Interim Results 2019 - Part 2 of 2

RNS Number : 6640H
Royal Bank of Scotland Group PLC
02 August 2019
 

  

Appendix 1

 

Capital and risk management

 

 

Document navigation

The following are contained within this appendix:

●

Capital, liquidity and funding risk (pages 1 to 7);

 

 

●

Credit risk - Economic loss drivers(page 8);

 

●

Credit risk - Banking activities (page 9);

●

Credit risk - Banking activities segmental exposure (pages 10 to 12);

●

Credit risk - Banking activities sector analysis (pages 13 to 15);

●

Credit risk - Banking activities personal portfolio (pages 16 to 20);

 

 

●

Credit risk - Banking activities CRE (pages 21);

●

Credit risk - Banking activities flow statements (pages 22 to 28);

●

Credit risk - Asset quality (pages 29 to 33);

●

Credit risk - Trading activities (pages 34 to 36);

●

Credit risk - Cross border exposure (page 36);

●

Non-traded market risk (pages 37 to 41);

 

●

Traded market risk (page 41); and

 

●

Other risks (page 42)

 

 

Certain disclosures in this appendix are within the scope of EY's review report and are marked accordingly.

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk

 Key developments

●

The CET1 ratio decreased by 20 basis points to 16.0% as a result of the £2.0 billion attributable profit, offset by a foreseeable 5p ordinary dividend accrual of £0.6 billion, 12p special dividend of £1.4 billion and the impact of IFRS 16.

●

RWAs decreased by £0.2 billion in H1 2019. Credit risk decreased by £0.8 billion driven by the completion of the merger of Alawwal bank and SABB reducing credit risk by £4.6 billion, offset by increases in credit risk driven by the £1.3 billion uplift due to adoption of IFRS 16 from 1 January 2019, an increase due to PD calibrations affecting asset quality and growth in asset size. Counterparty credit risk increased primarily due to increased exposures.

●

The leverage ratio decreased to 5.2% driven by decreased capital.

●

The total loss absorbing capital ratio of 32.1% is above the BOE requirement of 24.0% by 1 January 2020.

●

In the first half of 2019, RBSG issued £3.0 billion new MREL eligible senior debt and redeemed a €1.0 billion Tier 2 security, with £0.5 billion of non-MREL RBSG senior debt also being repaid on maturity during the period.  In subsidiaries, NWB issued a £750 million covered bond and NatWest Markets Plc maintained active issuance programmes for senior unsecured and secured notes, with net issuance of around £3 billion in the period.

●

RBSG participation in the Bank of England's Term Funding Scheme reduced by £4 billion.

●

The liquidity coverage ratio decreased from 158% to 154% driven by reductions in NWM Plc's liquidity position due to seasonally low outflows at 31 December 2018.

●

The net stable funding ratio was relatively consistent at 140% compared to 141% for FY 2018.

 

 
     

Minimum capital requirements

The Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum ratios of capital to RWAs that the Group is expected to have to meet under the end-point CRR requirements applicable from 1 January 2019. These ratios apply at the consolidated group level. Different minimum capital requirements may apply to individual legal entities or sub-groups.

 

Minimum requirements

Type

CET1

Total Tier 1

Total capital

System wide

Pillar 1 minimum requirements

  4.5%

  6.0%

  8.0%

 

Capital conservation buffer

  2.5%

  2.5%

  2.5%

 

Countercyclical capital buffer (1)

  0.7%

  0.7%

  0.7%

 

G-SIB buffer (2)

  1.0%

  1.0%

  1.0%

Bank specific

Pillar 2A (4)

  2.0%

  2.7%

  3.6%

Total (excluding PRA buffer) (5)

 

10.7%

12.9%

15.8%

Capital ratios at 30 June 2019

 

16.0%

18.2%

20.9%

 

Notes:

(1)

The countercyclical capital buffer (CCyB) applied to UK designated assets is set by the Financial Policy Committee (FPC). The UK CCyB is currently 1.0% (effective from November 2018). The Republic of Ireland CCyB is currently 0.0%, the CBI have announced an increase to 1.0% effective July 2019. Foreign exposures may be subject to different CCyB rates depending on the rate set in those jurisdictions. Firm specific CCyB is based on a weighted average at CCyB's applicable to countries in which the Bank has exposures.

(2)

Globally systemically important banks (G-SIBs), as designated by the Financial Stability Board (FSB), are subject to an additional capital buffer of between 1.0% and 3.5%. In November 2018 the FSB announced that RBS is no longer a G-SIB. From 1 January 2020, RBS will be released from this global buffer requirement.

(3)

The Group will be subject to a systemic risk buffer (SRB) and this will apply at the ring-fenced bank sub-group level rather than at the consolidated group level. As from 1 August 2019 NWH will be subject to a Systemic Risk Buffer of 1.5%. Where the Systemic Risk Buffer is greater than the G-SII buffer, the PRA may require the consolidated group to hold a higher level of capital through the PRA buffer and Leverage Ratio Group add-on.

(4)

From 1 January 2015, UK banks have been required to meet at least 56% of its Pillar 2A capital requirement with CET1 capital and with balance with Additional Tier 1 and/or Tier 2 capital. Additional capital requirements under Pillar 2A may be specified by the PRA as a ratio or as an absolute value. The table sets out an implied ratio to cover the full value of Pillar 2A requirements.

(5)

The Group may be subject to a PRA buffer requirement as set by the PRA. The PRA buffer consists of two components:

- A risk management and governance buffer that is set as a scalar, up to 40% of the Pillar 1 and Pillar 2A requirements.

- A buffer to cover stress risks informed by the results of the BoE concurrent stress testing results.

- The PRA requires that the level of this buffer is not publicly disclosed.

(6)

The capital conservation buffer, the countercyclical capital buffer, the G-SIB buffer and systemic risk buffer (where applicable) make up the combined buffer. If the Group fails to meet the combined buffer requirement, it is subject to restrictions on distributions on CET1 instruments, discretionary coupons on AT1 instruments and on payment of variable remuneration or discretionary pension benefits. These restrictions are calculated by reference to the Group's Maximum Distributable Amount (MDA). Where a PRA buffer is applicable, the MDA trigger is below the PRA buffer and MDA restrictions are not automatically triggered if the Group fails to meet its PRA buffer. The MDA is calculated as the amount of interim or year-end profits not yet incorporated into CET1 capital multiplied by a factor ranging from 0 to 0.6 depending on the size of the CET1 shortfall against the combined buffer.

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Capital flow statement

Refer to Business performance summary - Capital and leverage for information on Capital, RWAs and leverage and the Pillar 3 supplement for capital and leverage relating to significant subsidiaries and also CRR templates. The table below analyses the movement in end-point CRR CET1, AT1 and Tier 2 capital for the half year ended 30 June 2019.

 

CET1

AT1

Tier 2

Total

 

£m

£m

£m

£m

At 1 January 2019

30,639 

4,051 

6,483 

41,173 

Profit for the year

711 

- 

- 

711 

Own credit

144 

- 

- 

144 

Share capital and reserve movements in respect of employee share schemes

49 

- 

- 

49 

Foreign exchange reserve

(296)

- 

- 

(296)

FVOCI reserves

(78)

- 

- 

(78)

Goodwill and intangibles deduction

(15)

- 

- 

(15)

Deferred tax assets

(129)

- 

- 

(129)

Prudential valuation adjustments

75 

- 

- 

75 

Expected loss less impairment

(72)

- 

- 

(72)

Net dated subordinated debt/grandfathered instruments

- 

- 

(1,400)

(1,400)

Foreign exchange movements

- 

- 

36 

36 

Foreseeable ordinary and special dividends

(728)

- 

- 

(728)

Other movements

(109)

- 

- 

(109)

At 30 June 2019

30,191 

4,051 

5,119 

39,361 

 

Risk-weighted assets

The table below analyses the movement in RWAs on the end-point CRR basis during the half year, by key drivers.

 

 

 

 

Counterparty

 

Operational

 

 

Credit risk

credit risk

Market risk

risk

Total RWAs

£bn

£bn

£bn

£bn

£bn

At 1 January 2019

137.9 

13.6 

14.8 

22.4 

188.7 

Foreign exchange movement

0.1 

- 

- 

- 

0.1 

Business movements (1)

2.9 

0.4 

(0.4)

0.2 

3.1 

Risk parameter changes (2)

0.7 

0.1 

- 

- 

0.8 

Model updates (3)

0.2 

- 

0.2 

- 

0.4 

Other movements (4)

(4.7)

0.1 

- 

- 

(4.6)

At 30 June 2019

137.1 

14.2 

14.6 

22.6 

188.5 

 

The table below analyses segmental RWAs.

 

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

Ulster

 

Commercial

Private

 

NatWest

items

 

Total RWAs

UK PB

Bank RoI

 

Banking

Banking

RBSI

Markets

& other

Total

£bn

£bn

 

£bn

£bn

£bn

£bn

£bn

£bn

At 1 January 2019 *

34.3 

14.7 

 

78.4 

9.4 

6.9 

44.9 

0.1 

188.7 

Foreign exchange movement

- 

- 

 

0.1 

- 

- 

- 

- 

0.1 

Business movements (1)

1.4 

(0.1)

 

1.0 

0.3 

0.2 

- 

0.3 

3.1 

Risk parameter changes (2)

1.3 

(0.4)

 

(0.2)

- 

- 

0.1 

- 

0.8 

Model updates (3)

- 

- 

 

0.2 

- 

- 

0.2 

- 

0.4 

Other movements (4)

- 

- 

 

(1.7)

- 

(0.2)

(3.8)

1.1 

(4.6)

At 30 June 2019

37.0 

14.2 

 

77.8 

9.7 

6.9 

41.4 

1.5 

188.5 

 

 

 

 

 

 

 

 

 

 

Credit risk

29.3 

13.2 

 

68.5 

8.4 

6.1 

10.1 

1.5 

137.1 

Counterparty credit risk

0.1 

- 

 

0.2 

0.1 

- 

13.8 

- 

14.2 

Market risk

0.1 

- 

 

0.3 

- 

- 

14.2 

- 

14.6 

Operational risk

7.5 

1.0 

 

8.8 

1.2 

0.8 

3.3 

- 

22.6 

Total RWAs

37.0 

14.2 

 

77.8 

9.7 

6.9 

41.4 

1.5 

188.5 

*Restated. Refer to Note 1 of the main announcement for further details.

 

(1)

Included within business movements is the £1.3 billion uplift in credit risk due to adoption of IFRS 16 from 1 January 2019.

(2)

Risk parameter changes relate to asset quality metrics of customers and counterparties such as probability of default (PD) and loss given default (LGD).

(3)

Model updates relates primarily to revision in LGD models for the UK mid-corporate portfolios.

(4)

Other primarily reflects the reduction following the Alawwal bank merger. Other also reflects assets which have transferred between Commercial Banking, RBSI, Central items and NatWest Markets.
 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Capital resources (Within the scope of EY's review report)

 

 

30 June 2019

 

31 December 2018

 

 

PRA

 

 

PRA

End-point

transitional

 

End-point

transitional

 

CRR basis

basis

 

CRR basis

basis

 

£m

£m

 

£m

£m

Shareholders' equity (excluding non-controlling interests)

 

 

 

 

 

 Shareholders' equity

46,221 

46,221 

 

45,736 

45,736 

 Preference shares - equity

(496)

(496)

 

(496)

(496)

 Other equity instruments

(4,058)

(4,058)

 

(4,058)

(4,058)

 

41,667 

41,667 

 

41,182 

41,182 

Regulatory adjustments and deductions

 

 

 

 

 

 Own credit

(261)

(261)

 

(405)

(405)

 Defined benefit pension fund adjustment

(400)

(400)

 

(394)

(394)

 Cash flow hedging reserve

(117)

(117)

 

191 

191 

 Deferred tax assets

(869)

(869)

 

(740)

(740)

 Prudential valuation adjustments

(419)

(419)

 

(494)

(494)

 Goodwill and other intangible assets

(6,631)

(6,631)

 

(6,616)

(6,616)

 Expected losses less impairments

(726)

(726)

 

(654)

(654)

 Foreseeable ordinary and special dividends

(2,053)

(2,053)

 

(1,326)

(1,326)

 Other regulatory adjustments

- 

- 

 

(105)

(105)

 

(11,476)

(11,476)

 

(10,543)

(10,543)

CET1 capital

30,191 

30,191 

 

30,639 

30,639 

Additional Tier 1 (AT1) capital

 

 

 

 

 

 Qualifying instruments and related share premium

4,051 

4,051 

 

4,051 

4,051 

 Qualifying instruments and related share premium subject to phase out

- 

1,398 

 

- 

1,393 

 Qualifying instruments issued by subsidiaries and held by third parties

 

 

 

 

 

   subject to phase out

- 

140 

 

- 

140 

AT1 capital

4,051 

5,589 

 

4,051 

5,584 

Tier 1 capital

34,242 

35,780 

 

34,690 

36,223 

Qualifying Tier 2 capital

 

 

 

 

 

 Qualifying instruments and related share premium

4,969 

5,054 

 

6,301 

6,386 

 Qualifying instruments issued by subsidiaries and held by third parties

150 

1,498 

 

182 

1,565 

Tier 2 capital

5,119 

6,552 

 

6,483 

7,951 

Total regulatory capital

39,361 

42,332 

 

41,173 

44,174 
 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Loss absorbing capital 

The following table illustrates the components of estimated loss absorbing capital (LAC) in RBSG plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.

 

30 June 2019

 

31 December 2018

 

 

Balance

 

 

 

 

Balance

 

 

 

Par

sheet

Regulatory

LAC

 

Par

sheet

Regulatory

LAC

 

value (1)

value

value (2)

value (3)

 

value (1)

value

value (2)

value (3)

£bn

£bn

£bn

£bn

 

£bn

£bn

£bn

£bn

CET1 capital (4)

30.2 

30.2 

30.2 

30.2 

 

30.6 

30.6 

30.6 

30.6 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR compliant AT1

 

 

 

 

 

 

 

 

 

  of which: RBSG (holdco)

4.0 

4.0 

4.0 

4.0 

 

4.0 

4.0 

4.0 

4.0 

  of which: RBSG operating subsidiaries (opcos)

- 

- 

- 

- 

 

- 

- 

- 

- 

 

4.0 

4.0 

4.0 

4.0 

 

4.0 

4.0 

4.0 

4.0 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR non compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

1.4 

1.6 

1.4 

0.5 

 

1.4 

1.6 

1.4 

0.5 

  of which: opcos

0.1 

0.1 

0.1 

0.1 

 

0.1 

0.1 

0.1 

0.1 

 

1.5 

1.7 

1.5 

0.6 

 

1.5 

1.7 

1.5 

0.6 

 

 

 

 

 

 

 

 

 

 

Tier 2 capital: end-point CRR compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

5.9 

6.1 

5.0 

4.3 

 

6.8 

6.7 

6.3 

5.1 

  of which: opcos

0.5 

0.5 

0.3 

0.5 

 

0.5 

0.5 

0.3 

0.5 

 

6.4 

6.6 

5.3 

4.8 

 

7.3 

7.2 

6.6 

5.6 

 

 

 

 

 

 

 

 

 

 

Tier 2 capital: end-point CRR non compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

0.1 

0.1 

0.1 

0.1 

 

0.1 

0.1 

0.1 

0.1 

  of which: opcos

1.6 

2.0 

1.3 

1.7 

 

1.9 

2.0 

1.4 

1.6 

 

1.7 

2.1 

1.4 

1.8 

 

2.0 

2.1 

1.5 

1.7 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt securities issued by:

 

 

 

 

 

 

 

 

 

  RBSG holdco

19.4 

20.0 

- 

19.2 

 

16.8 

16.8 

- 

15.5 

  RBS opcos

20.6 

20.5 

- 

- 

 

17.1 

16.9 

- 

- 

 

40.0 

40.5 

- 

19.2 

 

33.9 

33.7 

- 

15.5 

Total

83.8 

85.0 

42.4 

60.6 

 

79.3 

79.3 

44.2 

58.0 

 

 

 

 

 

 

 

 

 

 

RWAs

 

 

 

188.5 

 

 

 

 

188.7 

CRR leverage exposure

 

 

 

659.1 

 

 

 

 

644.5 

 

 

 

 

 

 

 

 

 

 

LAC as a ratio of RWAs

 

 

 

32.1%

 

 

 

 

30.7%

LAC as a ratio of CRR leverage exposure

 

 

 

9.2%

 

 

 

 

9.0%

 

 

 

 

 

 

 

 

 

 

Notes:

(1)

Par value reflects the nominal value of securities issued.

(2)

Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.

(3)

LAC value reflects RBS's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such RBS estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.

(4)

Corresponding shareholders' equity was £46.2 billion (31 December 2018 - £45.7 billion).

(5)

Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Funding sources (Within the scope of EY's review report)

The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9 but excludes derivative cash collateral.

 

 

30 June 2019

 

31 December 2018

Short-term

Long-term

 

 

Short-term

Long-term

 

 

less than

more than

 

 

less than

more than

 

1 year

1 year

Total

 

1 year

1 year

Total

£m

£m

£m

 

£m

£m

£m

Personal and corporate deposits

 

 

 

 

 

 

 

Personal (1)

180,503 

1,376 

181,879 

 

178,293 

1,499 

179,792 

Corporate (2)

132,323 

272 

132,595 

 

131,575 

142 

131,717 

 

312,826 

1,648 

314,474 

 

309,868 

1,641 

311,509 

 

 

 

 

 

 

 

 

Financial institutions deposits

 

 

 

 

 

 

 

Banks (3)

6,581 

13,315 

19,896 

 

6,758 

15,865 

22,623 

Non-bank financial institutions (NBFI) (4)

46,977 

1,092 

48,069 

 

46,800 

564 

47,364 

 

53,558 

14,407 

67,965 

 

53,558 

16,429 

69,987 

 

 

 

 

 

 

 

 

Debt securities in issue

 

 

 

 

 

 

 

Commercial papers (CPs) and certificates of deposits (CDs)

3,192 

16 

3,208 

 

3,157 

- 

3,157 

Medium-term notes

7,651 

29,662 

37,313 

 

4,928 

25,596 

30,524 

Covered bonds

1,252 

4,888 

6,140 

 

- 

5,367 

5,367 

Securitisations

- 

1,215 

1,215 

 

- 

1,375 

1,375 

 

12,095 

35,781 

47,876 

 

8,085 

32,338 

40,423 

 

 

 

 

 

 

 

 

Subordinated liabilities

134 

9,674 

9,808 

 

299 

10,236 

10,535 

 

 

 

 

 

 

 

 

Repos (5)

 

 

 

 

 

 

 

Sovereign

1,479 

- 

1,479 

 

405 

- 

405 

Financial institutions

34,431 

424 

34,855 

 

29,664 

- 

29,664 

Corporate

472 

- 

472 

 

291 

- 

291 

 

36,382 

424 

36,806 

 

30,360 

- 

30,360 

 

 

 

 

 

 

 

 

Total funding

414,995 

61,934 

476,929 

 

402,170 

60,644 

462,814 

 

 

 

 

 

 

 

 

Of which: available in resolution (6)

- 

25,943 

25,943 

 

- 

22,909 

22,909 

 

 

 

 

 

 

 

 

CET 1 capital

 

 

30,191 

 

 

 

30,639 

CRR Leverage exposure

 

 

659,105 

 

 

 

644,498 

Funded assets

 

 

584,274 

 

 

 

560,886 

 

 

 

 

 

 

 

 

Funding coverage of CET 1 capital

 

 

16 

 

 

 

15 

Funding as a % of leverage exposure

 

 

72%

 

 

 

72%

Funding as a % of funded assets

 

 

82%

 

 

 

83%

Funding available in resolution as a % of CET1 capital

 

 

86%

 

 

 

75%

Funding available in resolution as a % of leverage exposure

 

 

4%

 

 

 

4%

 

Notes:

(1)   Includes £104 million (31 December 2018 - £206 million) of DFV deposits included in other financial liabilities balance sheet.

(2)   Includes £1,027 million (31 December 2018 - £428 million) of HFT deposits included in trading liabilities.

(3)   Includes £519 million (31 December 2018 - £267 million) of HFT deposits included in trading liabilities on the balance sheet. Includes £10 billion (31 December 2018 - £14 billion) relating to Term Funding Scheme participation and £1.8 billion (31 December 2018 - £1.8 billion) relating to RBS's participation in central bank financing operations under the European Central Bank's Targeted Long-term refinancing operations.

(4)   Includes £789 million (31 December 2018 - £1,093 million) of HFT deposits included in trading liabilities and nil (31 December 2018 - £7 million) of DFV deposits included in other financial liabilities on the balance sheet.

(5)   Includes HFT repos of £32,087 million (31 December 2018 - £25,645 million) and amortised cost repos of £4,719 million (31 December 2018 - £4,715 million).

(6)   Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £19 billion (31 December 2018 - £16 billion) under debt securities in issue (senior MREL) and £7 billion (31 December 2018 - £7 billion) under subordinated liabilities.

 

 

 

 

 

 

h

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Liquidity portfolio (Within the scope of EY's review report)

The table below shows the liquidity portfolio by product, liquidity value and by carrying value.

