

0.1 

0.6 

- 

2.9 


0.3 

0.2 

- 

0.8 

0.1 

- 

1.4 

4.3 

Operating expenses

















  - adjusted (6)

(0.6)

(0.1)

(0.4)

(0.2)

(0.4)

- 

(1.7)


(0.4)

(0.1)

(0.1)

(0.5)

- 

- 

(1.1)

(2.8)

Impairment releases

- 

- 

- 

- 

- 

- 

- 


- 

- 

- 

- 

0.1 

- 

0.1 

0.1 


















Operating profit/(loss) - adjusted (6)

0.6 

0.1 

0.4 

(0.1)

0.2 

- 

1.2 


(0.1)

0.1 

(0.1)

0.3 

0.2 

- 

0.4 

1.6 


















Funded assets

115 

27 

93 

12 

162 

94 

503 


86 

20 

6 

87 

11 

1 

211 

714 

Net loans and advances to 

















  customers

107 

21 

89 

11 

36 

1 

265 


41 

20 

3 

63 

8 

- 

135 

400 

Customer deposits

126 

19 

99 

22 

24 

2 

292 


34 

22 

8 

66 

1 

- 

131 

423 

Risk-weighted assets

32 

22 

66 

8 

45 

9 

182 


58 

11 

2 

72 

17 

7 

167 

349 

Return on equity - adjusted (6,8,9)

35%

6%

12%

4%

nm

nm

12%


nm

nm

8%

7%

nm

10%

7%

10%


















For notes to these tables refer to page 3.
















 

Appendix 3 Go-forward Bank profile



















Go-forward Bank profile


Exit Bank











CIB


International




Total



UK

Ulster

Commercial

Private

CIB Go-

Other Go-

Total Go-


Capital

Williams

private



Other

Exit

Total

Half year ended and as at

PBB (1)

Bank

Banking

Banking (2)

forward (3)

forward (4)

forward


Resolution (3)

& Glyn (5)

banking

Citizens

RCR

investments

 Bank

RBS

30 June 2015

£bn

£bn

£bn

£bn

£bn

£bn

£bn


£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn


















Total income

2.5 

0.4 

1.7 

0.3 

1.0 

0.1 

6.0 


0.4 

0.4 

0.1 

1.6 

0.2 

- 

2.7 

8.7 

Operating expenses

















  - adjusted (6)

(1.3)

(0.3)

(0.8)

(0.3)

(0.8)

0.1 

(3.4)


(0.7)

(0.2)

(0.1)

(1.0)

(0.1)

- 

(2.1)

(5.5)

Impairment (losses)/releases

- 

- 

- 

- 

- 

- 

- 


- 

- 

- 

(0.1)

0.3 

- 

0.2 

0.2 


















Operating profit/(loss) - adjusted (6)

1.2 

0.1 

0.9 

- 

0.2 

0.2 

2.6 


(0.3)

0.2 

- 

0.5 

0.4 

- 

0.8 

3.4 


















Funded assets

116 

26 

95 

12 

149 

105 

503 


62 

20 

5 

83 

8 

1 

179 

682 

Net loans and advances to

















  customers

109 

20 

90 

11 

27 

2 

259 


31 

20 

3 

61 

6 

- 

121 

380 

Customer deposits

128 

19 

97 

23 

22 

2 

291 


27 

23 

7 

64 

1 

- 

122 

413 

Risk-weighted assets (7)

31 

21 

67 

8 

43 

8 

178 


45 

11 

2 

70 

14 

6 

148 

326 

Return on equity - adjusted (6,8,9)

36%

9%

13%

4%

nm

nm

14%


nm

nm

9%

7%

nm

10%

6%

10%


















For the notes to this table refer to the following page.
















