Strategic Partnership

Royal Bank of Scotland Group PLC
18 August 2005



RBS announces formation of strategic partnership with Bank of China



RBS and Bank of China are pleased to announce that they have reached agreement
to establish an exclusive strategic partnership. Within this partnership:

  • RBS and Bank of China have agreed to co-operate across a range of business
    activities, building on Bank of China's distribution strength and RBS's
    product skills in areas including credit cards, wealth management, corporate
    banking and personal lines insurance.

  • In addition, the two banks will establish close co-operation in certain
    key operational areas, including corporate governance, risk management,
    financial management, human resources and information technology. RBS will
    nominate a director to sit on the Board of Bank of China.

  • RBS will lead an investment of 10% in Bank of China for $3.1 billion (£1.7
    billion). Within this, RBS itself will invest $1.6 billion (£0.9 billion).
    RBS and its co-investors have committed to retain their investment in Bank
    of China for three years. RBS has no plan to increase its investment in Bank
    of China.

  • Appropriate warranties and protections have been received

  • The transaction is subject to regulatory approvals

Bank of China

Bank of China, the second largest of China's big four banks, was established in
1912. It traditionally focused on trade-related activities such as trade finance
and foreign exchange, where it still has leading market shares. In 1994, Bank of
China was converted from a specialised trade bank to a broadly-based state-owned
commercial bank.

In Mainland China, Bank of China has 11,307 branches and market shares of 12% of
loans and 14% of deposits. Bank of China has branches throughout Mainland China,
but its activities are concentrated in the large cities in eastern China. Bank
of China's brand appeals in particular to affluent personal customers and large
corporate customers.

Bank of China is the most internationalised bank in China. It has subsidiaries
in 27 countries including a strong presence in Hong Kong, where its subsidiary
Bank of China Hong Kong has already been restructured and partially floated. The
value of the 66% of Bank of China Hong Kong owned by Bank of China is $14.8
billion.



In 2004, Bank of China's total income was $12.6 billion. At the end of 2004, its
assets amounted to $516 billion and its net asset value stood at $24.8 billion.
Income, assets and net asset value are stated on a PRC GAAP basis. Bank of China
has about 238,000 employees.

Over the last 4 years, Bank of China has grown its loans and deposits by 11% per
annum.

In August 2004, Bank of China was re-established as a shareholding company, with
100% of its shares owned by Central SAFE Investments Limited.

More information about Bank of China is available on www.bank-of-china.com.



Commenting on the transaction, RBS Chairman, Sir George Mathewson, said:

'The RBS Board believes that the size and growth of China represents an
important opportunity. We have been developing our relationship with Bank of
China over the last 18 months, and have been impressed by the strengths of the
business and its compatibility with RBS. We regard our investment as an
important part of cementing our long-term relationship with Bank of China but
have no plans to increase our shareholding further. The combination of Bank of
China's brand, distribution and customer base with RBS's product and operational
strengths and experience will be powerful in the Chinese market. We are excited
by the potential of this partnership and look forward to working together in the
years to come to realise it.'

Bank of China Chairman, Xiao Gang said:

'I am delighted that an investment agreement has been reached with RBS. With its
experienced management, outstanding business strengths, well-established
internal control mechanisms and prudent management style, RBS is an ideal
partner. The co-operation with RBS is a key step in our joint stock reform, and
is crucial to transforming the operational structure, enhancing the internal
management, improving the competitiveness and promoting our profitability.'

Mr Wang Jianxi, Vice Chairman of Central SAFE Investments Limited, the major
shareholder of Bank of China, said:

'Bringing in international strategic investors is an important step in the
deepening of the reform of state-owned commercial banks in China. Through
strategic co-operation with RBS, Bank of China will be able to further enhance
its corporate governance and internal control. We are confident that the
strategic cooperation between Bank of China and RBS will produce positive
results for both parties.'



Impact on RBS

RBS will raise the £0.9 billion for its investment in Bank of China through the
disposal for £0.9 billion of its shareholding in SCH, which it has announced
today. The placement of the SCH shareholding together with the investment in
Bank of China will result in no net change in total capital. There will be an
increase of around 0.1% in RBS's Tier 1 capital as a result of the profit on the
SCH shares sold.

The transaction with Bank of China is expected to be completed by the fourth
quarter of 2005. RBS expects its Tier 1 ratio to exceed 7% at the end of 2005 on
an IFRS basis (compared with 6.6% at 30 June 2005).

The transaction is expected to exceed our hurdle rate and be accretive from
2006.



Merrill Lynch International has advised RBS on this transaction.



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