 

 

Liquidity value

 

30 June 2019

31 December 2018

 

 

UK DoL

 

 

 

UK DoL

 

RBSG (1)

Sub (2)

NWM Plc

 

RBSG (1)

Sub (2)

NWM Plc

 

£m

£m

£m

 

£m

£m

£m

Cash and balances at central banks

83,979 

56,173 

12,783 

 

83,781 

59,745 

11,005 

Central and local government bonds

 

 

 

 

 

 

 

  AAA rated governments

5,914 

2,458 

1,532 

 

8,188 

4,386 

615 

  AA- to AA+ rated governments

 

 

 

 

 

 

 

    and US agencies

41,013 

30,427 

4,260 

 

35,683 

25,845 

5,256 

  Below AA rated governments

1,594 

- 

1,274 

 

- 

- 

- 

 

48,521 

32,885 

7,066 

 

43,871 

30,231 

5,871 

 

 

 

 

 

 

 

 

Primary liquidity

132,500 

89,058 

19,849 

 

127,652 

89,976 

16,876 

Secondary liquidity (3)

70,575 

69,652 

344 

 

70,231 

69,642 

344 

Total liquidity value

203,075 

158,710 

20,193 

 

197,882 

159,618 

17,220 

 

 

 

 

 

 

 

 

Total carrying value

232,653 

187,874 

20,408 

 

225,039 

186,340 

17,388 

 

Notes:

(1)

RBSG includes UK DoLSub, NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include RBS International, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(2)

UK DoLSub comprises RBSG's four licensed deposit-taking UK banks within the ring-fenced bank: National Westminster Bank Plc, The Royal Bank of Scotland

plc, Coutts & Co and Ulster Bank Limited.

(3)

Secondary liquidity represents assets pre-positioned with central bank refinancing facilities. 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.

 

 

Appendix 1 Capital and risk management

Credit risk

Economic loss drivers (Within the scope of EY's review report)

A full description of the framework for incorporating economic loss drivers in to IFRS9 ECL calculations is provided in the Group's 2018 Annual Report & Accounts. It includes a description of the approach adopted on multiple economic scenarios for both Personal and Wholesale portfolios.

 

The table and commentary below provides an update on the base case economics used at June 2019, and also the multiple economic scenarios used for Personal portfolios.

 

The average over the five year horizon (2019 to 2023) for the central base case and two upside and downside scenarios used for ECL modelling are set out below.

 

 

30 June 2019

 

31 December 2018

 

Upside 2

Upside 1

Base case

Downside 1

Downside 2

 

Upside 2

Upside 1

Base case

Downside 1

Downside 2

 

 %

 %

 %

 %

 %

 

%

%

 %

%

 %

UK

 

 

 

 

 

 

 

 

 

 

 

GDP - change

2.5 

2.2 

1.6 

1.3 

0.9 

 

2.6 

2.3 

1.7 

1.5 

1.1 

Unemployment

3.2 

3.7 

4.7 

5.4 

6.5 

 

3.3 

3.8 

5.0 

5.6 

6.9 

House Price Inflation - change

4.7 

3.7 

1.7 

1.0 

(0.9)

 

4.3 

3.3 

1.7 

1.1 

(0.5)

Bank of England base rate

1.3 

1.2 

1.0 

0.1 

- 

 

1.7 

1.3 

1.1 

0.5 

- 

 

 

 

 

 

 

 

 

 

 

 

 

Republic of Ireland

 

 

 

 

 

 

 

 

 

 

 

GDP - change

5.3 

4.3 

3.5 

3.1 

2.4 

 

4.3 

3.6 

3.0 

3.1 

2.8 

Unemployment

4.1 

4.5 

5.1 

5.9 

6.7 

 

4.2 

4.6 

5.2 

6.0 

6.8 

House Price Inflation - change

10.0 

7.3 

3.9 

2.8 

(0.1)

 

9.2 

6.8 

4.0 

3.2 

0.8 

European Central Bank base rate

1.5 

0.8 

0.1 

- 

- 

 

1.3 

0.8 

0.3 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

World GDP - change

3.9 

3.4 

2.8 

2.5 

2.0 

 

3.6 

3.2 

2.7 

2.5 

2.3 

 

 

 

 

 

 

 

 

 

 

 

 

Probability weight

12.7 

14.8 

30.0 

29.7 

12.7 

 

12.8 

17.0 

30.0 

25.6 

14.6 

 

Probability weightings of scenarios (Within the scope of EY's review report) 

RBS's approach to IFRS 9 multiple economic scenarios in Personal involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights to those scenarios. This involves the following steps:

●

Scenario selection - Two upside and two downside scenarios from Moody's inventory of scenarios were chosen. The aim is to obtain downside scenarios that are not as severe as stress tests, so typically they have a severity of around one in ten and one in five of approximate likelihood, along with corresponding upsides.

●

Severity assessment - Having selected the most appropriate scenarios their severity is then assessed based on the behaviour of UK GDP by calculating a variety of measures such as average growth, deviation from baseline and peak to trough falls. These measures are compared against a set of 1,000 model runs, following which, a percentile in the distribution is established which most closely corresponds to the scenario.

●

Probability assignment - Having established the relevant percentile points, probability weights are assigned to ensure that the scenarios produce an unbiased result. If the severity assessment step shows the scenarios to be broadly symmetric, then this will result in a symmetric probability weight (same probability weight above and below the base case). However, if the downsides are not as extreme as the upsides, then a higher probability weight is allocated to the downsides to ensure the unbiasedness requirement is satisfied. This adjustment is made purely to restore unbiasedness, not to address any relative skew in the distribution of risks in the economic outlook.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities

Introduction

This section covers the credit risk profile of RBS's banking activities. Banking activities include a small number of portfolios that were carried at fair value.

 

Financial instruments within the scope of the IFRS 9 ECL framework (Within the scope of EY's review report) 

Refer to Note 8 of the main announcement for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.

 

Financial assets

Of the total third party £485.1 billion AC and FVOCI balance (gross of ECL), £472 billion or 97% was within the scope of the IFRS 9 ECL framework and comprised by stage: Stage 1 £438.8 billion; Stage 2 £25.9 billion; and Stage 3 £7.3 billion (31 December 2018 - £463.9 billion of which Stage 1 £430.1 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion). Total assets within IFRS 9 ECL scope comprised the following by balance sheet caption and stage:

●

Loans: £325 billion of which Stage 1 £292 billion; Stage 2 £25.7 billion; and Stage 3 £7.3 billion (31 December 2018 - £319.8 billion of which Stage 1 £286.0 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion).

●

Other financial assets: £147 billion of which Stage 1 £146.8 billion; Stage 2 £0.2 billion; and Stage 3 nil (31 December 2018 - £144.1 billion of which Stage 1 £144.1 billion; Stage 2 nil; and Stage 3 nil).

 

Those assets outside the framework were as follows:

●

Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £10.1 billion. These were assessed as having no ECL unless there was evidence that they were credit impaired.

●

Equity shares of £1.1 billion as not within the IFRS 9 ECL framework by definition. 

●

Fair value adjustments of £1.1 billion on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope.

●

Group-originated securitisations, where ECL was captured on the underlying loans of £0.4 billion.

●

Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer's linked current account of £0.4 billion. 

 

Contingent liabilities and commitments

In addition to contingent liabilities and commitments disclosed in Note 12 of the main announcement, reputationally-committed limits are also included in the scope of the IFRS 9 ECL framework. These are offset by £4 billion out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £177.4 billion comprised Stage 1; £171.3 billion; Stage 2 £5.4 billion; and Stage 3 £0.7 billion.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - segment analysis (Within the scope of EY's review report) 

The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.

 

 

Ulster

Commercial

Private

 

 

Central items

 

 

UK PB

Bank RoI

Banking

Banking

RBSI

NWM

& other

Total

30 June 2019

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost

 

 

 

 

 

 

 

 

Stage 1

137,384 

19,684 

90,287 

14,198 

15,011 

9,539 

5,881 

291,984 

Stage 2

13,515 

1,638 

9,237 

531 

426 

229 

129 

25,705 

Stage 3

1,827 

2,171 

2,340 

173 

99 

715 

- 

7,325 

 

152,726 

23,493 

101,864 

14,902 

15,536 

10,483 

6,010 

325,014 

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

99 

28 

123 

12 

4 

8 

6 

280 

Stage 2

417 

56 

187 

9 

2 

10 

1 

682 

Stage 3

710 

588 

926 

19 

16 

81 

- 

2,340 

 

1,226 

672 

1,236 

40 

22 

99 

7 

3,302 

ECL provisions coverage (2)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.07 

0.14 

0.14 

0.08 

0.03 

0.08 

0.10 

0.10 

Stage 2 (%)

3.09 

3.42 

2.02 

1.69 

0.47 

4.37 

0.78 

2.65 

Stage 3 (%)

38.86 

27.08 

39.57 

10.98 

16.16 

11.33 

- 

31.95 

 

0.80 

2.86 

1.21 

0.27 

0.14 

0.94 

0.12 

1.02 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (3)

181 

(21)

202 

(3)

(3)

(36)

3 

323 

Stage 1

(53)

(24)

(55)

(5)

(3)

(2)

2 

(140)

Stage 2

103 

(38)

38 

(1)

- 

(2)

1 

101 

Stage 3

131 

41 

219 

3 

- 

(32)

- 

362 

ECL loss rate - annualised (basis points)

23.70 

(17.88)

39.66 

(4.03)

(3.86)

(68.68)

9.98 

19.88 

Amounts written-off

90 

72 

276 

1 

2 

11 

- 

452 

31 December 2018*

 

 

 

 

 

 

 

 

Loans - amortised cost

 

 

 

 

 

 

 

 

Stage 1

134,836 

17,822 

91,034 

13,750 

13,383 

8,196 

6,964 

285,985 

Stage 2

13,245 

2,080 

9,518 

531 

289 

407 

27 

26,097 

Stage 3

1,908 

2,308 

2,448 

225 

101 

728 

- 

7,718 

 

149,989 

22,210 

103,000 

14,506 

13,773 

9,331 

6,991 

319,800 

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

101 

35 

124 

13 

6 

6 

- 

285 

Stage 2

430 

114 

194 

10 

3 

12 

- 

763 

Stage 3

597 

638 

942 

20 

17 

106 

- 

2,320 

 

1,128 

787 

1,260 

43 

26 

124 

- 

3,368 

ECL provisions coverage (2)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.07 

0.20 

0.14 

0.09 

0.04 

0.07 

- 

0.10 

Stage 2 (%)

3.25 

5.48 

2.04 

1.88 

1.04 

2.95 

- 

2.92 

Stage 3 (%)

31.29 

27.64 

38.48 

8.89 

16.83 

14.56 

- 

30.06 

 

0.75 

3.54 

1.22 

0.30 

0.19 

1.33 

- 

1.05 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (3)

339 

15 

147 

(6)

(2)

(92)

(3)

398 

ECL loss rate - annualised (basis points)

22.60 

6.75 

14.27 

(4.14)

(1.45)

(98.60)

(4.29)

12.45 

Amounts written-off

445 

372 

572 

7 

9 

89 

- 

1,494 

*Restated. Refer to Note 1 of the main announcement for further details.

Notes:

(1)   Includes £4 million (31 December 2018 - £5 million) related to assets at FVOCI.

(2)   ECL provisions coverage is ECL provisions divided by loans - amortised cost.

(3)   Includes a £30 million charge (31 December 2018 - £3 million charge) related to other financial assets, of which nil (31 December 2018 - £1 million charge) related to assets at FVOCI; and a £28 million charge (31 December 2018 - £31 million release) related to contingent liabilities.

 

Key points

●

Total ECL provisions reduced slightly in the first half of 2019. The reduced ECL requirement in Stage 1 and Stage 2 performing exposures offset a small increased provisioning requirement in Stage 3 exposures. The ECL requirement arising from the economic uncertainty associated with Brexit is formally reviewed by the Provisions Committee at the end of each quarter. As at the end of H1 2019, the modelled impact remained unchanged from the year end at £101 million.

●

In UK PB, the ECL levels remained broadly stable in Stage 1 and Stage 2 with the increase in Stage 3 including the effect of a loss rate model adjustment on unsecured lending. In addition, the value of new defaults was higher than write-offs and debt repayments by customers, and unlike in 2018, there were no debt sales in H1 2019.

●

In Ulster Bank RoI, the reduction in ECL was driven by ongoing improvements in the portfolio performance and the completion of the remainder of the Bank's 2018 sale of non-performing loans in H1 2019.

●

In Commercial Banking, the ECL balance reduced marginally with write-offs of legacy positions more than offsetting the small number of significant individual charges during the period.

●

The impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of between 30 and 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges within Commercial Banking.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics (Within the scope of EY's review report) 

The table below shows gross loans and ECL, by segment and stage, within the scope of the ECL framework.

 

Gross loans

 

ECL provisions (2)

 

 

Stage 2 (1)

 

 

 

 

Stage 2 (1)

 

 

 

Stage 1

≤30 DPD

>30 DPD

Total

Stage 3

Total

 

Stage 1

≤30 DPD

>30 DPD

Total

Stage 3

Total

30 June 2019

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

£m

UK PB

137,384 

12,900 

615 

13,515 

1,827 

152,726 

 

99 

371 

46 

417 

710 

1,226 

Ulster Bank RoI

19,684 

1,583 

55 

1,638 

2,171 

23,493 

 

28 

51 

5 

56 

588 

672 

Personal (3)

11,304 

1,082 

37 

1,119 

2,000 

14,423 

 

9 

23 

3 

26 

490 

525 

Wholesale

8,380 

501 

18 

519 

171 

9,070 

 

19 

28 

2 

30 

98 

147 

Commercial Banking

90,287 

8,891 

346 

9,237 

2,340 

101,864 

 

123 

181 

6 

187 

926 

1,236 

Private Banking

14,198 

356 

175 

531 

173 

14,902 

 

12 

4 

5 

9 

19 

40 

Personal

11,324 

203 

51 

254 

157 

11,735 

 

4 

3 

- 

3 

15 

22 

Wholesale

2,874 

153 

124 

277 

16 

3,167 

 

8 

1 

5 

6 

4 

18 

RBS International

15,011 

417 

9 

426 

99 

15,536 

 

4 

2 

- 

2 

16 

22 

Personal

2,610 

36 

7 

43 

86 

2,739 

 

1 

1 

- 

1 

12 

14 

Wholesale

12,401 

381 

2 

383 

13 

12,797 

 

3 

1 

- 

1 

4 

8 

NatWest Markets

9,539 

229 

- 

229 

715 

10,483 

 

8 

10 

- 

10 

81 

99 

Central items and other

5,881 

129 

- 

129 

- 

6,010 

 

6 

1 

- 

1 

- 

7 

Total loans

291,984 

24,505 

1,200 

25,705 

7,325 

325,014 

 

280 

620 

62 

682 

2,340 

3,302 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

162,622 

14,221 

710 

14,931 

4,070 

181,623 

 

113 

398 

49 

447 

1,227 

1,787 

Wholesale

129,362 

10,284 

490 

10,774 

3,255 

143,391 

 

167 

222 

13 

235 

1,113 

1,515 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018*

 

 

 

 

 

 

 

 

 

 

 

 

 

UK PB

134,836 

12,521 

725 

13,245 

1,908 

149,989 

 

101 

382 

48 

430 

597 

1,128 

Ulster Bank RoI

17,822 

1,968 

112 

2,080 

2,308 

22,210 

 

35 

103 

11 

114 

638 

787 

Personal (3)

11,059 

1,353 

105 

1,458 

2,153 

14,670 

 

13 

73 

11 

84 

530 

627 

Wholesale

6,763 

615 

7 

622 

155 

7,540 

 

22 

30 

- 

30 

108 

160 

Commercial Banking

91,034 

9,087 

430 

9,518 

2,448 

103,000 

 

124 

186 

8 

194 

942 

1,260 

Private Banking

13,750 

380 

151 

531 

225 

14,506 

 

13 

5 

5 

10 

20 

43 

Personal

10,803 

183 

25 

208 

203 

11,214 

 

5 

3 

- 

3 

17 

25 

Wholesale

2,947 

197 

126 

323 

22 

3,292 

 

8 

2 

5 

7 

3 

18 

RBS International

13,383 

274 

15 

289 

101 

13,773 

 

6 

3 

- 

3 

17 

26 

NatWest Markets

8,196 

407 

- 

407 

728 

9,331 

 

6 

12 

- 

12 

106 

124 

Central items and other

6,964 

27 

- 

27 

- 

6,991 

 

- 

- 

- 

- 

- 

- 

Total loans

285,985 

24,664 

1,433 

26,097 

7,718 

319,800 

 

285 

691 

72 

763 

2,320 

3,368 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

159,553 

14,106 

865 

14,971 

4,351 

178,875 

 

122 

458 

59 

517 

1,158 

1,797 

Wholesale

126,432 

10,558 

568 

11,126 

3,367 

140,925 

 

163 

233 

13 

246 

1,162 

1,571 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Restated. Refer to Note 1 of the main announcement for further details.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics (Within the scope of EY's review report)

The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.

 

 

ECL provisions coverage

 

ECL

 

 

Stage 2 (1,2)

 

 

 

Total

 

Amounts

 

Stage 1

≤30 DPD

>30 DPD

Total

Stage 3

Total

 

charge

Loss rate

written-off

30 June 2019

%

%

%

%

%

%

 

£m

basis points

£m

UK PB

0.07 

2.88 

7.48 

3.09 

38.86 

0.80 

 

181 

23.70 

90 

Ulster Bank RoI

0.14 

3.22 

9.09 

3.42 

27.08 

2.86 

 

(21)

(17.88)

72 

Personal (3)

0.08 

2.13 

8.11 

2.32 

24.50 

3.64 

 

(10)

(13.87)

64 

Wholesale

0.23 

5.59 

11.11 

5.78 

57.31 

1.62 

 

(11)

(24.26)

8 

Commercial Banking

0.14 

2.04 

1.73 

2.02 

39.57 

1.21 

 

202 

39.66 

276 

Private Banking

0.08 

1.12 

2.86 

1.69 

10.98 

0.27 

 

(3)

(4.03)

1 

Personal

0.04 

1.48 

- 

1.18 

9.55 

0.19 

 

(3)

(5.11)

1 

Wholesale

0.28 

0.65 

4.03 

2.17 

25.00 

0.57 

 

- 

- 

- 

RBS International

0.03 

0.48 

- 

0.47 

16.16 

0.14 

 

(3)

(3.86)

2 

Personal

0.04 

2.78 

- 

2.33 

13.95 

0.51 

 

(1)

(7.30)

2 

Wholesale

0.02 

0.26 

- 

0.26 

30.77 

0.06 

 

(2)

(3.13)

- 

NatWest Markets

0.08 

4.37 

- 

4.37 

11.33 

0.94 

 

(36)

(68.68)

11 

Central items and other

0.10 

0.78 

- 

0.78 

- 

0.12 

 

3 

9.98 

- 

Total loans

0.10 

2.53 

5.17 

2.65 

31.95 

1.02 

 

323 

19.88 

452 

Of which:

 

 

 

 

 

 

 

 

 

 

Personal

0.07 

2.80 

6.90 

2.99 

30.15 

0.98 

 

167 

18.39 

157 

Wholesale

0.13 

2.16 

2.65 

2.18 

34.19 

1.06 

 

156 

21.76 

295 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018*

 

 

 

 

 

 

 

 

 

 

UK PB

0.07 

3.05 

6.62 

3.25 

31.29 

0.75 

 

339 

22.6 

445 

Ulster Bank RoI

0.20 

5.23 

9.82 

5.48 

27.64 

3.54 

 

15 

6.8 

372 

Personal (3)

0.12 

5.40 

10.48 

5.76 

24.62 

4.27 

 

20 

13.6 

343 

Wholesale

0.33 

4.88 

- 

4.82 

69.68 

2.12 

 

(5)

(6.6)

29 

Commercial Banking

0.14 

2.05 

1.86 

2.04 

38.48 

1.22 

 

147 

14.3 

572 

Private Banking

0.09 

1.32 

3.31 

1.88 

8.89 

0.30 

 

(6)

(4.1)

7 

Personal

0.05 

1.64 

- 

1.44 

8.37 

0.22 

 

(6)

(5.4)

5 

Wholesale

0.27 

1.02 

3.97 

2.17 

13.64 

0.55 

 

- 

- 

2 

RBS International

0.04 

1.09 

- 

1.04 

16.83 

0.19 

 

(2)

(1.5)

9 

NatWest Markets

0.07 

2.95 

- 

2.95 

14.56 

1.33 

 

(92)

(98.6)

89 

Central items and other

- 

- 

- 

- 

- 

- 

 

(3)

(4.3)

- 

Total loans excluding

 

 

 

 

 

 

 

 

 

 

   balances at central banks

0.10 

2.80 

5.02 

2.92 

30.06 

1.05 

 

398 

12.5 

1,494 

Personal

0.08 

3.25 

6.82 

3.45 

26.61 

1.00 

 

354 

19.8 

776 

Wholesale

0.13 

2.21 

2.29 

2.21 

34.51 

1.11 

 

44 

3.1 

718 

Total loans

0.08 

2.80 

5.02 

2.92 

30.06 

0.83 

 

398 

9.8 

1,494 

 

 

 

 

 

 

 

 

 

 

 

*Restated. Refer to Note 1 of the main announcement for further details.

Notes:

(1)   30 DPD - 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for significant increase in credit risk.

(2)   ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.

(3)   Includes a £1 million charge and a £1 million write off (31 December 2018 - £1 million and £3 million) related to the business banking portfolio in Ulster Bank RoI.

(4)   Balances at central banks in scope for ECL are £84.1 billion (31 December 2018 - £87.2 billion). ECL provision related to these balances is £3 million (31 December 2018 - £2 million).

 

Key points

●

For UK PB, the annualised loss rate of 24 basis points compared to 23 basis points for 2018, with the impairment charge for underlying new defaults broadly stable in H1 2019. The overall coverage level increased slightly driven by the uplift in Stage 3 which included the effect of a loss rate model adjustment on unsecured lending. The reduction in the total value of Stage 3 exposures reflected a methodology refinement in the mortgage portfolio.