 

Appendix 3 Go-forward Bank profile



















Go-forward Bank profile


Exit Bank













International




Total



UK

Ulster

Commercial

Private

CIB Go-

Other Go-

Total Go-


CIB Capital

Williams

private



Other

Exit

Total

Year ended and as at

PBB (1)

Bank

Banking

Banking (2)

forward (3)

forward (4)

forward


Resolution(3)

& Glyn (5)

banking

Citizens

RCR

investments

Bank

RBS

31 December 2014

£bn

£bn

£bn

£bn

£bn

£bn

£bn


£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn


















Total income

5.2 

0.8 

3.2 

0.9 

2.2 

(0.1)

12.2 


1.7 

0.9 

0.2 

3.1 

- 

0.1 

6.0 

18.2 

Operating expenses

















  - adjusted (6)

(3.0)

(0.6)

(1.6)

(0.7)

(1.9)

0.1 

(7.7)


(1.7)

(0.5)

(0.2)

(2.0)

(0.3)

- 

(4.7)

(12.4)

Impairment (losses)/releases

(0.2)

0.4 

(0.1)

- 

- 

- 

0.1 


- 

(0.1)

- 

(0.2)

1.3 

0.1 

1.1 

1.2 


















Operating profit - adjusted (6)

2.0 

0.6 

1.5 

0.2 

0.3 

- 

4.6 


- 

0.3 

- 

0.9 

1.0 

0.2 

2.4 

7.0 


















Funded assets

115 

28 

89 

15 

146 

87 

480 


95 

20 

5 

81 

15 

1 

217 

697 

Net loans and advances to

















  customers

108 

22 

85 

13 

31 

- 

259 


42 

20 

3 

60 

11 

- 

136 

395 

Customer deposits

127 

21 

87 

29 

23 

1 

288 


36 

22 

8 

61 

1 

- 

128 

416 

Risk-weighted assets

33 

24 

64 

10 

43 

10 

184 


64 

10 

2 

68 

22 

6 

172 

356 

Return on equity - adjusted (6,8,9)

29%

17%

11%

12%

nm

nm

11%


nm

nm

10%

7%

nm

3%

7%

9%

 

Notes:

(1)

Excludes Williams & Glyn.

(2)

Excludes international private banking reclassified to disposal groups.

(3)

The CIB segment is being restructured into Go-forward and CIB Capital Resolution elements. The split is subject to further refinement.

(4)

Other Go-forward is primarily Centre, which includes the liquidity portfolio.

(5)

Does not reflect the cost base, funding and capital profile of a standalone bank. Operating expenses include charges based on an attribution of support provided by RBS to Williams & Glyn. Expenses incurred by Williams & Glyn were £91 million (Q1 2015 - £80 million; H1 2015 - £171 million; FY 2014 - £352 million).

(6)

Excludes restructuring and litigation and conduct costs.

(7)

CIB RWAs £43 billion includes £9 billion of RWAs related to businesses that will transfer out of CIB, comprising the Western European large corporate portfolio (expected to move to Commercial Banking in H2 2015) and UK Transaction Services (to Commercial Banking in 2016).

(8)

ROE is calculated using operating profit after tax on a non-statutory basis adjusted for preference share dividends divided by average notional equity (based on 13% of average RWAe).

(9)

PBB adjusted ROE Q2 2015 - 29% (Q1 2015 - 27%; H1 2015 - 28%; FY 2014 - 26%). CPB adjusted ROE Q2 2015 - 13% (Q1 2015 - 11%; H1 2015 - 12%; FY 2014 - 11%). Excluding IFRS volatility gain of Q2 2015 - £205 million (Q1 2015 - loss £123 million; H1 2015 - gain £82 million; FY 2014 - loss £468 million), the Go-forward Bank's adjusted return on equity was Q2 2015 - 14% (Q1 2015 - 13%; H1 2015 - 14%; FY 2014 - 13%).

 

Appendix 3 Go-forward Bank profile

 

30 June 2015


31 December 2014


TPAs

RWAs


TPAs

RWAs

CIB Capital Resolution by product

£m

£m


£m

£m







APAC portfolio (1)

6.1 

3.4 


7.7 

4.2 

Americas portfolio

3.4 

4.3 


4.6 

7.8 

EMEA portfolio (2)

5.9 

4.3 


9.9 

6.8 

Shipping

5.3 

4.5 


5.7 

4.4 

Markets

34.1 

20.0 


54.2 

28.6 

GTS

6.3 

8.0 


11.3 

11.2 

Other

1.2 

0.7 


1.6 

0.8 







Total

62.3 

45.2 


95.0 

63.8 

 

Notes:

(1)

Asia-Pacific portfolio.

(2)

European, the Middle East and Africa portfolio.

