FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For August 03, 2018
Commission File Number: 001-10306
 
The Royal Bank of Scotland Group plc
 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ
 
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
   Form 20-F X Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________
 
 
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes ___ No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
 
 
 
 
The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: 
 
 
 
 
Interim Results 2018
 
 
The Royal Bank of Scotland Group plc
Interim Results for the period ending 30 June 2018
 
RBS reported an operating profit before tax of £1,826 million for H1 2018, including an £801 million litigation and conduct charge. RBS announces its intention to declare an interim dividend of 2p per share.
 
H1 2018 attributable profit of £888 million and a Q2 2018 attributable profit of £96 million.
 
Q2 2018 operating profit before tax of £613 million, compared with £1,238 million in Q2 2017.
 
 
Continued track record of delivery
 
Income resilient in a competitive market:
 
Income was broadly stable compared with H1 2017 excluding NatWest Markets, Central items and one-off gains in Commercial Banking. Total income decreased by £217 million, or 3.1%.
 
Q2 2018 net interest margin of 2.01% decreased by 3 basis points compared with Q1 2018 reflecting increased liquidity and continued competitive margin pressure.
 
 
Lower costs through continued transformation and increased digitisation:
 
Compared with H1 2017, other expenses decreased by £133 million, or 3.6%, excluding a VAT release in 2017 and FTEs reduced by 6.7%.
 
6.0 million customers now regularly using our mobile app, 9% higher than December 2017. Over 80% of Commercial Banking customers are now interacting with us digitally, 41% of whom have migrated to new Bankline.
 
 
Legacy issues diminishing:
 
Reached civil settlement in principle with the US Department of Justice (DoJ) in relation to the DoJ’s investigation into RBS’s issuance and underwriting of US Residential Mortgage Backed Securities (RMBS) between 2005 and 2007, resulting in a £1,040 million additional provision in Q2 2018. In addition, a £241 million provision release relating to a RMBS litigation indemnity was recognised in the quarter.
 
Entered into a Memorandum of Understanding with the Trustees of the Main scheme of the RBS Group Pension Fund to address the historical funding weakness of the pension scheme, recognising a pre-tax £2.0 billion contribution against reserves and an equivalent reduction in CET1 capital.
 
 
Stronger capital position:
 
CET1 ratio of 16.1% includes the impact of the £2 billion pre-tax pension contribution, the civil settlement in principle with the DoJ and the accrual of the intended interim dividend. Excluding these items, CET1 ratio increased by 110 basis points in the quarter driven by underlying profitability and RWA reductions.
 
RWAs decreased by £3.9 billion in the quarter primarily reflecting reductions in NatWest Markets and continued active capital management in Commercial Banking.
 
Moody’s upgraded The Royal Bank of Scotland Group plc’s senior debt rating one notch to Baa2 from Baa3 and changed the outlook to positive.
 
 
Outlook (1)
 
We retain the outlook guidance we provided in the 2017 Annual Results document.
 
We intend to declare an interim dividend of 2p per ordinary share. Declaration of the interim dividend is subject to the timing of finalisation of the previously announced civil settlement in principle with the DoJ in relation to the DoJ’s investigation into RBS’s issuance and underwriting of US RMBS. We expect to finalise the settlement with the DoJ and will make a further announcement at the relevant time.
 
Note:
(1)
The targets, expectations and trends discussed in this section represent management’s current expectations and are subject to change, including as a result of the factors described in this document and in the “Risk Factors” on pages 48 and 49 of this document and on pages 372 to 402 of the 2017 Annual Report and Accounts. These statements constitute forward-looking statements; refer to Forward-looking statements in this document.
 