●

In Ulster Bank RoI, the P&L benefited from a provision release due to improvements in the portfolio performance reflective of the prevailing macro economic environment.

●

In Commercial Banking, the loss rate of 40 basis points increased from 2018 reflecting a small number of individual charges and a reduction in the level of impairment releases. The coverage level remained stable at 1.21%.

●

In NatWest Markets, the negative loss rate reflected the impact of impairment releases on the legacy portfolio and included a £27 million gain on purchased or originated credit impaired assets.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis (Within the scope of EY's review report)

The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region based on the country of operation of the customer.

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

30 June 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

167,499 

4,181 

9,943 

181,623 

 

36,918 

71,708 

27,035 

7,730 

143,391 

 

325,014 

  - UK

152,515 

4,085 

9,467 

166,067 

 

33,910 

59,111 

17,312 

3,428 

113,761 

 

279,828 

  - RoI

14,119 

96 

223 

14,438 

 

1,225 

4,131 

194 

3,662 

9,212 

 

23,650 

  - Other Europe

274 

- 

90 

364 

 

1,387 

3,927 

4,308 

334 

9,956 

 

10,320 

  - RoW

591 

- 

163 

754 

 

396 

4,539 

5,221 

306 

10,462 

 

11,216 

Loans by asset quality (2,3)

167,499 

4,181 

9,943 

181,623 

 

36,918 

71,708 

27,035 

7,730 

143,391 

 

325,014 

  - AQ1-AQ4

105,736 

24 

1,070 

106,830 

 

15,740 

23,161 

25,792 

7,574 

72,267 

 

179,097 

  - AQ5-AQ8

57,317 

3,955 

7,935 

69,207 

 

19,548 

46,230 

1,219 

150 

67,147 

 

136,354 

  - AQ9

1,144 

62 

310 

1,516 

 

114 

605 

2 

1 

722 

 

2,238 

  - AQ10

3,302 

140 

628 

4,070 

 

1,516 

1,712 

22 

5 

3,255 

 

7,325 

Loans by stage

167,499 

4,181 

9,943 

181,623 

 

36,918 

71,708 

27,035 

7,730 

143,391 

 

325,014 

  - Stage 1

152,647 

2,831 

7,144 

162,622 

 

33,252 

61,854 

26,537 

7,719 

129,362 

 

291,984 

  - Stage 2

11,550 

1,210 

2,171 

14,931 

 

2,150 

8,142 

476 

6 

10,774 

 

25,705 

  - Stage 3

3,302 

140 

628 

4,070 

 

1,516 

1,712 

22 

5 

3,255 

 

7,325 

Weighted average 12 months PDs *

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.33 

4.15 

2.84 

0.55 

 

0.73 

0.91 

0.12 

0.07 

0.71 

 

0.61 

  - Basel (%)

0.83 

3.82 

4.02 

1.06 

 

0.98 

1.59 

0.22 

0.08 

1.07 

 

1.07 

ECL provisions by geography

739 

224 

824 

1,787 

 

424 

1,050 

32 

9 

1,515 

 

3,302 

  - UK

236 

221 

805 

1,262 

 

361 

681 

17 

6 

1,065 

 

2,327 

  - RoI

503 

3 

19 

525 

 

40 

116 

1 

1 

158 

 

683 

  - Other Europe

- 

- 

- 

- 

 

21 

139 

12 

1 

173 

 

173 

  - RoW

- 

- 

- 

- 

 

2 

114 

2 

1 

119 

 

119 

ECL provisions by stage

739 

224 

824 

1,787 

 

424 

1,050 

32 

9 

1,515 

 

3,302 

  - Stage 1

16 

36 

61 

113 

 

44 

103 

11 

9 

167 

 

280 

  - Stage 2

96 

100 

251 

447 

 

41 

185 

9 

- 

235 

 

682 

  - Stage 3

627 

88 

512 

1,227 

 

339 

762 

12 

- 

1,113 

 

2,340 

ECL provisions coverage (%)

0.44 

5.36 

8.29 

0.98 

 

1.15 

1.46 

0.12 

0.12 

1.06 

 

1.02 

  - Stage 1 (%)

0.01 

1.27 

0.85 

0.07 

 

0.13 

0.17 

0.04 

0.12 

0.13 

 

0.10 

  - Stage 2 (%)

0.83 

8.26 

11.56 

2.99 

 

1.91 

2.27 

1.89 

- 

2.18 

 

2.65 

  - Stage 3 (%)

18.99 

62.86 

81.53 

30.15 

 

22.36 

44.51 

54.55 

- 

34.19 

 

31.95 

ECL charge

3 

26 

138 

167 

 

22 

134 

(2)

2 

156 

 

323 

ECL loss rate (%)

- 

1.24 

2.78 

0.18 

 

0.12 

0.37 

(0.01)

0.05 

0.22 

 

0.20 

Amounts written-off

71 

35 

51 

157 

 

173 

112 

10 

- 

295 

 

452 

Other financial assets by asset quality (3)

- 

- 

- 

- 

 

- 

710 

12,490 

133,781 

146,981 

 

146,981 

  - AQ1-AQ4

- 

- 

- 

- 

 

- 

115 

11,825 

133,781 

145,721 

 

145,721 

  - AQ5-AQ8

- 

- 

- 

- 

 

- 

587 

659 

- 

1,246 

 

1,246 

  - AQ9

- 

- 

- 

- 

 

- 

8 

3 

- 

11 

 

11 

  - AQ10

- 

- 

- 

- 

 

- 

- 

3 

- 

3 

 

3 

Off-balance sheet

12,883 

16,768 

12,390 

42,041 

 

16,230 

53,157 

26,949 

39,064 

135,400 

 

177,441 

Loan commitments

12,883 

16,768 

12,380 

42,031 

 

15,538 

50,061 

25,356 

39,064 

130,019 

 

172,050 

Financial guarantees

- 

- 

10 

10 

 

692 

3,096 

1,593 

- 

5,381 

 

5,391 

Off-balance sheet by asset quality (3)

12,883 

16,768 

12,390 

42,041 

 

16,230 

53,157 

26,949 

39,064 

135,400 

 

177,441 

  - AQ1-AQ4

11,830 

309 

9,455 

21,594 

 

11,983 

36,462 

25,443 

39,049 

112,937 

 

134,531 

  - AQ5-AQ8

1,043 

16,166 

2,924 

20,133 

 

4,125 

16,349 

1,504 

15 

21,993 

 

42,126 

  - AQ9

1 

4 

11 

16 

 

8 

88 

- 

- 

96 

 

112 

  - AQ10 (4)

9 

289 

- 

298 

 

114 

258 

2 

- 

374 

 

672 

 

 

 

 

 

*Not within the scope of EY's review report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 
 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis (Within the scope of EY's review report) 

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

31 December 2018

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

165,081 

4,216 

9,578 

178,875 

 

36,707 

72,240 

25,011 

6,967 

140,925 

 

319,800 

  - UK

150,233 

4,112 

9,117 

163,462 

 

33,855 

60,657 

11,611 

3,089 

109,212 

 

272,674 

  - RoI

14,350 

104 

233 

14,687 

 

1,114 

3,733 

392 

2,497 

7,736 

 

22,423 

  - Other Europe

102 

- 

67 

169 

 

1,395 

3,760 

5,903 

1,088 

12,146 

 

12,315 

  - RoW

396 

- 

161 

557 

 

343 

4,090 

7,105 

293 

11,831 

 

12,388 

Loans by asset quality (2,3)

165,081 

4,216 

9,578 

178,875 

 

36,707 

72,240 

25,011 

6,967 

140,925 

 

319,800 

  - AQ1-AQ4

104,989 

35 

1,040 

106,064 

 

16,133 

22,587 

22,397 

6,802 

67,919 

 

173,983 

  - AQ5-AQ8

55,139 

3,990 

7,736 

66,865 

 

18,815 

47,651 

2,574 

161 

69,201 

 

136,066 

  - AQ9

1,287 

69 

239 

1,595 

 

74 

359 

5 

- 

438 

 

2,033 

  - AQ10

3,666 

122 

563 

4,351 

 

1,685 

1,643 

35 

4 

3,367 

 

7,718 

Loans by stage

165,081 

4,216 

9,578 

178,875 

 

36,707 

72,240 

25,011 

6,967 

140,925 

 

319,800 

  - Stage 1

149,760 

2,851 

6,942 

159,553 

 

33,145 

61,844 

24,502 

6,941 

126,432 

 

285,985 

  - Stage 2

11,655 

1,243 

2,073 

14,971 

 

1,877 

8,753 

474 

22 

11,126 

 

26,097 

  - Stage 3

3,666 

122 

563 

4,351 

 

1,685 

1,643 

35 

4 

3,367 

 

7,718 

Weighted average 12 months PDs *

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.32 

4.03 

2.77 

0.54 

 

0.75 

0.97 

0.14 

0.06 

0.75 

 

0.62 

  - Basel (%)

0.84 

3.52 

3.50 

1.04 

 

0.95 

1.43 

0.23 

0.06 

1.01 

 

1.03 

ECL provisions by geography

839 

230 

728 

1,797 

 

588 

941 

41 

1 

1,571 

 

3,368 

  - UK

237 

227 

707 

1,171 

 

518 

615 

27 

1 

1,161 

 

2,332 

  - RoI

602 

3 

21 

626 

 

43 

125 

2 

- 

170 

 

796 

  - Other Europe

- 

- 

- 

- 

 

22 

53 

10 

- 

85 

 

85 

  - RoW

- 

- 

- 

- 

 

5 

148 

2 

- 

155 

 

155 

ECL provisions by stage

839 

230 

728 

1,797 

 

588 

941 

41 

1 

1,571 

 

3,368 

  - Stage 1

23 

38 

61 

122 

 

43 

107 

12 

1 

163 

 

285 

  - Stage 2

150 

120 

247 

517 

 

39 

200 

7 

- 

246 

 

763 

  - Stage 3

666 

72 

420 

1,158 

 

506 

634 

22 

- 

1,162 

 

2,320 

ECL provisions coverage (%)

0.51 

5.46 

7.60 

1.00 

 

1.60 

1.30 

0.16 

0.01 

1.11 

 

1.05 

  - Stage 1 (%)

0.02 

1.33 

0.88 

0.08 

 

0.13 

0.17 

0.05 

0.01 

0.13 

 

0.10 

  - Stage 2 (%)

1.29 

9.65 

11.92 

3.45 

 

2.08 

2.28 

1.48 

- 

2.21 

 

2.92 

  - Stage 3 (%)

18.17 

59.02 

74.60 

26.61 

 

30.03 

38.59 

62.86 

- 

34.51 

 

30.06 

ECL charge

57 

87 

210 

354 

 

30 

13 

3 

(2)

44 

 

398 

ECL loss rate (%)

0.03 

2.06 

2.19 

0.20 

 

0.08 

0.02 

0.01 

(0.03)

0.03 

 

0.12 

Amounts written-off

368 

79 

329 

776 

 

292 

395 

31 

- 

718 

 

1,494 

Other financial assets by asset quality (3)

- 

- 

- 

- 

 

105 

652 

8,838 

134,546 

144,141 

 

144,141 

  - AQ1-AQ4

- 

- 

- 

- 

 

105 

10 

8,110 

134,546 

142,771 

 

142,771 

  - AQ5-AQ8

- 

- 

- 

- 

 

- 

642 

721 

- 

1,363 

 

1,363 

  - AQ9

- 

- 

- 

- 

 

- 

- 

4 

- 

4 

 

4 

  - AQ10

- 

- 

- 

- 

 

- 

- 

3 

- 

3 

 

3 

Off-balance sheet

13,228 

16,613 

12,229 

42,070 

 

16,044 

52,730 

28,761 

29,277 

126,812 

 

168,882 

Loan commitments

13,228 

16,613 

12,229 

42,070 

 

15,335 

48,569 

26,684 

29,276 

119,864 

 

161,934 

Financial guarantees

- 

- 

- 

- 

 

709 

4,161 

2,077 

1 

6,948 

 

6,948 

Off-balance sheet by asset quality (3)

13,228 

16,613 

12,229 

42,070 

 

16,044 

52,730 

28,761 

29,277 

126,812 

 

168,882 

  - AQ1-AQ4

12,116 

422 

9,103 

21,641 

 

11,945 

36,134 

27,364 

29,262 

104,705 

 

126,346 

  - AQ5-AQ8

1,101 

15,900 

3,116 

20,117 

 

3,928 

16,390 

1,397 

15 

21,730 

 

41,847 

  - AQ9

1 

8 

10 

19 

 

6 

46 

- 

- 

52 

 

71 

  - AQ10 (4)

10 

283 

- 

293 

 

165 

160 

- 

- 

325 

 

618 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of EY's review report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)    Includes £0.6 billion (31 December 2018 - £0.7 billion) secured lending in Private Banking, in line with ECL calculation methodology.

(2)    AQ10 includes £0.7 billion (31 December 2018 - £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3.

(3)    AQ bandings are based on Basel PDs and mapping is as follows:

 

Internal asset quality band

Probability of default range

Indicative S&P rating

AQ1

0% - 0.034%

AAA to AA

AQ2

0.034% - 0.048%

AA to AA-

AQ3

0.048% - 0.095%

A+ to A

AQ4

0.095% - 0.381%

BBB+ to BBB-

AQ5

0.381% - 1.076%

BB+ to BB

AQ6

1.076% - 2.153%

BB- to B+

AQ7

2.153% - 6.089%

B+ to B

AQ8

6.089% - 17.222%

B- to CCC+

AQ9

17.222% - 100%

CCC to C

AQ10

100%

D

 

(4)    £0.3 billion (December 2018 - £0.3 billion) AQ10 Personal balances primarily relate to loan commitments, the draw down of which is effectively prohibited.

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis (Within the scope of EY's review report)

Wholesale forbearance

The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on the next page. 

 

FI

Property

Sovereigns

Other corporate

Total

30 June 2019

£m

£m

£m

£m

£m

Forbearance (flow)

3 

284 

- 

1,594 

1,881 

Heightened Monitoring and Risk of Credit Loss

88 

1,082 

- 

3,771 

4,941 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

Forbearance (flow)

14 

305 

- 

2,247 

2,566 

Heightened Monitoring and Risk of Credit Loss

100 

503 

16 

4,145 

4,764 

 

Key points

·      Loans by stage - The percentage of exposure in Stage 1 and Stage 2 was broadly unchanged from the 2018 year end. The reduction in value of mortgage Stage 3 exposures included a methodology change in the UK PB portfolio and also the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019.

·      Weighted average 12 months PDs - In Wholesale, Basel PDs, which are based on a through-the-cycle approach, tend to be higher than point-in-time best estimate IFRS 9 PDs, which reflect the current state in the economic cycle. Basel PDs also include an element of conservatism associated with the regulatory capital framework. In Personal, the Basel PDs, which are point-in-time estimates, also tend to be higher also reflecting conservatism (conservatism is higher in mortgages than other products), and an element of default rate under-prediction in the IFRS 9 PD models. This overall default rate under-prediction was mitigated by net ECL modelling overlays of approximately £30 million at H1 2019, pending model calibrations being implemented. The IFRS 9 PD for credit cards was higher than the Basel equivalent and reflected the relative sensitivity of the IFRS 9 model to forward-looking economic drivers, as well as an IFRS 9 model over-prediction mitigated within the ECL overlay.

·      ECL provision by stage and coverage - The majority of ECL by value in both Personal and Wholesale was in Stage 3. Provision coverage was progressively higher by stage reflecting the lifetime nature of losses in both Stage 2 and Stage 3. In the Personal portfolio, provision coverage was materially lower in mortgages relative to credit cards and other personal unsecured products reflecting the secured nature of the facilities. For Wholesale exposures, security and enterprise value mitigated losses in Stage 3.

·      In mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in the Ulster Bank RoI business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019. The increase in ECL and provision coverage on Other personal included the effect of a loss rate model adjustment.

·      The ECL impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of 30 to 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges.

 

·      Completed Wholesale forbearance in the six months to 30 June 2019 was £1.9 billion compared to £2.6 billion for the full year 2018. Forbearance during the period was largely driven by Services, Retail & Leisure, Property and Transport sectors. The volume of customers completing forbearance was similar to 2018. However, exposure levels increased due to a small number of entities with large exposures. The portfolio continues to be monitored closely with targeted sector reviews.

·      Heightened Monitoring and Risk of Credit Loss - The volume of customers classified as Heightened Monitoring or Risk of Credit Loss remained similar to December 2018 with exposure increasing from £4.8 billion to £4.9 billion in the period to 30 June 2019. The increase in exposures was driven by the Heightened Monitoring portfolio. With ongoing economic and political uncertainty, key wholesale sectors continue to be reviewed at senior credit forums with business appetite and underwriting standards tightened where necessary.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

UK

Ulster

Private

 

 

 

UK

Ulster

Private

 

 

 

PB

Bank RoI

Banking

RBSI

Total

 

PB

Bank RoI

Banking

RBSI

Total

Personal lending

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

Mortgages

140,929 

14,181 

9,474 

2,661 

167,245 

 

138,250 

14,361 

9,082 

2,684 

164,377 

of which:

 

 

 

 

 

 

 

 

 

 

 

  Owner occupied

125,719 

13,070 

8,302 

1,756 

148,847 

 

122,642 

13,105 

7,953 

1,781 

145,481 

  Buy-to-let

15,210 

1,111 

1,172 

905 

18,398 

 

15,608 

1,256 

1,129 

903 

18,896 

  Interest only - variable

7,062 

179 

3,585 

431 

11,257 

 

8,358 

188 

3,871 

489 

12,906 

  Interest only - fixed

12,632 

10 

4,275 

226 

17,143 

 

12,229 

12 

3,636 

187 

16,064 

  Mixed (1)

6,088 

63 

2 

22 

6,175 

 

6,036 

68 

2 

18 

6,124 

  Impairment provision (2)

215 

502 

5 

13 

735 

 

212 

602 

5 

16 

835 

Other personal lending (3)

12,179 

317 

1,654 

52 

14,202 

 

11,633 

330 

1,676 

55 

13,694 

 Impairment provision (2)

1,003 

22 

17 

1 

1,043 

 

909 

25 

19 

1 

954 

Total personal lending

153,108 

14,498 

11,128 

2,713 

181,447 

 

149,883 

14,691 

10,758 

2,739 

178,071 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage LTV ratios

 

 

 

 

 

 

 

 

 

 

 

  - Total portfolio

57%

61%

56%

58%

57%

 

56%

62%

56%

58%

57%

    - Stage 1

57%

58%

56%

57%

57%

 

56%

58%

56%

57%

56%

    - Stage 2

59%

66%

56%

66%

60%

 

58%

67%

58%

55%

59%

    - Stage 3

56%

74%

58%

91%

67%

 

55%

77%

58%

99%

69%

  - Buy-to-let

53%

63%

53%

53%

54%

 

53%

64%

53%

53%

54%

    - Stage 1

52%

60%

53%

53%

53%

 

53%

58%

53%

52%

53%

    - Stage 2

58%

68%

58%

48%

59%

 

57%

72%

53%

57%

60%

    - Stage 3

59%

76%

61%

67%

68%

 

58%

78%

68%

75%

71%

Gross new mortgage lending

13,957 

612 

1,015 

173 

15,757 

 

29,555 

1,015 

1,846 

353 

32,769 

of which:

 

 

 

 

 

 

 

 

 

 

 

  Owner occupied exposure

13,480 

606 

929 

113 

15,128 

 

28,608 

1,004 

1,689 

241 

31,542 

  Weighted average LTV

70%

75%

64%

73%

70%

 

69%

73%

62%

68%

69%

  Buy-to-let exposure

477 

5 

86 

60 

628 

 

947 

11 

157 

112 

1,227 

  Weighted average LTV

62%

59%

57%

64%

61%

 

61%

57%

55%

61%

60%

  Interest only variable rate

13 

- 

309 

3 

325 

 

43 

- 

697 

13 

753 

  Interest only fixed rate

567 

- 

500 

30 

1,097 

 

1,189 

- 

764 

43 

1,996 

  Mixed (1)

461 

- 

- 

- 

461 

 

912 

1 

- 

- 

913 

Mortgage forbearance

 

 

 

 

 

 

 

 

 

 

 

Forbearance flow

254 

169 

9 

3 

435 

 

446 

210 

11 

16 

683 

Forbearance stock

1,289 

2,429 

7 

12 

3,737 

 

1,338 

2,645 

8 

17 

4,008 

  Current

683 

1,265 

4 

10 

1,962 

 

724 

1,291 

6 

14 

2,035 

  1-3 months in arrears

351 

204 

3 

1 

559 

 

350 

261 

- 

1 

612 

  >3 months in arrears

255 

960 

- 

1 

1,216 

 

264 

1,093 

2 

3 

1,362 

 

Notes:

(1)

Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.

(2)

For UK PB this excludes a non material amount of provisions held on relatively small legacy portfolios.

(3)

Other lending comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. Other Lending excludes loans that that are commercial in nature.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

Key points

●

The overall credit risk profile of the Personal portfolio, and its performance against credit risk appetite, remained stable during 2019. 

 

 

●

In UK PB, lending grew by £2.7 billion in the first six months with new lending partly offset by mortgage redemptions and repayments. In Ulster Bank RoI, the reduction in the mortgage portfolio was primarily driven by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019, as well as portfolio amortisation and redemptions outweighing new lending in the first half of 2019.

 

 

●

New mortgage lending was higher than in H1 2018. The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, loan-to-income ratios, buy-to-let concentrations, new-build concentrations and credit quality. Underwriting standards were maintained during the period.