 


 

 

 

 

 

 

 

 

Appendix 4

Williams & Glyn

 

 


Appendix 4 Williams & Glyn

 

In accordance with a commitment to the European Commission, RBS agreed to dispose of its Williams & Glyn business (RBS England and Wales and NatWest Scotland branch-based businesses, along with certain SME and corporate activities across the UK).

 

RBS is creating a standalone banking entity supported by a bespoke technology solution to facilitate the disposal of its Williams & Glyn business through an Initial Public Offering (IPO).  Following the conclusion of a £600 million pre-IPO investment from a consortium of investors led by global financial services specialists Corsair Capital and Centerbridge Partners, and including the Church Commissioners for England and RIT Capital Partners plc, the Williams & Glyn business continues to make progress towards its IPO.

 

The pre-IPO investment took the form of a £600 million bond issued by RBS.  This will be exchangeable for a significant non-controlling interest in Williams & Glyn at the time of its IPO. The bond will convert into Williams & Glyn shares at the IPO price, subject to a minimum ownership level which will be linked to the tangible book value of Williams & Glyn prior to the IPO, and in any case no more than a stake of 49%. To the extent the maximum ownership level is reached, the bond will be partially redeemed in cash such that the consortium of investors will receive a total value of £600 million of cash and shares at the IPO price. At the IPO, subject to RBS's consent, the Investors will have the option to acquire up to 10% additionally at the IPO price, subject to their pro forma ownership being no more than 49% in aggregate.

 

Set out below are the income statement and key balance sheet metrics in respect of the Williams & Glyn business. This represents the financial performance of Williams & Glyn prepared on a carve out internally managed basis illustrating a current view of the business. During the periods presented, Williams & Glyn has been an integral part of RBS and has not operated as a separate legal entity. These figures do not necessarily reflect the cost base, funding and capital profile of a standalone bank.

Half year ended

Year ended


30 June

30 June

31 December


2015

2014 

2014


£m

£m

£m





Income statement




Net interest income

328 

331 

668 

Non-interest income

98 

104 

210 





Total income

426 

435 

878 

Operating expenses (1)

(232)

(253)

(512)





Profit before impairment losses

194 

182 

366 

Impairment releases/(losses)

10 

(31)

(54)





Operating profit (2)

204 

151 

312 





Analysis of income by business




Retail

237 

249 

503 

Corporate

189 

186 

375 





Total income

426 

435 

878 





Analysis of impairments by business




Retail

12 

26 

47 

Corporate

(22)

5 

7 





Total impairment (releases)/losses

(10)

31 

54 





Loan impairment charge as % of gross customer loans and advances (excluding




   reverse repurchase agreements) by business




Retail

0.21%

0.46%

0.42%

Corporate

(0.51%)

0.11%

0.08%





Total

(0.10%)

0.31%

0.27%

 

Notes:

(1)

Does not reflect the cost base, funding and capital profile of a standalone bank. Operating expenses include charges based on an attribution of support provided by RBS to W&G.  Expenses incurred by W&G were: H1 2014 - £173 million; FY 2014 - £352 million; H1 2015 - £171 million.

(2)

Operating profit includes; £7 million profit in Commercial Banking (H1 2014 - £8 million profit; FY 2014 - £14 million profit); £1 million profit in RCR (H1 2014 - £1 million profit; FY 2014 - £3 million profit); £60 million loss in Central items (H1 2014 - £81 million loss; FY 2014 - £160 million loss); the remainder of W&G is reported in UK PBB.



Appendix 4 Further analysis of Williams & Glyn

 

Key metrics

Half year ended

Year


ended


30 June

30 June

31 December

2015 

2014 

2014 





Performance ratio




Net interest margin

3.39%

3.39%

3.43%

 







30 June

31 December


30 June


2015

2014 


2014 


£bn

£bn

Change

£bn

Change







Capital and balance sheet






Loans and advances to customers (gross)






  - Retail

11.3 

11.3 

- 

11.4 

(0.9%)

  - Corporate

8.6 

8.7 

(1.1%)

8.8 

(2.3%)







Total loans and advances to customers

19.9 

20.0 

(0.5%)

20.2 

(1.5%)

Loan impairment provisions

(0.4)

(0.4)

- 

(0.4)

- 







Net loans and advances to customers

19.5 

19.6 

(0.5%)