Business performance summary
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
Performance key metrics and ratios
2018 
2017 
 
2018 
2018 
2017 
Operating profit before tax
£1,826m
£1,951m
 
£613m
£1,213m
£1,238m
Profit attributable to ordinary shareholders
£888m
£939m
 
£96m
£792m
£680m
Net interest margin
2.02%
2.18%
 
2.01%
2.04%
2.13%
Average interest earning assets
£431,211m
£413,598m
 
£434,928m
£427,394m
£421,981m
Cost:income ratio (1)
70.4%
69.8%
 
80.0%
60.5%
64.4%
Earnings per share
 
 
 
 
 
 
  - basic
7.4p
7.9p
 
0.8p
6.6p
5.7p
  - basic fully diluted
7.4p
7.9p
 
0.8p
6.6p
5.7p
Return on tangible equity
5.3%
5.6%
 
1.1%
9.3%
8.0%
Average tangible equity
£33,754m
£33,705m
 
£33,522m
£34,216m
£33,974m
Average number of ordinary shares
 
 
 
 
 
 
 outstanding during the period (millions)
 
 
 
 
 
 
   - basic
11,980 
11,817 
 
12,003 
11,956 
11,841 
  - fully diluted (2)
12,039 
11,897 
 
12,062 
12,015 
11,923 
 
 
 
 
 
 
 
 
30 June
31 March
31 December
Balance sheet related key metrics and ratios
2018
2018
2017
Total assets
£748.3bn
£738.5bn
£738.1bn
Funded assets
£597.2bn
£588.7bn
£577.2bn
Loans and advances to customers (excludes reverse repos)
£320.0bn
£319.1bn
£323.2bn
Impairment provisions (3)
£3.9bn
£4.2bn
£3.8bn
Customer deposits (excludes repos)
£366.3bn
£358.3bn
£367.0bn
 
 
 
 
Liquidity coverage ratio (LCR)
167%
151%
152%
Liquidity portfolio
£198bn
£180bn
£186bn
Net stable funding ratio (NSFR) (4)
140%
137%
132%
Loan:deposit ratio
87%
89%
88%
Total wholesale funding
£75bn
£73bn
£70bn
Short-term wholesale funding
£13bn
£17bn
£18bn
 
 
 
 
Common Equity Tier (CET1) ratio
16.1%
16.4%
15.9%
Total capital ratio
21.5%
21.6%
21.3%
Pro forma CET 1 ratio, pre 2018 dividend accrual (5)
16.2%
16.4%
15.9%
Risk-weighted assets (RWAs)
£198.8bn
£202.7bn
£200.9bn
CRR leverage ratio
5.2%
5.4%
5.3%
UK leverage ratio
6.0%
6.2%
6.1%
 
 
 
 
Tangible net asset value (TNAV) per ordinary share
287p
297p
294p
Tangible net asset value (TNAV) per ordinary share - fully diluted
286p
295p
292p
Tangible equity
£34,564m
£35,644m
£35,164m
Number of ordinary shares in issue (millions)
12,028 
11,993 
11,965 
Number of ordinary shares in issue (millions) - fully diluted (2,6)
12,095 
12,075 
12,031 
 
 
Notes:
(1)
Operating lease depreciation included in income for H1 2018 - £57 million and £26 million for Q2 2018; (Q1 2018 - £31 million; H1 2017 - £72 million; Q2 2017 - £36 million).
(2)
Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for H1 2018 were 59 million shares and for Q2 2018 were 59 million shares; (Q1 2018 - 59 million shares; H1 2017 - 80 million shares; Q2 2017 - 82 million shares) and as at 30 June 2018 were 67 million shares (31 March 2018 - 82 million shares; 31 December 2017 - 66 million shares).
(3)
30 June 2018 and 31 March 2018 prepared under IFRS 9, 31 December 2017 prepared under IAS 39. Refer to the February 2018 IFRS 9 Transition Report for further details.
(4)
In November 2016, the European Commission published its proposal for NSFR rules within the EU as part of its CRR2 package of regulatory reforms. CRR2 NSFR is expected to become the regulatory requirement in future within the EU and the UK. RBS has changed its policy on the NSFR to align with its interpretation of the CRR2 proposals with effect from 1 January 2018. The pro forma CRR2 NSFR at 31 December 2017 under CRR2 proposals is estimated to be 139%.
(5)
The pro forma CET 1 ratio at 30 June 2018 excludes the impact of the foreseeable interim dividend of £240 million that RBS intends to declare.
(6)
Includes 9 million treasury shares (31 March 2018 - 18 million shares; 31 December 2017 - 16 million shares).
 