 

 

●

Mortgage growth was driven by the owner-occupied portfolio. New mortgages in the buy-to-let portfolio remained subdued as tax and regulatory changes in the UK affected borrower activity.

 

 

●

The mortgage portfolio loan-to-value ratio increased slightly in the UK, reflecting slower UK house price growth.

 

 

●

The stock of lending in Greater London and the South East was 42% of the UK PB portfolio. (31 December 2018 - 42%). The average weighted loan-to-value for these regions was 52% (31 December 2018 - 51%) compared to 57% for all regions.

 

 

●

By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced, driven by fewer buy-to-let mortgages and low volumes of owner occupier interest only new business.

 

 

●

As at 30 June 2019, 85% of customers in the UK PB mortgage portfolio were on fixed rates (47% on five-year deals). In addition, 97% of all new mortgage completions were fixed-rate deals (62% of which were five-year deals), as customers sought to minimise the impact of potential rate rises.

 

 

●

The growth in unsecured lending during the first six months of 2019 was driven by the UK PB unsecured loans portfolio. The bank also reintroduced 0% balance transfer credit cards during the period which has increased credit card exposure. Unsecured new business increased 2% in the first half of 2019 (compared to H2 2018), reflecting product offering differences, pricing initiatives, and increased marketing activity.

 

 

●

Unsecured credit quality improved modestly, reflecting active portfolio management with tightening implemented across loan and credit card portfolios in H1 2019 to ensure that performance of higher risk customers remained within risk appetite.

 

 
     

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

Mortgage LTV distribution by stage

The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value.

 

Mortgages

 

 

 

ECL provisions

 

ECL provisions coverage (2)

 

 

Not within

 

 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

Gross new

 

 

 

 

 

 

 

 

 

 

UK PB

Stage 1

Stage 2

Stage 3

scope

Total

 

lending

 

Stage 1

Stage 2

Stage 3

Total (1)

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

£m

£m

£m

£m

£m

 

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

46,571 

3,362 

511 

140 

50,584 

 

2,045 

 

1 

18 

63 

82 

 

- 

0.5 

12.3 

0.2 

>50% and ≤70%

44,371 

3,679 

465 

40 

48,555 

 

3,873 

 

2 

25 

38 

65 

 

- 

0.7 

8.2 

0.1 

>70% and ≤80%

21,454 

1,702 

153 

8 

23,317 

 

3,578 

 

2 

12 

12 

26 

 

- 

0.7 

8.0 

0.1 

>80% and ≤90%

13,419 

1,191 

84 

4 

14,698 

 

3,868 

 

2 

12 

8 

22 

 

- 

1.0 

9.7 

0.1 

>90% and ≤100%

3,210 

241 

25 

5 

3,481 

 

511 

 

1 

5 

3 

9 

 

- 

2.0 

11.8 

0.2 

>100% and ≤110%

50 

36 

9 

1 

96 

 

- 

 

- 

2 

2 

4 

 

0.1 

4.3 

17.5 

3.2 

>110% and ≤130%

57 

36 

9 

2 

104 

 

- 

 

- 

2 

2 

4 

 

0.1 

5.4 

24.1 

3.9 

>130% and ≤150%

22 

23 

6 

- 

51 

 

- 

 

- 

1 

1 

2 

 

0.1 

5.7 

15.4 

4.4 

>150%

4 

9 

4 

- 

17 

 

- 

 

- 

- 

1 

1 

 

0.1 

5.2 

30.6 

10.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total with LTVs

129,158 

10,279 

1,266 

200 

140,903 

 

13,875 

 

8 

77 

130 

215 

 

- 

0.7 

10.3 

0.2 

Other

22 

3 

1 

- 

26 

 

82 

 

- 

- 

- 

- 

 

0.1 

4.5 

48.1 

2.2 

Total

129,180 

10,282 

1,267 

200 

140,929 

 

13,957 

 

8 

77 

130 

215 

 

- 

0.7 

10.3 

0.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

47,111 

3,423 

516 

153 

51,203 

 

4,779 

 

2 

16 

64 

82 

 

- 

0.5 

12.4 

0.2 

>50% and ≤70%

44,037 

3,632 

459 

49 

48,177 

 

8,535 

 

2 

23 

39 

64 

 

- 

0.6 

8.5 

0.1 

>70% and ≤80%

20,345 

1,490 

135 

15 

21,985 

 

7,434 

 

1 

11 

11 

23 

 

- 

0.7 

8.1 

0.1 

>80% and ≤90%

12,733 

1,118 

81 

12 

13,944 

 

7,524 

 

2 

12 

8 

22 

 

- 

1.1 

10.0 

0.2 

>90% and ≤100%

2,343 

178 

24 

7 

2,552 

 

1,104 

 

1 

4 

3 

8 

 

- 

2.4 

12.1 

0.3 

>100% and ≤110%

57 

35 

8 

1 

101 

 

- 

 

- 

2 

1 

3 

 

0.1 

4.6 

14.1 

2.8 

>110% and ≤130%

53 

41 

9 

2 

105 

 

- 

 

- 

2 

1 

3 

 

0.1 

5.4 

14.6 

3.4 

>130% and ≤150%

23 

23 

6 

- 

52 

 

- 

 

- 

1 

1 

2 

 

0.1 

6.2 

13.4 

4.3 

>150%

3 

9 

3 

- 

15 

 

- 

 

- 

1 

1 

2 

 

0.1 

6.2 

17.3 

7.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total with LTVs

126,705 

9,949 

1,241 

239 

138,134 

 

29,376 

 

8 

72 

129 

209 

 

- 

0.7 

10.4 

0.2 

Other

96 

13 

4 

3 

116 

 

179 

 

- 

1 

2 

3 

 

- 

4.7 

53.5 

2.6 

Total

126,801 

9,962 

1,245 

242 

138,250 

 

29,555 

 

8 

73 

131 

212 

 

- 

0.7 

10.5 

0.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 
 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report) 

 

 

Mortgages

 

ECL provisions

 

ECL provisions coverage (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ulster Bank RoI

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

4,120 

333 

518 

4,971 

 

2 

5 

79 

86 

 

- 

1.4 

15.2 

1.7 

>50% and ≤70%

3,537 

252 

448 

4,237 

 

1 

4 

70 

75 

 

- 

1.4 

15.6 

1.8 

>70% and ≤80%

1,392 

134 

233 

1,759 

 

1 

2 

48 

51 

 

- 

1.5 

20.6 

2.9 

>80% and ≤90%

1,077 

121 

241 

1,439 

 

1 

2 

61 

64 

 

0.1 

1.8 

25.4 

4.4 

>90% and ≤100%

540 

97 

204 

841 

 

- 

2 

64 

66 

 

0.1 

1.9 

31.1 

7.8 

>100% and ≤110%

247 

59 

158 

464 

 

- 

2 

52 

54 

 

0.1 

2.9 

33.2 

11.7 

>110% and ≤130%

149 

44 

168 

361 

 

- 

1 

69 

70 

 

0.2 

3.2 

40.9 

19.5 

>130% and ≤150%

19 

8 

51 

78 

 

- 

- 

25 

25 

 

0.3 

5.9 

49.3 

33.1 

>150%

8 

2 

21 

31 

 

- 

- 

11 

11 

 

0.3 

10.2 

52.7 

36.3 

Total with LTVs

11,089 

1,050 

2,042 

14,181 

 

5 

18 

479 

502 

 

0.1 

1.7 

23.4 

3.5 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

3,818 

374 

463 

4,655 

 

1 

5 

40 

46 

 

- 

1.4 

8.6 

1.0 

>50% and ≤70%

3,567 

365 

459 

4,391 

 

2 

10 

47 

59 

 

- 

2.7 

10.3 

1.3 

>70% and ≤80%

1,564 

190 

241 

1,995 

 

1 

11 

52 

64 

 

0.1 

5.5 

21.5 

3.2 

>80% and ≤90%

1,059 

184 

272 

1,515 

 

2 

15 

82 

99 

 

0.2 

8.3 

30.2 

6.5 

>90% and ≤100%

570 

154 

261 

985 

 

2 

17 

99 

118 

 

0.4 

11.1 

37.7 

11.9 

>100% and ≤110%

197 

80 

207 

484 

 

2 

10 

85 

97 

 

0.9 

12.8 

41.1 

20.1 

>110% and ≤130%

51 

35 

179 

265 

 

- 

6 

84 

90 

 

0.8 

16.6 

47.0 

34.0 

>130% and ≤150%

5 

5 

37 

47 

 

- 

1 

20 

21 

 

0.3 

19.1 

54.7 

45.2 

>150%

10 

1 

13 

24 

 

- 

1 

7 

8 

 

2.1 

27.2 

58.9 

33.5 

Total with LTVs

10,841 

1,388 

2,132 

14,361 

 

10 

76 

516 

602 

 

0.1 

5.4 

24.2 

4.2 

 

Notes:

(1)   Excludes a non-material amount of provisions held on relatively small legacy portfolios.

(2)   ECL provisions coverage is ECL provisions divided by drawn exposure.

 

Key points

●

The UK mortgage portfolio LTV ratio increased slightly reflecting slower UK house price growth. In Ulster Bank RoI the small changes to portfolio level LTVs were mainly driven by the implementation of an enhanced indexation methodology that improves the granularity of information at individual mortgage account level.

 

 

●

ECL coverage rates increased through the LTV bands with both UK PB and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK PB included the effect of the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity, and also discounting expected recoveries over time. Similarly in Ulster Bank RoI, the relatively high coverage level in the lower LTV bands is driven by the implementation of a new modelling methodology that applies higher losses to these LTV bands.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

UK PB Mortgage LTV distribution by region

 

 

 

 

 

 

 

 

 

 

 

 

 

50%

80%

100%

 

 

Weighted

 

 

 

 

≤50%

≤80%

≤100%

≤150%

>150%

Total

average LTV

Other

Total

Total

LTV ratio value

£m

£m

£m

£m

£m

£m

%

£m

£m

%

30 June 2019

 

 

 

 

 

 

 

 

 

 

South East

13,336 

18,064 

4,099 

11 

- 

35,510 

56 

8 

35,518 

25 

Greater London

13,792 

9,442 

837 

4 

- 

24,075 

47 

4 

24,079 

17 

Scotland

3,591 

5,987 

1,188 

2 

- 

10,768 

58 

1 

10,769 

8 

North West

4,029 

7,830 

2,140 

5 

- 

14,004 

60 

3 

14,007 

10 

South West

4,265 

7,089 

1,323 

7 

- 

12,684 

57 

2 

12,686 

9 

West Midlands

2,791 

5,653 

1,735 

5 

- 

10,184 

61 

1 

10,185 

7 

Rest of the UK

8,780 

17,807 

6,856 

218 

17 

33,678 

63 

7 

33,685 

24 

Total

50,584 

71,872 

18,178 

252 

17 

140,903 

57 

26 

140,929 

100 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

South East

14,699 

17,147 

2,843 

8 

- 

34,697 

53 

27 

34,724 

25 

Greater London

12,928 

9,614 

1,298 

3 

- 

23,843 

48 

19 

23,862 

17 

Scotland

3,205 

5,612 

1,844 

11 

- 

10,672 

60 

8 

10,680 

8 

North West

4,163 

7,756 

1,970 

6 

- 

13,895 

59 

12 

13,907 

10 

South West

4,231 

6,843 

1,292 

8 

- 

12,374 

57 

9 

12,383 

9 

West Midlands

3,036 

5,642 

1,192 

4 

- 

9,874 

58 

7 

9,881 

7 

Rest of the UK

8,942 

17,548 

6,056 

217 

16 

32,779 

62 

34 

32,813 

24 

Total

51,204 

70,162 

16,495 

257 

16 

138,134 

56 

116 

138,250 

100 

 

Commercial real estate (CRE)

The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly at senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of guarantee or letter or credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral.

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

UK

RoI

Other

Total

 

UK

RoI

Other

Total

By geography and sub sector (1)

£m

£m

£m

£m

 

£m

£m

£m

£m

Investment

 

 

 

 

 

 

 

 

 

Residential (2)

4,571 

382 

27 

4,980 

 

4,426 

363 

54 

4,843 

Office (3)

3,014 

150 

621 

3,785 

 

2,889 

164 

651 

3,704 

Retail (4)

5,239 

52 

126 

5,417 

 

5,168 

40 

92 

5,300 

Industrial (5)

2,351 

54 

106 

2,511 

 

2,270 

51 

176 

2,497 

Mixed/other (6)

3,340 

214 

38 

3,592 

 

3,221 

180 

123 

3,524 

 

18,515 

852 

918 

20,285 

 

17,974 

798 

1,096 

19,868 

 

 

 

 

 

 

 

 

 

 

Development

 

 

 

 

 

 

 

 

 

Residential (2)

2,639 

152 

20 

2,811 

 

2,715 

122 

124 

2,961 

Office (3)

118 

- 

- 

118 

 

192 

- 

- 

192 

Retail (4)

103 

7 

1 

111 

 

94 

7 

1 

102 

Industrial (5)

120 

2 

- 

122 

 

119 

2 

12 

133 

Mixed/other (6)

27 

3 

- 

30 

 

32 

2 

- 

34 

 

3,007 

164 

21 

3,192 

 

3,152 

133 

137 

3,422 

 

 

 

 

 

 

 

 

 

 

Total

21,522 

1,016 

939 

23,477 

 

21,126 

931 

1,233 

23,290 

 

Notes:

(1)

Geographical splits are based on country of collateral risk.

(2)

Residential properties including houses, flats and student accommodation.

(3)

Office properties including offices in central business districts, regional headquarters and business parks.

(4)

Retail properties including high street retail, shopping centres, restaurants, bars and gyms.

(5)

Industrial properties including distribution centres, manufacturing and warehouses. 

(6)

Mixed usage or other properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. 

 

 

Appendix 1 Capital and risk management

Credit risk: Banking activities continued

Commercial real estate

CRE LTV distribution by stage (Within the scope of EY's review report) 

The table below shows CRE current exposure and related ECL by LTV band.

 

Current exposure (gross of provisions) (1,2)

 

ECL provisions

 

ECL provisions coverage (4)

 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

scope (3)

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

8,836 

264 

45 

794 

9,939 

 

8 

5 

12 

25 

 

0.1 

1.8 

26.3 

0.3 

>50% and ≤70%

4,674 

464 

79 

781 

5,998 

 

6 

6 

12 

24 

 

0.1 

1.3 

14.9 

0.5 

>70% and ≤80%

266 

92 

36 

15 

409 

 

1 

1 

9 

11 

 

0.3 

1.1 

24.8 

2.7 

>80% and ≤90%

70 

7 

22 

2 

101 

 

- 

- 

4 

4 

 

0.4 

4.7 

16.3 

4.2 

>90% and ≤100%

14 

4 

24 

1 

43 

 

- 

1 

12 

13 

 

0.7 

15.1 

50.4 

29.3 

>100% and ≤110%

24 

4 

12 

- 

40 

 

- 

- 

4 

4 

 

0.4 

5.0 

36.1 

11.7 

>110% and ≤130%

13 

12 

114 

4 

143 

 

- 

1 

29 

30 

 

0.7 

5.0 

24.7 

20.9 

>130% and ≤150%

7 

3 

5 

- 

15 

 

- 

- 

2 

2 

 

1.0 

14.1 

48.4 

20.2 

>150%

37 

5 

30 

- 

72 

 

- 

1 

20 

21 

 

0.6 

10.8 

68.4 

29.3 

Total with LTVs

13,941 

855 

367 

1,597 

16,760 

 

15 

15 

104 

134 

 

0.1 

1.7 

28.2 

0.9 

Total portfolio average LTV (%)

44%

55%

101%

48%

46%

 

n/a

n/a

n/a

n/a

 

n/a

n/a

n/a

n/a

Other (5)

2,217 

283 

716 

309 

3,525 

 

3 

4 

51 

58 

 

0.1 

1.6 

7.1 

1.8 

Development (6)

2,667 

194 

144 

187 

3,192 

 

10 

3 

73 

86 

 

0.4 

1.7 

50.8 

2.9 

Total

18,824 

1,332 

1,227 

2,093 

23,477 

 

28 

22 

228 

278 

 

0.2 

1.6 

18.6 

1.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

8,229 

245 

52 

795 

9,321 

 

7 

4 

14 

25 

 

0.1 

1.7 

26.4 

0.3 

>50% and ≤70%

4,769 

297 

78 

703 

5,847 

 

6 

6 

14 

26 

 

0.1 

2.0 

17.8 

0.5 

>70% and ≤80%

394 

43 

33 

6 

476 

 

1 

1 

8 

10 

 

0.3 

2.6 

23.4 

2.1 

>80% and ≤90%

55 

11 

24 

2 

92 

 

- 

- 

5 

5 

 

0.3 

3.4 

20.9 

6.1 

>90% and ≤100%

31 

7 

20 

1 

59 

 

- 

- 

7 

7 

 

0.6 

5.1 

34.9 

12.9 

>100% and ≤110%

53 

4 

15 

- 

72 

 

- 

- 

5 

5 

 

0.3 

4.2 

34.6 

7.6 

>110% and ≤130%

22 

3 

111 

4 

140 

 

- 

- 

22 

22 

 

0.4 

5.4 

19.4 

16.0 

>130% and ≤150%

6 

10 

10 

- 

26 

 

- 

1 

4 

5 

 

0.9 

6.3 

40.6 

18.1 

>150%

30 

6 

42 

- 

78 

 

- 

1 

29 

30 

 

0.5 

9.8 

69.6 

38.1 

Total with LTVs

13,589 

626 

385 

1,511 

16,111 

 

14 

13 

108 

135 

 

0.1 

2.1 

27.9 

0.9 

Total portfolio average LTV (%)

- 

1 

1 

- 

- 

 

n/a

n/a

n/a

n/a

 

n/a

n/a

n/a

n/a

Other (5)

2,655 

133 

784 

185 

3,757 

 

4 

5 

50 

59 

 

0.2 

4.0 

6.3 

1.7 

Development (6)

2,865 

205 

178 

174 

3,422 

 

11 

3 

80 

94 

 

0.4 

1.6 

44.8 

2.9 

Total

19,109 

964 

1,347 

1,870 

23,290 

 

29 

21 

238 

288 

 

0.2 

2.3 

17.6 

1.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)   Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as pert of the overall CRE portfolio.

(2)   The exposure in Stage 3 mainly related to legacy assets.

(3)   Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives.

(4)   ECL provisions coverage is ECL provisions divided by current exposure.

(5)   Relates mainly to business banking, rate risk management products and unsecured corporate lending. The low Stage 3 ECL provisions coverage was driven by a single large exposure, which has been written down to the expected recoverable amount.

(6)   Related to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.

 

Key points 

●

Overall - The majority of the CRE portfolio was managed in the UK within Commercial Banking and Private Banking. Business appetite and strategy remain aligned across the segments.

●

2019 trends - The portfolio remained broadly unchanged in size and composition, although activity in the commercial property market in H1 2019 has been slower than in previous years. While the office and industrial sub-sectors have remained relatively resilient to date, rents and values in the retail sub-sector and market liquidity have declined significantly. The risk of a disorderly exit from the EU persists. The mainstream residential CRE market remained resilient, supported by high employment and a competitive mortgage market. However, liquidity has been markedly reduced for higher value homes and values in London reduced slightly from recent highs. The build to rent market continues to grow, backed by very strong demand from institutional investors.

●

Credit quality - Despite the challenges in the sub-sector, the CRE retail portfolio had a low default rate, with a limited number of new defaults. The sub-sector was monitored on a regular basis and credit quality was in line with the wider CRE portfolio.

●

Risk appetite - Lending criteria for commercial real estate are considered conservative, with lower leverage required for new London office originations, in addition to parts of the retail sector.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report)

The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures in this section may therefore differ from those reported in other tables in the credit risk section, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL impact. Other points to note:

·   Financial assets presented in the flow statements include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included.

·   Stage transfers (for example, exposures moving from Stage 1 to Stage 2) are a key feature of ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly there is an ECL benefit for accounts improving stage.

·   Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down.

·   Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements.

·   Amounts written-off - represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity.

·   There were small ECL flows from Stage 3 to Stage 1. This does not however indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period.

·   The impact of model changes during H1 2019 was not material at a RBS Group-wide level or in the portfolios disclosed below.

·   Reporting enhancements since 31 December 2018 now mean all movements are captured monthly and aggregated. Previously, for example, the main Personal portfolios were prepared on a six month movement basis.

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Group total

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

422,541 

297 

 

27,360 

772 

 

7,796 

2,327 

 

457,697 

3,396 

Currency translation and other adjustments

227 

(2)

 

(2)

(2)

 

97 

- 

 

322 

(4)

Transfers from Stage 1 to Stage 2

(13,427)

(54)

 

13,427 

54 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

10,781 

167 

 

(10,781)

(167)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(216)

(3)

 

(1,663)

(136)

 

1,879 

139 

 

- 

- 

Transfers from Stage 3

241 

15 

 

727 

64 

 

(968)

(79)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(140)

 

 

279 

 

 

307 

 

 

446 

  Changes in risk parameters (model inputs)

 

(37)

 

 

(138)

 

 

172 

 

 

(3)

  Other changes in net exposure

(7,654)

37 

 

(2,257)

(40)

 

(892)

(32)

 

(10,803)

(35)

  Other (P&L only items)

 

- 

 

 

- 

 

 

(85)

 

 

(85)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(140)

 

 

101 

 

 

362 

 

 

323 

Amounts written-off

- 

- 

 

(4)

(4)

 

(448)

(448)

 

(452)

(452)

Other movements

 

- 

 

 

- 

 

 

(46)

 

 

(46)

At 30 June 2019

412,493 

280 

 

26,807 

682 

 

7,464 

2,340 

 

446,764 

3,302 

Net carrying amount

412,213 

 

 

26,125 

 

 

5,124 

 

 

443,462 

 
 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report) 

The following flow statements show the material portfolios underpinning the Group flow statements.