19.8 

(1.5%)







Total assets

19.8 

20.0 

(1.0%)

20.2 

(2.0%)

Funded assets

19.7 

19.7 

- 

20.0 

(1.5%)







Customer deposits






  - Retail

10.9 

10.3 

5.8%

10.0 

9.0%

  - Corporate

12.5 

11.7 

6.8%

11.8 

5.9%







Total customer deposits

23.4 

22.0 

6.4%

21.8 

7.3%







Loan:deposit ratio (excluding repos)

85%

91%

(600bp)

93%

(800bp)







Risk-weighted assets (1)

10.5 

10.4 

1.0%

11.1 

(5.4%)

 

Note:

(1)

RWAs on an end-point CRR basis.

 

Key points

·

Operating profit increased to £204 million in H1 2015 compared with £151 million in H1 2014, driven mainly by lower operating expenses and net impairment releases.



·

Total income of £426 million compared with £435 million in H1 2014. Net interest income was broadly flat with improved deposit income from higher balances and stronger margins, offset by lower asset income as a result of margin compression. Non-interest income was down £6 million to £98 million reflecting lower fee income.



·

Net interest margin has remained flat at 3.39%.



·

Operating expenses fell £21 million to £232 million in H1 2015 compared with £253 million in H1 2014 reflecting lower FSCS levy and compensation costs and lower fraud levels, partially offset by an increase in staff expenses as the business prepares for divestment.



·

Impairment release for H1 2015 were £10 million compared with a net charge of £31 million for H1 2014, as a result of lower levels of defaults across all portfolios and portfolio provision releases.



·

Deposits grew by £1.4 billion to £23.4 billion in H1 2015.

 


 

 

 

 

 

 

 

 

Appendix 5

 

Parent company financial statements

 

 


Appendix 5 Parent company financial statements

 

RBSG plc - Balance sheet at 30 June 2015

 

30 June

31 December


2015 

2014 

£m

£m




Assets



Loans and advances to banks

22,720 

24,490 

Loans and advances to customers

302 

299 

Debt securities

467 

911 

Investments in Group undertakings

54,852 

54,858 

Derivatives

138 

179 

Prepayments, accrued income and other assets

48 

193 




Total assets

78,527 

80,930 




Liabilities



Deposits by banks

1,209 

1,202 

Debt securities in issue

6,333 

7,510 

Derivatives

38 

30 

Accruals, deferred income and other liabilities

21 

165 

Subordinated liabilities

8,814 

10,708 




Total liabilities

16,415 

19,615 

Owners' equity

62,112 

61,315 




Total liabilities and equity

78,527 

80,930 

 

Owners' equity includes £17.9 billion of distributable reserves at 30 June 2015 (31 December 2014 - £17.5 billion). RBS intends to redeem US$1.9 billion of its outstanding Series M, N, P and Q non-cumulative dollar preference shares, represented by American depositary shares, on 1 September 2015. The redemption of these securities will reduce the parent company's distributable reserves by approximately £1.2 billion.

Appendix 5 Parent company financial statements

 

RBSG plc - Statement of changes in equity for the period ended 30 June 2015






Half year



 ended

Year ended


30 June

31 December


2015 

2014 


£m

£m




Called-up share capital



At beginning of period

6,877 

6,714 

Ordinary shares issued

104 

163 




At end of period

6,981 

6,877 




Paid-in equity



At beginning and end of period

431 

431 




Share premium account



At beginning of period

25,052 

24,667 

Ordinary shares issued

254 

385 




At end of period

25,306 

25,052 




Merger reserve



At beginning and end of period

2,341 

2,341 




Capital redemption reserve



At beginning and end of period

9,131 

9,131 




Retained earnings



At beginning of period

17,483 

17,033 

Profit attributable to ordinary and B shareholders and other equity owners

598 

1,128 

Equity preference dividends paid

(143)

(330)

Paid-in equity dividends paid, net of tax

(16)

(28)

Dividend access share dividend

- 

(320)




At end of period

17,922 

17,483 




Owners' equity at end of period

62,112 

61,315 




Total equity is attributable to:



Preference shareholders

4,313 

4,313 

Paid-in equity holders

431 

431 

Ordinary and B shareholders

57,368 

56,571 





62,112 

61,315 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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