Document navigation
The following are contained within this document:
Business performance summary and segment performance (pages 2 to 14);
Statutory results (pages 15 to 45);
EY Independent review report (page 46); and
Summary risk factors (pages 48 to 49).
 
 
Business performance summary
 
Summary consolidated income statement for the half year ended 30 June 2018
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
£m
£m
 
£m
£m
£m
Net interest income
4,326 
4,472 
 
2,180 
2,146 
2,238 
 
 
 
 
 
 
 
Own credit adjustments
39 
(73)
 
18 
21 
(44)
Loss on redemption of own debt
(7)
 
(9)
Strategic disposals
156 
 
156 
Other non-interest income
2,337 
2,371 
 
1,202 
1,135 
1,366 
 
 
 
 
 
 
 
Non-interest income
2,376 
2,447 
 
1,220 
1,156 
1,469 
 
 
 
 
 
 
 
Total income
6,702 
6,919 
 
3,400 
3,302 
3,707 
 
 
 
 
 
 
 
Litigation and conduct costs
(801)
(396)
 
(782)
(19)
(342)
Strategic costs
(350)
(790)
 
(141)
(209)
(213)
Other expenses
(3,584)
(3,666)
 
(1,801)
(1,783)
(1,844)
 
 
 
 
 
 
 
Operating expenses
(4,735)
(4,852)
 
(2,724)
(2,011)
(2,399)
 
 
 
 
 
 
 
Profit before impairment losses
1,967 
2,067 
 
676 
1,291 
1,308 
Impairment losses
(141)
(116)
 
(63)
(78)
(70)
 
 
 
 
 
 
 
Operating profit before tax
1,826 
1,951 
 
613 
1,213 
1,238 
Tax charge
(741)
(727)
 
(412)
(329)
(400)
 
 
 
 
 
 
 
Profit for the period
1,085 
1,224 
 
201 
884 
838 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
Non-controlling interests
(16)
29 
 
(23)
18 
Other owners
213 
256 
 
128 
85 
140 
Ordinary shareholders
888 
939 
 
96 
792 
680 
 
 
Notable items within total income
 
 
 
 
 
 
IFRS volatility in Central items (1)
(111)
154 
 
17 
(128)
172 
UK PBB debt sale gain
26 
 
 - 
26 
 - 
FX gains/losses in Central items and other
(108)
 
19 
(15)
(56)
Commercial Banking fair value and
 
 
 
 
 
 
   and disposal gain
192 
 - 
 
115 
77 
 - 
NatWest Markets legacy business disposal losses
(57)
(103)
 
(41)
(16)
(53)
Own credit adjustments
39 
(73)
 
18 
21 
(44)
Strategic disposals
 - 
156 
 
 - 
 - 
156 
 
 
 
 
 
 
 
Notable items within operating expenses
 
 
 
 
 
 
   Litigation and conduct costs
(801)
(396)
 
(782)
(19)
(342)
   of which: US RMBS
(802)
(222)
 
(803)
(222)
           of which: DoJ
(1,040)
 - 
 
(1,040)
 - 
 - 
                          Nomura
241 
 - 
 
241 
 - 
 - 
Strategic costs
(350)
(790)
 
(141)
(209)
(213)
VAT recovery in Central items and other
 - 
51 
 
 - 
 - 
 - 
 
 
 
 
 
 
 
 
Note:
(1)
IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.
 