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

UK PB - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

127,671 

10 

 

10,241 

74 

 

1,216 

132 

 

139,128 

216 

Transfers from Stage 1 to Stage 2

(3,535)

(1)

 

3,535 

1 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

2,507 

8 

 

(2,507)

(8)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(8)

- 

 

(324)

(11)

 

332 

11 

 

- 

- 

Transfers from Stage 3

12 

1 

 

188 

15 

 

(200)

(16)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(8)

 

 

15 

 

 

9 

 

 

16 

  Changes in risk parameters (model inputs)

 

- 

 

 

(2)

 

 

32 

 

 

30 

  Other changes in net exposure

1,559 

(1)

 

(742)

(6)

 

(119)

(7)

 

698 

(14)

  Other (P&L only items)

 

- 

 

 

- 

 

 

(14)

 

 

(14)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(9)

 

 

7 

 

 

20 

 

 

18 

Amounts written-off

- 

- 

 

(1)

(1)

 

(11)

(11)

 

(12)

(12)

Other movements

 

- 

 

 

- 

 

 

(18)

 

 

(18)

At 30 June 2019

128,206 

9 

 

10,390 

77 

 

1,218 

132 

 

139,814 

218 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

128,197 

 

 

10,313 

 

 

1,086 

 

 

139,596 

 

 

Key points

●

ECL remained broadly stable across all stages.

●

ECL transfers from Stage 3 back to Stage 1 and Stage 2 were higher than those in unsecured lending, due to the higher cure activity typically seen in mortgages.

●

The increase in Stage 3 ECL changes in risk parameters reflected the monthly assessment of the loss requirement, capturing underlying portfolio movements.  

●

Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. Write-off would typically be within five years from default but can be longer.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report)

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

UK PB - credit cards

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

2,632 

36 

 

1,226 

118 

 

106 

71 

 

3,964 

225 

Transfers from Stage 1 to Stage 2

(617)

(11)

 

617 

11 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

522 

35 

 

(522)

(35)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(10)

- 

 

(65)

(21)

 

75 

21 

 

- 

- 

Transfers from Stage 3

- 

- 

 

5 

3 

 

(5)

(3)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(25)

 

 

73 

 

 

28 

 

- 

76 

  Changes in risk parameters (model inputs)

 

(10)

 

 

(51)

 

 

8 

 

- 

(53)

  Other changes in net exposure

23 

9 

 

(64)

- 

 

(15)

(1)

 

(56)

8 

  Other (P&L only items)

 

- 

 

 

- 

 

 

(5)

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(26)

 

 

22 

 

 

30 

 

 

26 

Amounts written off

- 

- 

 

- 

- 

 

(35)

(35)

 

(35)

(35)

Other movements

 

- 

 

 

- 

 

 

(3)

 

 

(3)

At 30 June 2019

2,550 

34 

 

1,197 

98 

 

126 

86 

 

3,873 

218 

Net carrying amount

2,516 

 

 

1,099 

 

 

40 

 

 

3,655 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key points

●

Overall ECL reduced slightly over the period. This was mainly due to lower Stage 2 ECL, reflecting a recalibration of the modelled loss rate to align to observed experience. The increase in Stage 3 exposures and ECL reflected the impact of business-as-usual default flows, which have been broadly stable in 2019.

●

The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. The level has reduced compared to prior years reflecting the debt sales executed in 2018.

●

Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.

 

UK PB - Other personal unsecured

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

5,073 

54 

 

1,970 

239 

 

495 

394 

 

7,538 

687 

Currency translation and other adjustments

217 

- 

 

10 

- 

 

6 

2 

 

233 

2 

Transfers from Stage 1 to Stage 2

(1,213)

(20)

 

1,213 

20 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

593 

40 

 

(593)

(40)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(6)

- 

 

(161)

(56)

 

167 

56 

 

- 

- 

Transfers from Stage 3

2 

- 

 

18 

5 

 

(20)

(5)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(31)

 

 

114 

 

 

48 

 

- 

131 

  Changes in risk parameters (model inputs)

 

2 

 

 

(23)

 

 

56 

 

- 

35 

  Other changes in net exposure

736 

11 

 

(296)

(17)

 

(18)

(4)

 

422 

(10)

  Other (P&L only items)

 

- 

 

 

- 

 

 

(19)

 

 

(19)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(18)

 

 

74 

 

 

81 

 

 

137 

Amounts written off

- 

- 

 

- 

- 

 

(43)

(43)

 

(43)

(43)

Other movements

 

- 

 

 

- 

 

 

(12)

 

 

(12)

At 30 June 2019

5,402 

56 

 

2,161 

242 

 

587 

492 

 

8,150 

790 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

5,346 

 

 

1,919 

 

 

95 

 

 

7,360 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key points

●

The overall increase in ECL was driven by Stage 3 exposures which included the effect of a loss rate model adjustment. Furthermore, the value of new defaults was higher than write-offs and customer debt repayments, and unlike in 2018, there were no debt sales in H1 2019.

●

There was a modest increase in the rate of default over the last six months from a low level addressed through the tightening of risk appetite.

●

Stage 1 and Stage 2 ECL remained broadly stable.

●

The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. The level has reduced compared to prior years reflecting the debt sales executed in 2018.

●

Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than six years after default.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report)

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Ulster Bank RoI - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

10,782 

11 

 

1,394 

75 

 

2,137 

516 

 

14,313 

602 

Currency translation and other adjustments

4 

(1)

 

(8)

(2)

 

(2)

(1)

 

(6)

(4)

Transfers from Stage 1 to Stage 2

(739)

(3)

 

739 

3 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

889 

14 

 

(889)

(14)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(35)

(2)

 

(236)

(25)

 

271 

27 

 

- 

- 

Transfers from Stage 3

8 

- 

 

121 

22 

 

(129)

(22)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(11)

 

 

1 

 

 

- 

 

 

(10)

  Changes in risk parameters (model inputs)

 

(4)

 

 

(40)

 

 

23 

 

 

(21)

  Other changes in net exposure

96 

1 

 

(64)

- 

 

(177)

(2)

 

(145)

(1)

  Other (P&L only items)

 

- 

 

 

- 

 

 

20 

 

 

20 

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(14)

 

 

(39)

 

 

41 

 

 

(12)

Amounts written off

- 

- 

 

(2)

(2)

 

(55)

(55)

 

(57)

(57)

Other movements

 

- 

 

 

- 

 

 

(7)

 

 

(7)

At 30 June 2019

11,005 

5 

 

1,055 

18 

 

2,045 

479 

 

14,105 

502 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

11,000 

 

 

1,037 

 

 

1,566 

 

 

13,603 

 

 

Key points

●

The overall ECL reduction reflected the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019 and ongoing improvements in underlying portfolio performance.

●

The transfers into Stage 3 were reflective of the implementation of an enhanced Stage 3 definition, with £230 million of exposures re-classified as Stage 3 assets under the new definition.

●

The reduction in Stage 2 ECL was driven by the implementation of the enhanced Stage 3 definition and the re-allocation of post-model adjustments to Stage 3 assets.

●

Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding which has been deemed irrecoverable. There is no set time period within which write-offs can occur.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report)

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial Banking - excluding business banking

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

81,485 

108 

 

9,393 

155 

 

2,358 

785 

 

93,236 

1,048 

Currency translation and other adjustments

86 

(3)

 

(10)

1 

 

94 

(3)

 

170 

(5)

Inter-Group transfers

(319)

- 

 

19 

- 

 

(1)

13 

 

(301)

13 

Transfers from Stage 1 to Stage 2

(5,804)

(10)

 

5,804 

10 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

4,801 

43 

 

(4,801)

(43)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(107)

- 

 

(716)

(11)

 

823 

11 

 

- 

- 

Transfers from Stage 3

189 

10 

 

363 

8 

 

(552)

(18)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(43)

 

 

41 

 

 

185 

 

 

183 

  Changes in risk parameters (model inputs)

 

(5)

 

 

(1)

 

 

22 

 

 

16 

  Other changes in net exposure

2,453 

6 

 

(982)

(7)

 

(403)

1 

 

1,068 

- 

  Other (P&L only items)

 

- 

 

 

- 

 

 

(15)

 

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(42)

 

 

33 

 

 

193 

 

 

184 

Amounts written off

- 

- 

 

- 

- 

 

(247)

(247)

 

(247)

(247)

Other movements

 

- 

 

 

- 

 

 

- 

 

 

- 

Unwinding of discount

 

- 

 

 

- 

 

 

(3)

 

 

(3)

At 30 June 2019

82,784 

106 

 

9,070 

153 

 

2,072 

746 

 

93,926 

1,005 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

82,678 

 

 

8,917 

 

 

1,326 

 

 

92,921 

 

 

 

 
                         

Key points

●

ECL decreased with write-offs exceeding the level of impairment charges on new into default cases.

●

Stage 1 and Stage 2 ECL remained largely unchanged during H1 2019. Changes to risk parameters in Stage 1 and Stage 2 largely reflected improvements in underlying credit risk metrics which were partially offset by regular updates to certain underlying models.

●

Growth in Stage 1 assets represented new business during the period. Stage 2 balances reduced as new transfers-in were offset by repayments and loans transferring to Stage 1. 

●

Stage 3 income statement charges increased during the period compared to 2018. This was due to a small number of individually significant impairment charges which also impacted the transfers to Stage 3 during the period.

 

 

Commercial - business banking

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

6,303 

22 

 

897 

43 

 

235 

153 

 

7,435 

218 

Currency translation and other adjustments

- 

- 

 

1 

- 

 

- 

- 

 

1 

- 

Transfers from Stage 1 to Stage 2

(483)

(3)

 

483 

3 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

353 

10 

 

(353)

(10)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(9)

- 

 

(70)

(10)

 

79 

10 

 

- 

- 

Transfers from Stage 3

4 

1 

 

13 

3 

 

(17)

(4)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(9)

 

 

25 

 

 

26 

 

 

42 

  Changes in risk parameters (model inputs)

 

(6)

 

 

(16)

 

 

28 

 

 

6 

  Other changes in net exposure

199 

2 

 

(130)

(4)

 

(33)

(5)

 

36 

(7)

  Other (P&L only items)

 

- 

 

 

- 

 

 

(21)

 

 

(21)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(13)

 

 

5 

 

 

28 

 

 

20 

Amounts written off

- 

- 

 

- 

- 

 

(29)

(29)

 

(29)

(29)

Other movements

 

- 

 

 

- 

 

 

(2)

 

 

(2)

At 30 June 2019

6,367 

17 

 

841 

34 

 

235 

177 

 

7,443 

228 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

6,350 

 

 

807 

 

 

58 

 

 

7,215 

 

Key points

●

The overall increase in ECL was driven by Stage 3 including the effect of a loss rate model adjustment. The reduction in Stage 1 and Stage 2 ECL was driven by calibrations to the ECL models.

●

The flow of new defaults in the period increased slightly compared to 2018. This increase reflected an uplift in default rates within the Business Banking portfolio (in particular for low value, unsecured lending, representing 14% of Business Banking stock), which has been addressed through a tightening of risk appetite.

●

The portfolio continues to benefit from cash recoveries post write-off, which are reported as other (P&L only items).    

●

Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than five years after default.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

NatWest Markets (1)

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

32,758 

7 

 

732 

14 

 

708 

112 

 

34,198 

133 

Currency translation and other adjustments

38 

1 

 

(2)

- 

 

- 

(1)

 

36 

- 

Inter-Group transfers

(57)

- 

 

8 

- 

 

1 

(13)

 

(48)

(13)

Transfers from Stage 1 to Stage 2

(190)

- 

 

190 

- 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

281 

2 

 

(281)

(2)

 

- 

- 

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(2)

 

 

1 

 

 

- 

 

 

(1)

  Changes in risk parameters (model inputs)

 

(2)

 

 

(1)

 

 

(6)

 

 

(9)

  Other changes in net exposure

1,204 

2 

 

(193)

(2)

 

1 

- 

 

1,012 

- 

  Other (P&L only items)

 

- 

 

 

- 

 

 

(26)

 

 

(26)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement releases

 

(2)

 

 

(2)

 

 

(32)

 

 

(36)

Amounts written-off

- 

- 

 

- 

- 

 

(11)

(11)

 

(11)

(11)

Other movements

 

- 

 

 

- 

 

 

- 

 

 

- 

At 30 June 2019

34,034 

8 

 

454 

10 

 

699 

81 

 

35,187 

99 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

34,026 

 

 

444 

 

 

618 

 

 

35,088 

 

Note:

(1)

Reflects NatWest Markets segment and includes NWM N.V..

 

Key points

●

Stage 3 financial assets included £193 million (31 December 2018 - £166 million) purchased or originated credit impaired (POCI) assets. No ECL impairment was held on these positions and a £27 million impairment recovery was recognised on these POCI assets during H1 (included in other (P&L only items).

●

Stage 1 and Stage 2 changes to risk parameters reflected an improvement in underlying credit risk metrics.

●

The increase in Stage 1 exposure was due to a combination of new transactions and increased short-term placements with governments and central banks following changes made for ring-fencing.

 

Private Banking

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

13,950 

14 

 

519 

10 

 

232 

19 

 

14,701 

43 

Currency translation and other adjustments

(3)

- 

 

- 

(1)

 

- 

1 

 

(3)

- 

Transfers from Stage 1 to Stage 2

(284)

(1)

 

284 

1 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

304 

4 

 

(304)

(4)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(25)

- 

 

(48)

- 

 

73 

- 

 

- 

- 

Transfers from Stage 3

7 

- 

 

1 

4 

 

(8)

(4)

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(3)

 

 

1 

 

 

- 

 

 

(2)

  Changes in risk parameters (model inputs)

 

(3)

 

 

(1)

 

 

6 

 

 

2 

  Other changes in net exposure

532 

1 

 

(33)

(1)

 

(86)

(3)

 

413 

(3)

  Other (P&L only items)

 

- 

 

 

- 

 

 

- 

 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

Income statement (releases)/charges

 

(5)

 

 

(1)

 

- 

3 

 

 

(3)

Amounts written off

 

- 

 

 

- 

 

(1)

(1)

 

(1)

(1)

Unwinding of discount

 

- 

 

 

- 

 

- 

- 

 

- 

- 

At 30 June 2019

14,481 

12 

 

419 

9 

 

210 

19 

 

15,110 

40 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

14,469 

 

 

410 

 

 

191 

 

 

15,070 

 

 

Key points

●

ECL reduced marginally due to an improvement in underlying Stage 1 and Stage 2 credit quality.

●

Stage 1 exposure increased during the period reflecting growth in mortgages with minimal ECL impact due to high credit quality. The reduction in Stage 2 exposure was a result of both repayment of debt and the transfer of assets to Stage 1.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Flow statements (Within the scope of EY's review report)

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

RBS International

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2019

26,749 

6 

 

276 

4 

 

95 

17 

 

27,120 

27 

Currency translation and other adjustments

(55)

- 

 

(1)

- 

 

1 

- 

 

(55)

- 

Inter-Group transfers

(598)

- 

 

(27)

(1)

 

- 

- 

 

(625)

(1)

Transfers from Stage 1 to Stage 2

(342)

(2)

 

342 

2 

 

- 

- 

 

- 

- 

Transfers from Stage 2 to Stage 1

276 

3 

 

(276)

(3)

 

- 

- 

 

- 

- 

Transfers to Stage 3

(10)

- 

 

(17)

- 

 

27 

- 

 

- 

- 

Transfers from Stage 3

8 

- 

 

6 

- 

 

(14)

- 

 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

  Net re-measurement of ECL on stage transfer

 

(3)

 

 

1 

 

 

- 

 

 

(2)

  Changes in risk parameters (model inputs)

 

(1)

 

 

- 

 

 

3 

 

 

2 

  Other changes in net exposure

1,424 

1 

 

132 

(1)

 

(14)

(2)

 

1,542 

(2)

  Other (P&L only items)

 

- 

 

 

- 

 

 

(1)

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

Income statement releases

 

(3)

 

 

- 

 

 

- 

 

 

(3)

Amounts written off

- 

- 

 

- 

- 

 

(2)

(2)

 

(2)

(2)

Other movements

 

- 

 

 

- 

 

 

- 

 

 

- 

At 30 June 2019

27,452 

4 

 

435 

2 

 

93 

16 

 

27,980 

22 

 

 

 

 

 

 

 

 

 

 

 

 

Net carrying amount

27,448 

 

 

433 

 

 

77 

 

 

27,958 

 

 

Key points

●

The level of ECL reduced in all stages during the period.

●

In Stage 1, the increase in exposure was partly due to new lending, but mainly due to the management of a liquidity portfolio across banks and sovereign bond holdings, with low credit risk and minimal ECL.

●

The increase in Stage 2 exposure was driven by a combination of flows from Stage 1 and balance increases on a small number of individual exposures in the Wholesale portfolio where credit quality deteriorated in the period. Increases in Stage 2 exposures were largely limited to specific sectors.

●

Stage 2 ECL reduced in the period because exposure transferring in carried lower ECL than exposure that transferred from Stage 2.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Stage 2 decomposition - arrears status and contributing factors

The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios.

 

 

UK mortgages

 

RoI mortgages

 

Other mortgages

 

Credit cards

 

Other

 

Total

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

30 June 2019

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

529 

12 

 

31 

2 

 

- 

- 

 

15 

5 

 

91 

19 

 

666 

38 

Currently up-to-date

9,973 

66 

 

1,016 

16 

 

1 

- 

 

1,195 

95 

 

2,080 

232 

 

14,265 

409 

 - PD deterioration

4,058 

54 

 

338 

11 

 

- 

- 

 

765 

73 

 

1,324 

182 

 

6,485 

320 

 - Up-to-date, PD persistence

1,365 

3 

 

40 

- 

 

- 

- 

 

327 

14 

 

465 

28 

 

2,197 

45 

 - Other driver (adverse credit, forbearance etc)

4,550 

9 

 

638 

5 

 

1 

- 

 

103 

8 

 

291 

22 

 

5,583 

44 

Total Stage 2

10,502 

78 

 

1,047 

18 

 

1 

- 

 

1,210 

100 

 

2,171 

251 

 

14,931 

447 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

658 

10 

 

90 

10 

 

3 

- 

 

17 

6 

 

88 

22 

 

856 

48 

Currently up-to-date

9,612 

64 

 

1,292 

66 

 

- 

- 

 

1,226 

114 

 

1,985 

225 

 

14,115 

469 

 - PD deterioration

3,855 

54 

 

680 

44 

 

- 

- 

 

778 

85 

 

1,255 

176 

 

6,568 

359 

 - Up-to-date, PD persistence

1,448 

5 

 

54 

1 

 

- 

- 

 

337 

17 

 

440 

26 

 

2,279 

49 

 - Other driver (adverse credit, forbearance etc)

4,309 

5 

 

558 

21 

 

- 

- 

 

111 

12 

 

290 

23 

 

5,268 

61 

Total Stage 2

10,270 

74 

 

1,382 

76 

 

3 

- 

 

1,243 

120 

 

2,073 

247 

 

14,971 

517 

 

Key points

●

ECL coverage remained higher for accounts that are more than 30 days past due. Also in line with expectations, accounts exhibiting PD deterioration have a higher ECL coverage than accounts in Stage 2 for other reasons.

●

The ECL reduction in the Ulster Bank RoI mortgages portfolio reflected the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in that business.

 

 

 

Property

 

Corporate

 

FI

 

Other

 

Total

30 June 2019

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

Wholesale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

182 

7 

 

316 

6 

 

1 

- 

 

- 

- 

 

499 

13 

Currently up-to-date

1,968 

34 

 

7,826 

179 

 

475 

9 

 

6 

- 

 

10,275 

222 

 - PD deterioration

865 

21 

 

4,712 

123 

 

384 

7 

 

4 

- 

 

5,965 

151 

 - Up-to-date, PD persistence

45 

1 

 

152 

3 

 

2 

- 

 

- 

- 

 

199 

4 

 - Other driver (forbearance, RoCL etc)

1,058 

12 

 

2,962 

53 

 

89 

2 

 

2 

- 

 

4,111 

67 

Total Stage 2

2,150 

41 

 

8,142 

185 

 

476 

9 

 

6 

- 

 

10,774 

235 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currently in arrears (>30 DPD)

255 

7 

 

315 

5 

 

1 

- 

 

- 

- 

 

571 

12 

Currently up-to-date

1,622 

32 

 

8,438 

195 

 

473 

7 

 

22 

- 

 

10,555 

234 

 - PD deterioration

924 

23 

 

5,564 

138 

 

281 

6 

 

8 

- 

 

6,777 

167 

 - Up-to-date, PD persistence

57 

1 

 

170 

5 

 

4 

- 

 

- 

- 

 

231 

6 

 - Other driver (forbearance, RoCL etc)

641 

8 

 

2,704 

52 

 

188 

1 

 

14 

- 

 

3,547 

61 

Total Stage 2

1,877 

39 

 

8,753 

200 

 

474 

7 

 

22 

- 

 

11,126 

246 

 

Key points 

●

The ECL coverage was broadly consistent in total. Coverage can, however, vary across categories or sectors reflecting the individual characteristics of the customer and exposure type.

●

The reduction in Stage 2 exposure was primarily due to improvements in PDs in the corporate portfolio. An increase in the RoCL portfolio, driven by a small number of large cases, increased the other driver category.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

 

 

UK mortgages

 

RoI mortgages

 

Other mortgages

 

Credit cards

 

Other

 

Total

30 June 2019

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Personal trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

4,458 

42.5 

 

362 

34.5 

 

- 

- 

 

780 

64.5 

 

1,379 

63.5 

 

6,979 

46.7 

PD persistence

1,366 

13.0 

 

40 

3.8 

 

- 

- 

 

328 

27.1 

 

467 

21.5 

 

2,201 

14.7 

Adverse credit bureau recorded with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  credit reference agency

3,124 

29.7 

 

- 

- 

 

- 

- 

 

58 

4.8 

 

96 

4.4 

 

3,278 

22.0 

Forbearance support provided

189 

1.8 

 

4 

0.4 

 

- 

- 

 

- 

- 

 

13 

0.6 

 

206 

1.4 

Customers in collections

147 

1.4 

 

96 

9.2 

 

- 

- 

 

3 

0.2 

 

34 

1.6 

 

280 

1.9 

Other reasons (2)

1,110 

10.6 

 

545 

52.1 

 

1 

100 

 

41 

3.4 

 

157 

7.2 

 

1,854 

12.4 

Days past due >30

108 

1.0 

 

- 

- 

 

- 

- 

 

- 

- 

 

25 

1.2 

 

133 

0.9 

 

10,502 

100 

 

1,047 

100 

 

1 

100 

 

1,210 

100 

 

2,171 

100 

 

14,931 

100 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

4,273 

41.6 

 

767 

55.6 

 

- 

- 

 

793 

63.8 

 

1,307 

63.0 

 

7,140 

47.7 

PD persistence

1,450 

14.1 

 

54 

3.9 

 

- 

- 

 

338 

27.2 

 

440 

21.2 

 

2,282 

15.2 

Adverse credit bureau recorded with 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  credit reference agency

2,996 

29.2 

 

- 

- 

 

- 

- 

 

61 

4.9 

 

101 

4.9 

 

3,158 

21.1 

Forbearance support provided

206 

2.0 

 

2 

0.1 

 

- 

- 

 

- 

- 

 

13 

0.6 

 

221 

1.5 

Customers in collections

144 

1.4 

 

57 

4.1 

 

- 

- 

 

5 

0.4 

 

36 

1.7 

 

242 

1.6 

Other reasons (2)

982 

9.6 

 

502 

36.3 

 

- 

- 

 

46 

3.7 

 

151 

7.3 

 

1,681 

11.2 

Days past due >30

219 

2.1 

 

- 

- 

 

3 

100 

 

- 

- 

 

25 

1.2 

 

247 

1.6 

 

10,270 

100 

 

1,382 

100 

 

3 

100 

 

1,243 

100 

 

2,073 

100 

 

14,971 

100 

 

Key point

●

PD remained the primary driver of credit deterioration, which including persistence, accounted for the majority of movements to Stage 2. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination particularly in mortgages.

 

 

Property

 

Corporate

 

FI

 

Other

 

Total

30 June 2019

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Wholesale trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

883 

40.9 

 

4,756 

58.3 

 

384 

80.7 

 

4 

66.7 

 

6,027 

55.9 

PD persistence

45 

2.1 

 

153 

1.9 

 

2 

0.4 

 

- 

- 

 

200 

1.9 

Risk of Credit Loss

767 

35.7 

 

2,162 

26.6 

 

66 

13.9 

 

- 

- 

 

2,995 

27.8 

Forbearance support provided

62 

2.9 

 

159 

2.0 

 

- 

- 

 

- 

- 

 

221 

2.1 

Customers in collections

10 

0.5 

 

44 

0.5 

 

- 

- 

 

- 

- 

 

54 

0.5 

Other reasons (3)

227 

10.6 

 

634 

7.8 

 

23 

4.8 

 

2 

33.3 

 

886 

8.2 

Days past due >30

156 

7.3 

 

234 

2.9 

 

1 

0.2 

 

- 

- 

 

391 

3.6 

 

2,150 

100 

 

8,142 

100 

 

476 

100 

 

6 

100 

 

10,774 

100 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

940 

50.1 

 

5,617 

64.2 

 

281 

59.3 

 

8 

36.4 

 

6,845 

61.5 

PD persistence

57 

3.0 

 

171 

2.0 

 

4 

0.8 

 

- 

- 

 

232 

2.1 

Risk of Credit Loss

321 

17.1 

 

1,964 

22.4 

 

103 

21.7 

 

- 

- 

 

2,388 

21.5 

Forbearance support provided

65 

3.5 

 

209 

2.4 

 

- 

- 

 

- 

- 

 

274 

2.5 

Customers in collections

9 

0.5 

 

43 

0.5 

 

- 

- 

 

- 

- 

 

52 

0.5 

Other reasons (3)

251 

13.4 

 

525 

6.0 

 

85 

17.9 

 

14 

63.6 

 

875 

7.9 

Days past due >30

234 

12.5 

 

224 

2.6 

 

1 

0.2 

 

- 

- 

 

460 

4.1 

 

1,877 

100 

 

8,753 

100 

 

474 

100 

 

22 

100 

 

11,126 

100 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)

The table is produced on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.

(2)

Includes customers that have accessed payday lending, interest only mortgages past end of term, a small number of mortgage customers on a highly flexible mortgage significantly behind outline repayment plan and customers breaching risk appetite thresholds for new business acquisition. In the RoI mortgage portfolio, this reflected customers who remained in probation following the conclusion of forbearance support, exposures breaching risk appetite thresholds for new business acquisition and exposures classified as non-performing exposures under European Banking Authority requirements.

(3)

Includes customers where a PD assessment cannot be undertaken due to missing PDs.

 

Key point

●

PD remained the primary driver of credit deterioration, which including persistence, accounted for 58% of Stage 2 exposure. The Risk of Credit Loss framework accounted for a further 28%, an increase from 22% at 31 December 2018, driven by a small number of large cases.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Stage 3 vintage analysis

The table below shows estimated vintage analysis of the material Stage 3 portfolios totalling 90% of the Stage 3 loans of £7.3 billion.

 

 

 

 

 

 

 

 

30 June 2019

31 December 2018

 

UK PB

Ulster Bank RoI

 

UK PB

Ulster Bank RoI

 

 

mortgages

mortgages

Wholesale

mortgages

mortgages

Wholesale

Stage 3 loans (£bn)

1.3 

2.0 

3.2 

1.2 

2.1 

3.4 

Vintage (time in default):

 

 

 

 

 

 

<1 year

28%

16%

30%

26%

7%

22%

1-3 years

22%

27%

13%

21%

12%

19%

3-5 years

12%

12%

8%

14%

14%

9%

5-10 years

32%

41%

49%

35%

63%

50%

>10 years

6%

4%

- 

4%

4%

- 

 

100%

100%

100%

100%

100%

100%

 

Key points

●

Mortgages - The proportion of the Stage 3 defaulted population which have been in default for over five years reflected RBS's support for customers in financial difficulty. When customers continue to engage constructively with RBS making regular payments, RBS continues to support them. RBS's provisioning approach can retain customers in Stage 3 for a life-time loss provisioning calculation even when their arrears status reverts to below 90 days past due.

●

Wholesale - The value of Stage 3 loans in default for 5-10 years mainly reflects customers in a protracted formal insolvency process or subject to litigation or a complaints process.

 

Asset quality (Within the scope of EY's review report)

The table below shows asset quality bands of gross loans and ECL by stage for the Personal portfolio.

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

 

Total

30 June 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

 

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

95,880 

3,640 

 

99,520 

 

5 

10 

 

15 

 

0.01 

0.27 

 

 

0.02 

AQ5-AQ8

44,773 

6,053 

 

50,826 

 

5 

46 

 

51 

 

0.01 

0.76 

 

 

0.10 

AQ9

44 

809 

 

853 

 

- 

22 

 

22 

 

- 

2.72 

 

 

2.58 

AQ10

 

 

1,316 

1,316 

 

 

 

148 

148 

 

 

 

11.25 

 

11.25 

 

140,697 

10,502 

1,316 

152,515 

 

10 

78 

148 

236 

 

0.01 

0.74 

11.25 

 

0.15 

RoI mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

5,356 

161 

 

5,517 

 

2 

1 

 

3 

 

0.04 

0.62 

 

 

0.05 

AQ5-AQ8

5,730 

598 

 

6,328 

 

4 

11 

 

15 

 

0.07 

1.84 

 

 

0.24 

AQ9

3 

288 

 

291 

 

- 

6 

 

6 

 

- 

2.08 

 

 

2.06 

AQ10 (1)

 

 

1,983 

1,983 

 

 

 

479 

479 

 

 

 

24.16 

 

24.16 

 

11,089 

1,047 

1,983 

14,119 

 

6 

18 

479 

503 

 

0.05 

1.72 

24.16 

 

3.56 

Other mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

698 

1 

 

699 

 

- 

- 

 

- 

 

- 

- 

 

 

- 

AQ5-AQ8

163 

- 

 

163 

 

- 

- 

 

- 

 

- 

- 

 

 

- 

AQ9

- 

- 

 

- 

 

- 

- 

 

- 

 

- 

- 

 

 

- 

AQ10

 

 

3 

3 

 

 

 

- 

- 

 

 

 

- 

 

- 

 

861 

1 

3 

865 

 

- 

- 

- 

- 

 

- 

- 

- 

 

- 

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

24 

- 

 

24 

 

- 

- 

 

- 

 

- 

- 

 

 

- 

AQ5-AQ8

2,803 

1,152 

 

3,955 

 

36 

85 

 

121 

 

1.28 

7.38 

 

 

3.06 

AQ9

4 

58 

 

62 

 

- 

15 

 

15 

 

- 

25.86 

 

 

24.19 

AQ10

 

 

140 

140 

 

 

 

88 

88 

 

 

 

62.86 

 

62.86 

 

2,831 

1,210 

140 

4,181 

 

36 

100 

88 

224 

 

1.27 

8.26 

62.86 

 

5.36 

Other personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

1,014 

56 

 

1,070 

 

4 

6 

 

10 

 

0.39 

10.71 

 

 

0.93 

AQ5-AQ8

6,046 

1,889 

 

7,935 

 

54 

185 

 

239 

 

0.89 

9.79 

 

 

3.01 

AQ9

84 

226 

 

310 

 

3 

60 

 

63 

 

3.57 

26.55 

 

 

20.32 

AQ10

 

 

628 

628 

 

 

 

512 

512 

 

 

 

81.53 

 

81.53 

 

7,144 

2,171 

628 

9,943 

 

61 

251 

512 

824 

 

0.85 

11.56 

81.53 

 

8.29 

Total personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

102,972 

3,858 

 

106,830 

 

11 

17 

 

28 

 

0.01 

0.44 

 

 

0.03 

AQ5-AQ8

59,515 

9,692 

 

69,207 

 

99 

327 

 

426 

 

0.17 

3.37 

 

 

0.62 

AQ9

135 

1,381 

 

1,516 

 

3 

103 

 

106 

 

2.22 

7.46 

 

 

6.99 

AQ10

 

 

4,070 

4,070 

 

 

 

1,227 

1,227 

 

 

 

30.15 

 

30.15 

 

162,622 

14,931 

4,070 

181,623 

 

113 

447 

1,227 

1,787 

 

0.07 

2.99 

30.15 

 

0.98 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 
 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Asset quality (Within the scope of EY's review report)

 

 

Gross loans

 

ECL Provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

31 December 2018

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

95,618 

3,621 

 

99,239 

 

6 

11 

 

17 

 

0.01 

0.30 

 

0.02 

AQ5-AQ8

42,771 

5,845 

 

48,616 

 

6 

46 

 

52 

 

0.01 

0.79 

 

0.11 

AQ9

32 

804 

 

836 

 

- 

17 

 

17 

 

- 

2.11 

 

2.03 

AQ10

 

 

1,541 

1,541 

 

 

- 

151 

151 

 

 

- 

9.80 

9.80 

 

138,421 

10,270 

1,541 

150,232 

 

12 

74 

151 

237 

 

0.01 

0.72 

9.80 

0.16 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RoI mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

5,164 

226 

 

5,390 

 

4 

5 

 

9 

 

0.08 

2.21 

 

0.17 

AQ5-AQ8

5,668 

717 

 

6,385 

 

7 

32 

 

39 

 

0.12 

4.46 

 

0.61 

AQ9

12 

439 

 

451 

 

- 

39 

 

39 

 

- 

8.88 

 

8.65 

AQ10 (1)

 

 

2,124 

2,124 

 

 

 

515 

515 

 

 

 

24.25 

24.25 

 

10,844 

1,382 

2,124 

14,350 

 

11 

76 

515 

602 

 

0.10 

5.50 

24.25 

4.20 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

359 

1 

 

360 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ5-AQ8

136 

2 

 

138 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ10

 

 

1 

1 

 

 

 

- 

 

 

 

 

- 

- 

 

495 

3 

1 

499 

 

- 

- 

- 

- 

 

- 

- 

- 

- 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

34 

1 

 

35 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ5-AQ8

2,810 

1,180 

 

3,990 

 

38 

103 

 

141 

 

1.35 

8.73 

 

3.53 

AQ9

7 

62 

 

69 

 

- 

17 

 

17 

 

- 

27.42 

 

24.64 

AQ10

 

 

122 

122 

 

 

 

72 

72 

 

 

 

59.02 

59.02 

 

2,851 

1,243 

122 

4,216 

 

38 

120 

72 

230 

 

1.33 

9.65 

59.02 

5.46 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

997 

43 

 

1,040 

 

4 

5 

 

9 

 

0.40 

11.63 

 

0.87 

AQ5-AQ8

5,889 

1,847 

 

7,736 

 

55 

186 

 

241 

 

0.93 

10.07 

 

3.12 

AQ9

56 

183 

 

239 

 

2 

56 

 

58 

 

3.57 

30.60 

 

24.27 

AQ10

 

 

563 

563 

 

 

 

420 

420 

 

 

 

74.60 

74.60 

 

6,942 

2,073 

563 

9,578 

 

61 

247 

420 

728 

 

0.88 

11.92 

74.60 

7.60 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

102,172 

3,892 

 

106,064 

 

14 

21 

 

35 

 

0.01 

0.54 

 

0.03 

AQ5-AQ8

57,274 

9,591 

 

66,865 

 

106 

367 

 

473 

 

0.19 

3.83 

 

0.71 

AQ9

107 

1,488 

 

1,595 

 

2 

129 

 

131 

 

1.87 

8.67 

 

8.21 

AQ10

 

 

4,351 

4,351 

 

 

 

1,158 

1,158 

 

 

 

26.61 

26.61 

 

159,553 

14,971 

4,351 

178,875 

 

122 

517 

1,158 

1,797 

 

0.08 

3.45 

26.61 

1.00 

 

Note:

(1)    AQ10 includes £0.7 billion (31 December 2018 - £0.6 billion) RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3.

 

Key points

●

Overall credit quality remained broadly stable with some movements at product level. Mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing.

●

The relatively high level of Stage 3 impaired assets (AQ10) in RoI mortgages reflected their legacy mortgage portfolio and the residual effects from the financial crisis. For UK mortgages, the reduction in value of Stage 3 exposures included the effect of a methodology change.

●

In other personal, the relatively high level of exposures in AQ10 reflected the fact that impaired assets can be held on balance sheet with commensurate ECL provision for up to six years after default. The increase in ECL included the effect of a loss rate model adjustment. Furthermore, the value of new defaults was higher than write-offs and customer debt repayments, and unlike in 2018, there were no debt sales in H1 2019.

●

ECL provisions coverage shows the expected pattern with higher coverage in the poorer asset quality bands, and also by stage.

●

In Ulster Bank RoI mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in that business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Asset quality (Within the scope of EY's review report)

The table below shows asset quality bands of gross loans and ECL by stage for the Wholesale portfolio.

 

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

 

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

15,375 

365 

 

15,740 

 

7 

8 

 

15 

 

0.05 

2.19 

 

0.10 

AQ5-AQ8

 

17,838 

1,710 

 

19,548 

 

37 

27 

 

64 

 

0.21 

1.58 

 

0.33 

AQ9

 

39 

75 

 

114 

 

- 

6 

 

6 

 

- 

8.00 

 

5.26 

AQ10

 

 

 

1,516 

1,516 

 

 

 

339 

339 

 

 

 

22.36 

22.36 

 

 

33,252 

2,150 

1,516 

36,918 

 

44 

41 

339 

424 

 

0.13 

1.91 

22.36 

1.15 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

22,324 

837 

 

23,161 

 

11 

15 

 

26 

 

0.05 

1.79 

 

0.11 

AQ5-AQ8

 

39,298 

6,932 

 

46,230 

 

91 

156 

 

247 

 

0.23 

2.25 

 

0.53 

AQ9

 

232 

373 

 

605 

 

1 

14 

 

15 

 

0.43 

3.75 

 

2.48 

AQ10

 

 

 

1,712 

1,712 

 

 

 

762 

762 

 

 

 

44.51 

44.51 

 

 

61,854 

8,142 

1,712 

71,708 

 

103 

185 

762 

1,050 

 

0.17 

2.27 

44.51 

1.46 

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

25,527 

265 

 

25,792 

 

5 

7 

 

12 

 

0.02 

2.64 

 

0.05 

AQ5-AQ8

 

1,010 

209 

 

1,219 

 

6 

1 

 

7 

 

0.59 

0.48 

 

0.57 

AQ9

 

- 

2 

 

2 

 

- 

1 

 

1 

 

- 

50.00 

 

50.00 

AQ10

 

 

 

22 

22 

 

 

 

12 

12 

 

 

 

54.55 

54.55 

 

 

26,537 

476 

22 

27,035 

 

11 

9 

12 

32 

 

0.04 

1.89 

54.55 

0.12 

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

7,570 

4 

 

7,574 

 

9 

- 

 

9 

 

0.12 

- 

 

0.12 

AQ5-AQ8

 

148 

2 

 

150 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ9

 

1 

- 

 

1 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ10

 

 

 

5 

5 

 

 

 

- 

- 

 

 

 

- 

- 

 

 

7,719 

6 

5 

7,730 

 

9 

- 

- 

9 

 

0.12 

- 

- 

0.12 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

70,796 

1,471 

 

72,267 

 

32 

30 

 

62 

 

0.05 

2.04 

 

0.09 

AQ5-AQ8

 

58,294 

8,853 

 

67,147 

 

134 

184 

 

318 

 

0.23 

2.08 

 

0.47 

AQ9

 

272 

450 

 

722 

 

1 

21 

 

22 

 

0.37 

4.67 

 

3.05 

AQ10

 

 

 

3,255 

3,255 

 

 

 

1,113 

1,113 

 

 

 

34.19 

34.19 

 

 

129,362 

10,774 

3,255 

143,391 

 

167 

235 

1,113 

1,515 

 

0.13 

2.18 

34.19 

1.06 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

15,740 

393 

 

16,133 

 

8 

9 

 

17 

 

0.05 

2.29 

 

0.11 

AQ5-AQ8

 

17,397 

1,418 

 

18,815 

 

35 

26 

 

61 

 

0.20 

1.83 

 

0.32 

AQ9

 

8 

66 

 

74 

 

- 

4 

 

4 

 

- 

6.06 

 

5.41 

AQ10

 

 

 

1,685 

1,685 

 

 

 

506 

506 

 

 

 

30.03 

30.03 

 

 

33,145 

1,877 

1,685 

36,707 

 

43 

39 

506 

588 

 

0.13 

2.08 

30.03 

1.60 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

21,814 

773 

 

22,587 

 

13 

14 

 

27 

 

0.06 

1.81 

 

0.12 

AQ5-AQ8

 

40,004 

7,647 

 

47,651 

 

93 

171 

 

264 

 

0.23 

2.24 

 

0.55 

AQ9

 

26 

333 

 

359 

 

1 

15 

 

16 

 

3.85 

4.50 

 

4.46 

AQ10

 

 

 

1,643 

1,643 

 

 

 

634 

634 

 

 

 

38.59 

38.59 

 

 

61,844 

8,753 

1,643 

72,240 

 

107 

200 

634 

941 

 

0.17 

2.28 

38.59 

1.30 

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

22,150 

247 

 

22,397 

 

5 

5 

 

10 

 

0.02 

2.02 

 

0.04 

AQ5-AQ8

 

2,352 

222 

 

2,574 

 

7 

2 

 

9 

 

0.30 

0.90 

 

0.35 

AQ9

 

- 

5 

 

5 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ10

 

 

 

35 

35 

 

 

 

22 

22 

 

 

 

62.86 

62.86 

 

 

24,502 

474 

35 

25,011 

 

12 

7 

22 

41 

 

0.05 

1.48 

62.86 

0.16 

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

6,780 

22 

 

6,802 

 

1 

- 

 

1 

 

0.01 

- 

 

0.01 

AQ5-AQ8

 

161 

- 

 

161 

 

- 

- 

 

- 

 

- 

- 

 

- 

AQ10

 

 

 

4 

4 

 

 

 

- 

- 

 

 

 

- 

- 

 

 

6,941 

22 

4 

6,967 

 

1 

- 

- 

1 

 

0.01 

- 

- 

0.01 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

66,484 

1,435 

 

67,919 

 

27 

28 

 

55 

 

0.04 

1.95 

 

0.08 

AQ5-AQ8

 

59,914 

9,287 

 

69,201 

 

135 

199 

 

334 

 

0.23 

2.14 

 

0.48 

AQ9

 

34 

404 

 

438 

 

1 

19 

 

20 

 

2.94 

4.70 

 

4.57 

AQ10

 

 

 

3,367 

3,367 

 

 

 

1,162 

1,162 

 

 

 

34.51 

34.51 

 

 

126,432 

11,126 

3,367 

140,925 

 

163 

246 

1,162 

1,571 

 

0.13 

2.21 

34.51 

1.11 

Key points

●

Across the Wholesale portfolio, the asset quality band distribution differed reflecting the diverse nature of differing sectors, but remained broadly unchanged during the first half of 2019.

●

The reduction in Stage 3 provision coverage in property was driven by the write-off of defaulted debt that carried a higher than average level of impairment compared to the rest of the portfolio. The lower coverage level in this sector reflected the secured nature of the exposure.
 

 

Appendix 1 Capital and risk management

Credit risk - Trading activities

This section covers the credit risk profile of RBS's trading activities.

 

Securities funding transactions and collateral (Within the scope of EY's review report)

The table below shows securities funding transactions in NWM and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.

 

 

Reverse repos

 

Repos

 

 

 

Outside

 

 

 

Outside

 

 

Of which

netting

 

 

Of which

netting

 

Total

can be offset

arrangements

 

Total

can be offset

arrangements

30 June 2019

£m

£m

£m

 

£m

£m

£m

Gross

80,146 

75,389 

4,757 

 

85,931 

83,534 

2,397 

IFRS offset

(49,125)

(49,125)

- 

 

(49,125)

(49,125)

- 

Carrying value

31,021 

26,264 

4,757 

 

36,806 

34,409 

2,397 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Master netting arrangements

(1,191)

(1,191)

- 

 

(1,191)

(1,191)

- 

Securities collateral

(24,808)

(24,808)

- 

 

(33,078)

(33,078)

- 

Potential for offset not recognised under IFRS

(25,999)

(25,999)

- 

 

(34,269)

(34,269)

- 

Net

5,022 

265 

4,757 

 

2,537 

140 

2,397 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

Gross

68,044 

65,057 

2,987 

 

70,097 

68,940 

1,157 

IFRS offset

(39,737)

(39,737)

- 

 

(39,737)

(39,737)

- 

Carrying value

28,307 

25,320 

2,987 

 

30,360 

29,203 

1,157 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Master netting arrangements

(762)

(762)

- 

 

(762)

(762)

- 

Securities collateral

(24,548)

(24,548)

- 

 

(28,441)

(28,441)

- 

Potential for offset not recognised under IFRS

(25,310)

(25,310)

- 

 

(29,203)

(29,203)

- 

Net

2,997 

10 

2,987 

 

1,157 

- 

1,157 
 

 

Appendix 1 Capital and risk management

Credit risk - Trading activities continued

Derivatives (Within the scope of EY's review report)

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 9. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table below also includes hedging derivatives in Treasury.

 

 

30 June 2019

 

31 December 2018

Notional

 

 

 

 

 

 

GBP

USD

Euro

Other

Total

Assets

Liabilities

Notional

Assets

Liabilities

£bn

£bn

£bn

£bn

£bn

£m

£m

£bn

£m

£m

Gross exposure

 

 

 

 

 

153,424 

151,725 

 

 

138,390 

135,673 

IFRS offset

 

 

 

 

 

(7,830)

(10,028)

 

 

(5,041)

(6,776)

Carrying value

3,014 

6,317 

5,214 

1,942 

16,487 

145,594 

141,697 

 

13,979 

133,349 

128,897 

Of which:

 

 

 

 

 

 

 

 

 

 

 

Interest rate (1)

 

 

 

 

 

 

 

 

 

 

 

  Interest rate swaps

 

 

 

 

 

91,365 

88,255 

 

 

81,855 

74,004 

  Options purchased

 

 

 

 

 

18,124 

- 

 

 

14,481 

- 

  Options written

 

 

 

 

 

- 

15,847 

 

 

- 

16,371 

  Futures and forwards

 

 

 

 

 

68 

73 

 

 

74 

69 

Total

2,627 

4,550 

4,603 

872 

12,652 

109,557 

104,175 

 

10,536 

96,410 

90,444 

Exchange rate

 

 

 

 

 

 

 

 

 

 

 

  Spot, forwards and futures

 

 

 

 

 

19,350 

20,177 

 

 

17,904 

18,610 

  Currency swaps

 

 

 

 

 

10,079 

10,453 

 

 

11,322 

12,062 

  Options purchased

 

 

 

 

 

6,329 

- 

 

 

7,319 

- 

  Options written

 

 

 

 

 

- 

6,617 

 

 

- 

7,558 

Total

386 

1,760 

600 

1,070 

3,816 

35,758 

37,247 

 

3,426 

36,545 

38,230 

Credit

1 

6 

11 

- 

18 

266 

254 

 

16 

346 

208 

Equity and commodity

- 

1 

- 

- 

1 

13 

21 

 

1 

48 

15 

Carrying value

 

 

 

 

16,487 

145,594 

141,697 

 

13,979 

133,349 

128,897 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty mark-to-market netting

 

 

 

 

 

(116,595)

(116,595)

 

 

(106,762)

(106,762)

Cash collateral

 

 

 

 

 

(19,927)

(17,592)

 

 

(17,937)

(15,227)

Securities collateral

 

 

 

 

 

(3,997)

(3,364)

 

 

(4,469)

(3,466)

Net exposure

 

 

 

 

 

5,075 

4,146 

 

 

4,181 

3,442 

Of which outside netting arrangements

 

 

 

 

1,891 

3,874 

 

 

2,061 

1,708 

 

 

 

 

 

 

 

 

 

 

 

 

Banks (2)

 

 

 

 

 

258 

903 

 

 

362 

443 

Other financial institutions (3)

 

 

 

 

 

1,472 

1,311 

 

 

1,054 

1,144 

Corporate (4)

 

 

 

 

 

2,994 

1,832 

 

 

2,510 

1,817 

Government (5)

 

 

 

 

 

351 

100 

 

 

255 

38 

Net exposure

 

 

 

 

 

5,075 

4,146 

 

 

4,181 

3,442 

 

 

 

 

 

 

 

 

 

 

 

 

UK

 

 

 

 

 

2,635 

1,332 

 

 

1,935 

1,304 

Europe

 

 

 

 

 

1,280 

2,460 

 

 

1,308 

1,465 

US

 

 

 

 

 

844 

80 

 

 

588 

298 

RoW

 

 

 

 

 

316 

274 

 

 

350 

375 

Net exposure

 

 

 

 

 

5,075 

4,146 

 

 

4,181 

3,442 

 

Notes:

(1)  The notional amount of interest rate derivatives includes £7,843 billion (31 December 2018 - £5,952 billion) in respect of contracts cleared through central clearing counterparties.

(2)  Transactions with certain counterparties with whom RBS has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions for example China where the collateral agreements are not deemed to be legally enforceable.

(3)  Transactions with securitisation vehicles and funds where collateral posting is contingent on RBS's external rating.

(4)  Mainly large corporates with whom RBS may have netting arrangements in place, but operational capability does not support collateral posting.

(5)  Sovereigns and supranational entities with one-way collateral agreements in their favour.

 

 

Appendix 1 Capital and risk management

Credit risk - Trading Activities continued

Debt securities (Within the scope of EY's review report)

The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets.

 

 

Central and local government

Financial

 

 

 

UK

US

Other

institutions

Corporate

Total

30 June 2019

£m

£m

£m

£m

£m

£m

AAA

- 

- 

3,198 

1,928 

4 

5,130 

AA to AA+

5,365 

6,093 

3,686 

811 

95 

16,050 

A to AA-

- 

- 

4,508 

628 

46 

5,182 

BBB- to A-

- 

- 

4,861 

818 

467 

6,146 

Non-investment grade

- 

- 

88 

517 

294 

899 

Unrated

- 

- 

- 

505 

121 

626 

Total

5,365 

6,093 

16,341 

5,207 

1,027 

34,033 

 

 

 

 

 

 

 

Short positions

(5,589)

(1,773)

(15,811)

(1,652)

(189)

(25,014)

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

- 

- 

2,093 

1,459 

7 

3,559 

AA to AA+

6,834 

4,689 

3,161 

773 

120 

15,577 

A to AA-

- 

- 

4,571 

482 

51 

5,104 

BBB- to A-

- 

- 

3,592 

802 

285 

4,679 

Non-investment grade

- 

- 

81 

832 

237 

1,150 

Unrated

- 

- 

- 

572 

8 

580 

Total

6,834 

4,689 

13,498 

4,920 

708 

30,649 

 

 

 

 

 

 

 

Short positions

(6,394)

(2,008)

(13,500)

(1,724)

(201)

(23,827)

 

 

 

 

 

 

 

 

 

Credit risk - Cross border exposure

Cross border exposures comprise both banking and trading activities, including reverse repurchase agreements. Exposures comprise loans, including finance leases and instalment credit receivables, and other monetary assets, such as debt securities. The geographical breakdown is based on the country of domicile of the borrower or guarantor of ultimate risk. Cross border exposures include non-local currency claims of overseas offices on local residents but exclude exposures to local residents in local currencies. The table below shows cross border exposures greater than 0.05% of RBS's total assets.

 

 

Government

Banks

Other

Total

 Short positions

Net of short positions

30 June 2019

£m

£m

£m

£m

£m

£m

Western Europe

22,879 

10,801 

21,062 

54,742 

16,480 

38,262 

  Of which: France

3,892 

2,363 

2,471 

8,726 

3,982 

4,744 

  Of which: Germany

7,535 

3,790 

1,401 

12,726 

3,892 

8,834 

  Of which: Netherlands

1,858 

663 

5,157 

7,678 

1,454 

6,224 

  Of which: Italy

2,965 

720 

1,759 

5,444 

2,405 

3,039 

  Of which: Spain

1,587 

522 

1,917 

4,026 

1,947 

2,079 

United States

14,093 

5,657 

8,582 

28,332 

1,868 

26,464 

Japan

4,611 

3,512 

431 

8,554 

13 

8,541 

Jersey

- 

- 

3,858 

3,858 

1 

3,857 

31 December 2018

 

 

 

 

 

 

Western Europe

21,121 

19,003 

16,741 

56,865 

14,103 

42,762 

  Of which: France

3,396 

10,209 

1,579 

15,184 

1,626 

13,558 

  Of which: Germany

8,023 

3,086 

1,145 

12,254 

5,397 

6,857 

  Of which: Netherlands

1,142 

675 

3,739 

5,556 

985 

4,571 

  Of which: Italy

2,179 

248 

584 

3,011 

1,796 

1,215 

  Of which: Spain

891 

450 

1,848 

3,189 

1,164 

2,025 

United States

13,558 

5,458 

8,379 

27,395 

2,103 

25,292 

Japan

4,857 

2,327 

405 

7,589 

11 

7,578 

Jersey

- 

5 

3,064 

3,069 

2 

3,067 

 

Appendix 1 Capital and risk management

Non-traded market risk

Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.

 

Key developments

 

●

Non-traded market risk is now managed separately on both sides of the ring-fence. However, it continues to be aggregated and monitored against risk appetite at RBS level.

●

Five- and ten-year sterling interest-rate swap rates fell by 0.35%-0.40% in H1 2019. The structural hedge provides some protection against volatility in interest rates and the yield remained stable, falling by only 0.02% in H1 2019 from 1.23% to 1.21%.

 

 

●

Following the Alawwal bank merger, RBS holds a minority equity holding in SABB. This investment in the newly-merged entity is held in NWM Plc. The investment is held at fair value. Changes in value are recognised in reserves. This exposure is now captured in the VaR table below.

●

By 30 June 2019, the disposal of the lender-option/borrower-option loan portfolio was materially complete, reducing RBS's exposure to changes in the credit spread compared to the 2018 year-end.  

 

Value-at-risk (Within the scope of EY's review report)

The following table shows one-day internal banking book VaR at a 99% confidence level, split by risk type.

 

 

Half year ended

 

30 June 2019

 

30 June 2018

 

31 December 2018

 

 

 

 

Period

 

 

 

 

Period

 

 

 

 

Period

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

£m

Interest rate

11.9 

14.0 

9.3 

9.9 

 

19.4 

28.2 

8.9 

19.2 

 

9.3 

11.6 

7.3 

11.6 

Euro

1.2 

1.8 

0.7 

1.8 

 

2.7 

3.9 

1.3 

2.9 

 

1.4 

2.4 

1.0 

1.0 

Sterling

11.5 

14.1 

9.5 

9.9 

 

18.7 

26.0 

11.2 

19.9 

 

10.3 

13.7 

7.9 

13.3 

US dollar

4.7 

6.0 

3.8 

3.8 

 

5.6 

6.8 

1.5 

1.5 

 

3.7 

8.7 

1.4 

8.7 

Other

0.3 

0.4 

0.2 

0.4 

 

0.4 

0.7 

0.3 

0.3 

 

0.5 

0.7 

0.3 

0.7 

Credit spread

54.9 

58.0 

49.2 

56.6 

 

56.9 

60.8 

49.4 

49.4 

 

62.4 

77.8 

53.9 

77.8 

Foreign exchange

20.0 

23.8 

7.2 

7.2 

 

12.8 

32.7 

5.9 

16.6 

 

14.0 

16.4 

12.2 

13.0 

Equity

38.6 

38.6 

38.6 

38.6 

 

- 

- 

- 

- 

 

- 

- 

- 

- 

Pipeline risk

0.3 

0.5 

0.2 

0.3 

 

0.6 

1.3 

0.3 

0.4 

 

0.6 

0.8 

0.4 

0.4 

Diversification (1)

(70.5)

 

 

(50.7)

 

(29.3)

 

 

(22.6)

 

(20.6)

 

 

(20.5)

Total

55.2 

61.9 

48.1 

61.9 

 

60.4 

69.8 

54.9 

63.0 

 

65.7 

82.3 

61.4 

82.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:

(1)

RBS benefits from diversification 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 point

●

The increase in total VaR at the end of June 2019 compared to the average, reflected the equity exposure to SABB following the Alawwal bank merger in June 2019. The inclusion of this exposure outweighed the decrease in the foreign exchange VaR at 30 June 2019 resulting from lower sensitivity to the Saudi Riyal exchange rate following the merger.

 

 

Appendix 1 Capital and risk management

Non-traded market risk continued

Structural hedging

RBS has the benefit of a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed-rate assets (such as fixed-rate mortgages or UK government gilts) or by using interest rate swaps, which are generally booked as cash flow hedges or floating rate assets, in order to provide a consistent and predictable revenue stream.

 

After hedging the net interest rate exposure of the bank externally, RBS allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution to products and interest rate returns. The programme aims to track a time series of medium-term swap rates, but the yield will be affected by changes in product volumes and RBS's capital composition.

 

The table below shows the incremental income allocation (above three-month LIBOR), total income allocation (including three-month LIBOR), the period end and average notional balances and the total yield (including three-month LIBOR) associated with the structural hedges managed by RBS.

 

Half year ended

 

30  June 2019

 

30 June 2018

 

31 December 2018

 

Incremental

Total

Spot

Average

Overall

 

Incremental

Total

Spot

Average

Overall

 

Incremental

Total

Spot

Average

Overall

 

income

income

notional

notional

yield

 

income

income

notional

notional

yield

 

income

income

notional

notional

yield

 

£m

£m

£bn

£bn

%

 

£m

£m

£bn

£bn

%

 

£m

£m

£bn

£bn

%

Equity

 197 

 332 

 29 

 29 

 2.31 

 

 257 

 335 

 29 

 28 

 2.40 

 

 212 

 338 

 29 

 30 

 2.28 

Product (1)

 82 

 558 

 111 

 111 

 1.01 

 

 225 

 545 

 108 

 108 

 1.01 

 

 143 

 558 

 110 

 109 

 1.03 

Other

 27 

 84 

 21 

 21 

 0.79 

 

 50 

 80 

 21 

 21 

 0.75 

 

 39 

 86 

 22 

 22 

 0.78 

Total

 306 

 974 

 161 

 161 

 1.21 

 

 532 

 960 

 158 

 157 

 1.22 

 

 394 

 982 

 161 

 161 

 1.23 

 

Note:

(1)

Refer to the next table for a segmental split.

 

 

Key points

●

The five year sterling swap rate fell to 0.83% at the end of June 2019 from 1.22% at December 2018. The ten-year sterling swap rate also fell to 0.97% from 1.35%. However, the yield of the structural hedge was relatively stable. At 1.21% the overall yield was also higher than market swap rates at 30 June 2019.

●

Incremental income in excess of three-month LIBOR fell in H1 2019 compared to H2 2018. This was primarily due to higher three-month LIBOR fixings, resulting in less income benefit from the hedge.

 

Equity structural hedges refer to income attributed to the hedging of equity and reserves, primarily in NatWest Markets Plc and NatWest Holdings. Product structural hedges refer to income allocated to customer products, for example current accounts, in NatWest Holdings. Other structural hedges refer to hedges managed by the subsidiaries. Approximately 37% of other structural hedges are euro-denominated.

 

The following table presents the incremental income associated with product structural hedges at segment level.

 

 

 

 

 

Half year ended

30 June 2019

30 June 2018*

31 December 2018*

£m 

£m

£m 

UK Personal Banking

 38 

 101 

 65 

Commercial and Business Banking

 44 

 122 

 78 

Other

 - 

 2 

 - 

Total

 82 

 225 

 143 

Note:

(1)

For further detail on incremental income related to product structural hedges refer to the table below.

 

*Restated. Refer to Note 1 of the main announcement for further details.

 

 

Appendix 1 Capital and risk management

Non-traded market risk continued

Sensitivity of net interest earnings

Net interest earnings are sensitive to changes in the level of interest rates because changes to coupons on some customer products do not always match changes in market rates of interest or central bank policy rates.

 

The sensitivity of the net interest income table shows the expected impact, over 12 months, to an immediate upward or downward change of 25 and 100 basis points to all interest rates. Yield curves are expected to move in parallel, though interest rates are assumed to floor at zero per cent or, for euro rates, at the current negative rate.

 

The methodology, assumptions and limitations relating to the following two earnings sensitivity tables did not change materially in H1 2019. For further details, refer to pages 154-155 of the 2018 Annual Report and Accounts.

 

 

 

 

 

 

 

 

 

 

 

Parallel shifts in yield curve

 

+25 basis points

-25 basis points

+100 basis points

-100 basis points

30 June 2019

£m

£m

£m

£m

Euro

23 

5 

88 

9 

Sterling

201 

(142)

707 

(706)

US dollar

15 

(9)

51 

(52)

Other

(2)

2 

(9)

15 

Total

237 

(144)

837 

(734)

 

 

 

 

 

30 June 2018

 

 

 

 

Euro

6 

4 

26 

4 

Sterling

156 

(173)

673 

(674)

US dollar

9 

(6)

43 

(29)

Other

4 

(3)

16 

(7)

Total

175 

(178)

758 

(706)

 

 

 

 

 

31 December 2018

 

 

 

 

Euro

29 

(3)

114 

(1)

Sterling

152 

(201)

651 

(717)

US dollar

15 

(8)

63 

(42)

Other

1 

2 

2 

3 

Total

197 

(210)

830 

(757)

 

 

 

 

 

Refer to the key points under the next table for analysis.
 

 

Appendix 1 Capital and risk management

Non-traded market risk continued

The table below shows the net interest earnings sensitivity on a one-year, two-year and three-year forward-looking basis to a parallel upward or downward shift in interest rates of 25 basis points. The projection is a simplified sensitivity in which the balance sheet is assumed to be constant, with no change in customer behaviour or margin management strategy as a result of rate changes. The impact of the rate shock on structural hedges increases as maturing hedges are replaced at higher or lower rates through the three-year period.

 

 

 

 

 

 

 

 

 

 

+25 basis points parallel upward shift

 

-25 basis points parallel downward shift

 

Year 1

Year 2 (1)

Year 3 (1)

 

Year 1

Year 2 (1)

Year 3 (1)

30 June 2019

£m

£m

£m

 

£m

£m

£m

Structural hedges

32 

99 

171 

 

(30)

(97)

(168)

Managed margin (2)

213 

241 

243 

 

(129)

(104)

(108)

Other

(8)

- 

- 

 

15 

- 

- 

Total

237 

340 

414 

 

(144)

(201)

(276)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

Structural hedges

32 

98 

170 

 

(32)

(98)

(167)

Managed margin (2)

150 

171 

170 

 

(177)

(189)

(163)

Other

15 

- 

- 

 

(2)

- 

- 

Total

197 

269 

340 

 

(210)

(287)

(330)

 

Notes:

(1)  The projections for Year 2 and Year 3 consider only the main drivers of earnings sensitivity, namely structural hedging and margin management. 

(2)  Primarily current accounts and savings accounts.

 

Key points

●

Changes to earnings sensitivity to rate shocks between December 2018 and June 2019 were mainly driven by changes to estimates of how product pricing will respond to interest rate shocks. These estimates are regularly reviewed and are influenced by the overall level of interest rates, the Group's competitive position and other strategic considerations.

●

Sensitivity to a 100 basis point downward shift in yield curves was also affected by the changes in the level of interest rates. In the shock scenario, rates fell less at 30 June 2019 before hitting an assumed zero per cent floor compared to 31 December 2018. This resulted in a slightly lower adverse impact at 30 June 2019.  
 

Appendix 1 Capital and risk management

Non-traded market risk continued

Foreign exchange risk (Within the scope of EY's review report)

The table below shows structural foreign currency exposures.

 

 

 

Net

 

Structural

 

 

 

Net

 

investments

 

foreign currency

 

Residual

 

investments

 

in foreign

Net

 exposures

 

structural

in foreign

 

operations

 investment

pre-economic

Economic

foreign currency

 operations

NCI (1)

excluding NCI

 hedges

 hedges

 hedges (2)

 exposures

30 June 2019

£m

£m

£m

£m

£m

£m

£m

US dollar

1,412 

- 

1,412 

(33)

1,379 

(1,379)

- 

Euro

6,935 

3 

6,932 

(1,711)

5,221 

- 

5,221 

Other non-sterling

1,492 

- 

1,492 

(145)

1,347 

- 

1,347 

Total

9,839 

3 

9,836 

(1,889)

7,947 

(1,379)

6,568 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

US dollar

553 

- 

553 

(4)

549 

(549)

- 

Euro

6,428 

33 

6,395 

(853)

5,542 

- 

5,542 

Other non-sterling

2,600 

710 

1,890 

(1,249)

641 

(81)

560 

Total

9,581 

743 

8,838 

(2,106)

6,732 

(630)

6,102 

 

Notes:

(1)

Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners' equity.

(2)

Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. Economic hedges of other currency net investments in foreign operations represent monetary liabilities that are not booked as net investment hedges.

 

Key points

●

 

Other non-sterling net investments in foreign operations fell. This reflected the Alawwal bank merger. The minority equity stake in Saudi British Bank is too small to be consolidated as a net investment in a foreign operation. The increase in euro net investments in foreign operations also partly resulted from the gain on the sale of NWM N.V.'s equity stake in SABB to NWM Plc. NWM Plc has increased the capitalisation of its US branch. This has reduced the branch's debt funding and NWM Plc's regulatory exposure to fluctuations in the US dollar exchange rate against sterling. 

●

Changes in exchange rates affect equity in proportion to structural foreign currency exposures. At 30 June 2019, a 5% strengthening in all foreign currencies against sterling would result in a £0.4 billion increase in equity reserves, while a 5% weakening in all foreign currencies against sterling would result in a £0.4 billion reduction in equity reserves. 

 

 

Traded market risk

Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.

 

Traded internal VaR (Within the scope of EY's review report)

The table below shows one-day internal value-at-risk (VaR) for RBS's trading portfolios, split by exposure type.

 

Half year ended

30 June 2019

 

30 June 2018

 

31 December 2018

 

 

 

 

Period

 

 

 

 

Period

 

 

 

 

Period

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

Traded VaR (1-day 99%)

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

£m

Interest rate

10.3 

16.9 

6.9 

9.8 

 

15.0 

27.3 

10.4 

16.5 

 

13.6 

19.9 

9.2 

13.0 

Credit spread

9.4 

12.7 

7.0 

9.9 

 

13.2 

24.2 

9.1 

10.4 

 

8.9 

14.6 

6.9 

8.2 

Currency

3.6 

5.8 

2.0 

3.8 

 

3.2 

7.6 

1.4 

3.5 

 

3.0 

6.3 

1.7 

5.3 

Equity

0.7 

2.2 

0.3 

0.5 

 

0.6 

0.9 

0.3 

0.8 

 

1.0 

1.6 

0.5 

0.8 

Commodity

0.2 

0.5 

- 

0.2 

 

0.4 

1.0 

0.1 

0.5 

 

0.2 

0.6 

- 

0.1 

Diversification (1)

(9.3)

 

 

(10.6)

 

(11.2)

 

 

(11.9)

 

(9.9)

 

 

(8.8)

Total

14.9 

21.5 

12.1 

13.6 

 

21.2 

35.6 

15.4 

19.8 

 

16.8 

26.8 

11.7 

18.6 

 

Note:

(1)

RBS benefits from diversification 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

●

Traded VaR remained broadly unchanged on an average basis during H1 2019 compared to H2 2018.

●

The decrease, on an average basis compared to H1 2018, is attributed to peaks in H1 2018 due to long euro rates positioning and bond syndication activity.

 

 

Appendix 1 Capital and risk management

Other risks 

Operational risk

●

RBS continues to develop its cyber risk management and defence strategies, including tracking prominent threat groups and working with the National Cyber Security Centre through its Industry 100 initiative.

●

There was also continued oversight of the Group's preparations for the UK's exit from the EU to ensure that processes and systems are in place to ensure continuity of service for customers. Additionally, continuing improvements to the Group's control environment, including further embedding of the operational risk management framework and refresh of the risk appetite framework, were also a focus.

 

Compliance and Conduct risk

●

Embedding the compliance and conduct risk framework across RBS was a key focus in H1 2019. The complementary compliance and conduct risk manual was also launched to support this work. Training was completed across all three lines of defence, supported by business-specific case studies.

●

Work continued on concluding most of RBS's material remediation projects in 2019. Some material projects remain under active management, with plans in place to conclude the majority by the end of the year. Meeting the PPI closure deadline of 29 August 2019, and ensuring the effective and timely management of residual work thereafter, remains a key focus with the current timeline being end of Q2 2020.

 

Climate risk

●

RBS reclassified climate change as a top risk and work continued on integrating climate-related financial risks into the core risk framework. This included work on scenario-based analysis for both physical and transition risks. In March 2019, RBS also joined the Climate Financial Risk Forum, established by the FCA and PRA to develop practical tools to address climate-related financial risks. 

 

 

 

 

Appendix 2

 

Non-IFRS financial measures

 

Appendix 2 Non-IFRS financial measures

 

As described in Note 1 on page 23, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (GAAP). The Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

 

Non-IFRS financial measures

Measure

Basis of preparation

Additional analysis or reconciliation

RBS return on tangible equity

Annualised profit for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is total equity less intangible assets and other owners' equity.

Note 1

Segmental return on tangible equity

Segmental operating profit adjusted for tax and for preference share dividends divided by average notional equity, allocated at an operating segment specific rate, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).

Note 1

Operating expenses analysis - management view

The management analysis of strategic disposals in other income and operating expenses shows strategic costs and litigation and conduct costs in separate lines, these amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.

Note 2

Cost:income ratio

Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.

Note 3

Commentary - adjusted periodically for specific items

Group and segmental business performance commentary have been adjusted for the impact of specific items such as the Alawwal bank merger, additional authorised push payments fraud costs, notable items(detailed on Page 3), strategic, litigation and conduct costs(detailed on Page 14 to 18).

Notable items - Page 3

Strategic, litigation and conduct costs - Pages 14 to 18.

Aggregation of business segments into franchises

Personal & Ulster franchise results, combining the reportable segments of UK Personal Banking (UK PB) and Ulster Bank RoI, Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking and Private Banking.

Page 26 Note 4

Bank net interest margin (NIM)

Net interest income of the banking business less the NatWest Markets element as a percentage of interest-earning assets of the banking business less the NatWest Markets element.

Note 4

 

Performance metrics not defined under IFRS(1) 

Measure

Basis of preparation

Additional analysis or reconciliation

Loan:deposit ratio

Net customer loans held at amortised cost divided by total customer deposits.

Note 5

Tangible net asset value

Tangible equity divided by the number of ordinary shares in issue. Tangible equity is ordinary shareholders' interest less intangible assets.

Page 2

NIM

Net interest income of the banking business as a percentage of interest-earning assets of the banking business.

Pages 14 -18.

Funded assets

Total assets less derivatives.

Page 14 -18.

ECL loss rate

The annualised loan impairment charge divided by gross customer loans.

Pages 35.

 

Note:

(1)     Metric based on GAAP measures, included as not defined under IFRS and reported for compliance with ESMA adjusted performance measure rules.

 

Appendix 2 Non-IFRS financial measures

1. Return on tangible equity

 

 

Half year ended

 

Quarter ended

 

and as at

 

and as at

 

30 June

30 June

 

30 June

31 March

30 June

RBS return on tangible equity

2019 

2018 

 

2019 

2019 

2018 

Profit attributable to ordinary shareholders (£m)

2,038 

888 

 

1,331 

707 

96 

Adjustment for Alawwal bank merger gain (£m)

764 

- 

 

- 

- 

- 

Adjusted profit attributable to ordinary shareholders (£m)

1,274 

- 

 

- 

- 

- 

Annualised profit attributable to ordinary shareholders (£m)

4,076 

1,776 

 

5,324 

2,828 

384 

Annualised adjusted profit attributable to ordinary shareholders (£m)

2,548 

- 

 

- 

- 

- 

 

 

 

 

 

 

 

Average total equity (£m)

46,310 

48,773 

 

46,179 

46,516 

48,578 

Adjustment  for other owners equity and intangibles (£m)

(12,528)

(15,019)

 

(12,410)

(12,581)

(15,056)

Adjusted total tangible equity (£m)

33,782 

33,754 

 

33,769 

33,935 

33,522 

 

 

 

 

 

 

 

Return on tangible equity (%)

12.1%

5.3%

 

15.8%

8.3%

1.1%

Return on tangible equity adjusting for impact of Alawwal bank merger (%)

7.5%

 

 

 

 

 

 

 

 

 

 

 

 

UK

Ulster

Commercial & Private

 

 

 

Personal

 Bank

Commercial

Private

RBS

NatWest

Half year ended 30 June 2019

Banking

RoI

Banking

Banking

International

Markets

Operating profit (£m)

1,037 

23 

701 

155 

194 

300 

Adjustment for tax  (£m)

(290)

- 

(196)

(43)

(27)

(84)

Preference share cost allocation (£m)

(36)

- 

(82)

(8)

- 

(30)

Adjusted attributable profit (£m)

711 

23 

423 

104 

167 

186 

Annualised adjusted attributable profit (£m)

1,422 

46 

846 

207 

334 

372 

Adjustment for Alawwal merger gain (£m)

- 

- 

- 

- 

- 

(299)

Annualised adjusted profit attributable to

 

 

 

 

 

 

  ordinary shareholders (£m)

1,422 

46 

846 

207 

334 

73 

Monthly average RWAe (£bn)

37.0 

14.3 

79.6 

9.6 

7.0 

49.2 

Equity factor

15.0%

15.0%

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.5 

2.1 

9.6 

1.2 

1.1 

7.4 

Return on equity (%)

25.6%

2.1%

8.8%

16.6%

29.7%

1.0%

 

 

 

 

 

 

 

Half year ended 30 June 2018*

 

 

 

 

 

 

Operating profit (£m)

1,129 

86 

1,215 

156 

173 

46 

Adjustment for tax (£m)

(316)

- 

(340)

(44)

(24)

(13)

Preference share cost allocation (£m)

(40)

- 

(94)

(12)

(8)

(54)

Adjusted attributable profit (£m)

773 

86 

781 

100 

141 

(21)

Annualised adjusted attributable profit (£m)

1,546 

172 

1,562 

200 

282 

(42)

Monthly average RWAe (£bn)

32.8 

17.7 

86.5 

9.4 

6.9 

56.4 

Equity factor

15.0%

14.0%

12.0%

13.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

4.9 

2.5 

10.4 

1.3 

1.1 

8.5 

Return on equity

31.4%

7.0%

15.1%

15.8%

25.7%

-0.5%

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 
 

 

Appendix 2  Non-IFRS financial measures

 

 

 

 

1. Return on tangible equity continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK

Ulster

Commercial & Private

 

 

 

Personal

 Bank

Commercial

Private

RBS

NatWest

Quarter ended 30 June 2019

Banking

RoI

Banking

Banking

International

Markets

Operating profit (£m)

539 

3 

264 

75 

101 

362 

Adjustment for tax (£m)

(151)

- 

(74)

(21)

(14)

(101)

Preference share cost allocation (£m)

(18)

- 

(41)

(4)

- 

(30)

Adjusted attributable profit (£m)

370 

3 

149 

50 

87 

231 

Annualised adjusted attributable profit (£m)

1,480 

12 

596 

199 

345 

924 

Adjustment for Alawwal merger gain (£m)

- 

- 

- 

- 

- 

(598)

Annualised adjusted profit attributable to

 

 

 

 

 

 

  ordinary shareholders (£m)

1,480 

12 

596 

199 

345 

326 

Monthly average RWAe (£bn)

37.2 

14.3 

80.1 

9.6 

7.0 

49.1 

Equity factor

15.0%

15.0%

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.6 

2.1 

9.6 

1.2 

1.1 

7.4 

Return on equity

26.5%

0.6%

6.2%

15.9%

30.8%

4.4%

Quarter ended 31 March 2019

 

 

 

 

 

 

Operating profit (£m)

498 

20 

437 

80 

93 

(62)

Adjustment for tax (£m)

(139)

- 

(122)

(23)

(13)

17 

Preference share cost allocation (£m)

(18)

- 

(41)

(4)

- 

- 

Adjusted attributable profit (£m)

341 

20 

274 

53 

80 

(45)

Annualised adjusted attributable profit (£m)

1,364 

80 

1,096 

212 

320 

(180)

Monthly average RWAe (£bn)

36.8 

14.2 

79.1 

9.6 

7.0 

49.4 

Equity factor

15.0%

15.0%

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.5 

2.1 

9.5 

1.2 

1.1 

7.4 

Return on equity

24.7%

3.8%

11.5%

17.1%

28.6%

-2.4%

Quarter ended 30 June 2018*

 

 

 

 

 

 

Operating profit (£m)

585 

76 

664 

94 

95 

(51)

Adjustment for tax (£m)

(164)

- 

(186)

(26)

(13)

14 

Preference share cost allocation (£m)

(20)

- 

(47)

(6)

(4)

(27)

Adjusted attributable profit (£m)

401 

76 

431 

62 

78 

(64)

Annualised adjusted attributable profit (£m)

1,604 

304 

1,724 

248 

310 

(256)

Monthly average RWAe (£bn)

32.4 

17.4 

87.4 

9.5 

6.9 

56.4 

Equity factor

15.0%

14.0%

12.0%

13.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

4.9 

2.4 

10.5 

1.3 

1.1 

8.5 

Return on equity

33.0%

12.5%

16.4%

19.3%

27.9%

-3.0%

*Restated. Refer to Note 1 for further details.

 

 

 

 

 

 
 

 

Appendix 2  Non-IFRS performance measures

2. Operating expenses analysis

 

Statutory analysis (1,2)

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2019 

2018 

 

2019 

2019 

2018 

Operating expenses

£m

£m

 

£m

£m

£m

Staff expenses

2,028 

2,086 

 

1,017 

1,011 

1,031 

Premises and equipment

558 

644 

 

293 

265 

274 

Other administrative expenses

863 

1,636 

 

445 

418 

1,237 

Administrative expenses

3,449 

4,366 

 

1,755 

1,694 

2,542 

Depreciation and amortisation

621 

338 

 

377 

244 

175 

Write down of other intangible assets

30 

31 

 

30 

- 

7 

Total operating expenses

4,100 

4,735 

 

2,162 

1,938 

2,724 

 

Non-statutory analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2019 

2018 

 

2019 

2019 

2018 

Operating expenses

£m

£m

 

£m

£m

£m

Staff expenses

1,841 

1,903 

 

905 

936 

939 

Premises and equipment

493 

574 

 

245 

248 

288 

Other administrative expenses

673 

760 

 

318 

355 

413 

Strategic costs (1)

629 

350 

 

434 

195 

141 

Litigation and conduct costs (2)

60 

801 

 

55 

5 

782 

Administrative expenses

3,696 

4,388 

 

1,957 

1,739 

2,563 

Depreciation and amortisation

399 

316 

 

200 

199 

154 

Write down of other intangible assets

5 

31 

 

5 

- 

7 

Total

4,100 

4,735 

 

2,162 

1,938 

2,724 

 

Notes:

(1) On a statutory, or GAAP, basis, strategic costs are included within staff, premises and equipment, depreciation and amortisation, write-down of other intangible assets and other administrative expenses.

(2) On a statutory, or GAAP, basis, litigation and conduct costs are included within other administrative expenses.

 

3. Cost:income ratio

 

 

UK

 

Commercial & Private

 

 

 

 

 

Personal

Ulster Bank

Commercial

Private

RBS

NatWest

Central items

RBS

 

Banking

RoI

Banking

Banking

International

Markets

& other

Group

Half year ended 30 June 2019

£m

£m

£m

£m

£m

£m

£m

£m

Operating expenses

(1,229)

(281)

(1,262)

(232)

(119)

(678)

(299)

(4,100)

Operating lease depreciation

- 

- 

68 

- 

- 

- 

- 

68 

Adjusted operating expenses

(1,229)

(281)

(1,194)

(232)

(119)

(678)

(299)

(4,032)

 

 

 

 

 

 

 

 

 

Total income

2,447 

283 

2,165 

384 

310 

942 

586 

7,117 

Operating lease depreciation

- 

- 

(68)

- 

- 

- 

- 

(68)

Adjusted total income

2,447 

283 

2,097 

384 

310 

942 

586 

7,049 

 

 

 

 

 

 

 

 

 

Cost:income ratio (%)

50.2%

99.3%

56.9%

60.4%

38.4%

72.0%

nm

57.2%

Half year ended 30 June 2018 *

 

 

 

 

 

 

 

 

Operating expenses

(1,291)

(252)

(1,140)

(225)

(114)

(671)

(1,042)

(4,735)

Operating lease depreciation

- 

- 

57 

- 

- 

- 

- 

57 

Adjusted operating expenses

(1,291)

(252)

(1,083)

(225)

(114)

(671)

(1,042)

(4,678)

 

 

 

 

 

 

 

 

 

Total income

2,551 

312 

2,390 

382 

284 

721 

62 

6,702 

Operating lease depreciation

- 

- 

(57)

- 

- 

- 

- 

(57)

Adjusted total income

2,551 

312 

2,333 

382 

284 

721 

62 

6,645 

 

 

 

 

 

 

 

 

 

Cost:income ratio (%)

50.6%

80.8%

46.4%

58.9%

40.1%

93.1%

nm

70.4%

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

 
 

 

Appendix 2 Non-IFRS performance measures

3. Cost:income ratio continued

 

 

UK

 

Commercial & Private

 

 

 

 

 

Personal

Ulster Bank

Commercial

Private

RBS

NatWest

Central items

RBS

 

Banking

RoI

Banking

Banking

International

Markets

& others

Group

Quarter ended 30 June 2019

£m

£m

£m

£m

£m

£m

£m

£m

Operating expenses

(594)

(145)

(622)

(115)

(60)

(344)

(282)

(2,162)

Operating lease depreciation

- 

- 

34 

- 

- 

- 

- 

34 

Adjusted operating expenses

(594)

(145)

(588)

(115)

(60)

(344)

(282)

(2,128)

 

 

 

 

 

 

 

 

 

Total income

1,202 

138 

1,083 

191 

159 

686 

621 

4,080 

Operating lease depreciation

- 

- 

(34)

- 

- 

- 

- 

(34)

Adjusted total income

1,202 

138 

1,049 

191 

159 

686 

621 

4,046 

 

 

 

 

 

 

 

 

 

Cost:income ratio

49.4%

105.1%

56.1%

60.2%

37.7%

50.1%

nm

52.6%

Quarter ended 31 March 2019

 

 

 

 

 

 

 

 

Operating expenses

(635)

(136)

(640)

(117)

(59)

(334)

(17)

(1,938)

Operating lease depreciation

- 

- 

34 

- 

- 

- 

- 

34 

Adjusted operating expenses

(635)

(136)

(606)

(117)

(59)

(334)

(17)

(1,904)

 

 

 

 

 

 

 

 

 

Total income

1,245 

145 

1,082 

193 

151 

256 

(35)

3,037 

Operating lease depreciation

- 

- 

(34)

- 

- 

- 

- 

(34)

Adjusted total income

1,245 

145 

1,048 

193 

151 

256 

(35)

3,003 

 

 

 

 

 

 

 

 

 

Cost:income ratio

51.0%

93.8%

57.8%

60.6%

39.1%

130.5%

nm

63.4%

Quarter ended 30 June 2018 *

 

 

 

 

 

 

 

 

Operating expenses

(605)

(124)

(545)

(104)

(55)

(322)

(969)

(2,724)

Operating lease depreciation

- 

- 

26 

- 

- 

- 

- 

26 

Adjusted operating expenses

(605)

(124)

(519)

(104)

(55)

(322)

(969)

(2,698)

 

 

 

 

 

 

 

 

 

Total income

1,253 

166 

1,232 

198 

147 

284 

120 

3,400 

Operating lease depreciation

- 

- 

(26)

- 

- 

- 

- 

(26)

Adjusted total income

1,253 

166 

1,206 

198 

147 

284 

120 

3,374 

 

 

 

 

 

 

 

 

 

Cost:income ratio

48.3%

74.7%

43.0%

52.5%

37.4%

113.4%

nm

80.0%

 

* Restated. Refer to Note 1 for further details.

 

4. Net interest margin

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2019 

2018 

 

2019 

2019 

2018 

 

£m

£m

 

£m

£m

£m

RBS net interest income

4,004 

4,326 

 

1,971 

2,033 

2,180 

NWM net interest income

122 

(67)

 

91 

31 

(31)

Net interest income excluding NWM

4,126 

4,259 

 

2,062 

2,064 

2,149 

Annualised net interest income

8,074 

8,724 

 

7,906 

8,245 

8,744 

Annualised net interest income excluding NWM

8,320 

8,589 

 

8,271 

8,371 

8,620 

Average interest earning assets (IEA)

440,309 

431,211 

 

444,800 

435,768 

434,928 

NWM average IEA

33,261 

27,134 

 

34,436 

32,072 

26,981 

Average IEA excluding NWM

407,048 

404,077 

 

410,364 

403,696 

407,947 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

1.83%

2.02%

 

1.78%

1.89%

2.01%

Bank net interest margin (excluding NWM)

2.04%

2.13%

 

2.02%

2.07%

2.11%

 

5. Loan:deposit ratio

 

 

 

As at

 

 

 

30 June

31 March

31 December

 

 

 

2019 

2019 

2018 

 

 

 

£bn

£bn

 £bn

Loans to customers - amortised cost

 

 

310.6 

306.4 

305.1 

Customer deposits

 

 

361.6 

355.2 

360.9 

Loan:deposit ratio (%)

 

 

86%

86%

85%

 

 

 

 

 

 

 

Legal Entity Identifier: 2138005O9XJIJN4JPN90

 


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