 
 
Business performance summary
 
Income statement overview
 
Income
Total income decreased by £217 million, or 3.1%, compared with H1 2017 reflecting IFRS volatility movements, lower NatWest Markets income and a £156 million gain on disposal of RBS’s stake in Vocalink in H1 2017, partially offset by £192 million of fair value and disposal gains in Commercial Banking. Net interest margin was 16 basis points lower than H1 2017 with an 11 basis points reduction relating to increased liquidity, 3 basis points from competitive pressures on margin and 2 basis points from mix impacts.
 
Operating expenses
Operating expenses decreased by £117 million, or 2.4%, compared with H1 2017 primarily reflecting £440 million lower strategic costs and an £82 million reduction in other expenses, partially offset by £405 million higher litigation and conduct costs. Other expenses decreased by £133 million, or 3.6%, excluding a £51 million VAT release in 2017 and FTEs reduced by 6.7%. Litigation and conduct costs of £801 million largely comprises the £1,040 million charge relating to the civil settlement in principle with the DoJ, partially offset by a £241 million provision release relating to an RMBS litigation indemnity. The cost:income ratio of 70.4% is elevated due to the inclusion of the net RMBS related conduct charge, excluding these items the cost:income ratio would be 58.3%.
 
Impairments
A net impairment loss of £141 million, 9 basis points of gross customer loans, increased by £25 million, or 21.6%, compared with H1 2017 primarily reflecting fewer provision releases in UK PBB and the NatWest Markets legacy business, partially offset by Commercial Banking releases in Q2 2018 related to data quality improvements.
 
 
 
Capital distributions
 
We intend to declare an interim dividend of 2p per ordinary share. Declaration of the interim dividend, and the timing of its payment, is subject to the timing of finalisation of the previously announced civil settlement in principle with the DoJ in relation to the DoJ’s investigation into RBS’s issuance and underwriting of US RMBS. We expect to finalise the settlement with the DoJ and will make a further announcement at the relevant time. 
 
Our CET1 ratio of 16.1% includes a dividend accrual of £240 million, or 12 basis points of CET1 capital. We have agreed with the PRA that we will cease the current issuance programme of approximately £300 million of equity per annum as part immunisation of the coupon payments on capital securities upon declaration of the interim dividend.
 
Over time we expect to build to a regular dividend pay-out ratio in the order of 40%. We will consider further distributions in addition to regular dividend pay-outs. Such additional distributions remain to be agreed with the PRA and will be subject to passing the 2018 Bank of England stress test. We would not expect any such additional distributions until 2019.
 
In the near to medium term, we would expect the Bank to maintain a CET1 ratio in excess of our 13% target given a range of variables that are likely to impact us over the coming years. These include:
 
future agreed pension contributions and the interplay with capital buffers for the bank for investment risk being run in the pension plan;
RWA inflation as a result of IFRS 16, Bank of England mortgage floors and Basel 3 amendments;
expected increased and pro-cyclical impairment volatility as a result of IFRS 9; and
the collective impact of these items on our stress test results.
 
Business performance summary
 
Building the best bank for customers in the UK and Republic of Ireland
Delivery against our 2018 goal – Customer Segments
 
Our goal is to significantly increase net-promoter scores (NPS) or maintain No.1 in our chosen customer segments.
 
Strategy goal
Our 2018 goal
2018
Customer experience
 
Significantly increase NPS or maintain No.1 in our chosen customer segments
We are on target in one-third of our key customer segments.
 
Customer Advocacy – by Brand
Our brands are our main connection with customers. Each takes a clear and differentiated position with the aim of helping us strengthen our relationship with them. For this reason we also track customer advocacy, as measured by NPS, for our key brands. The table below shows NPS and Trust scores for our key brands:
 
Net Promoter Scores by Brand
Q2 2017
Q4 2017
Q2 2018
Personal Banking
NatWest (England & Wales)(1)
13
12
13
Royal Bank of Scotland (Scotland)(1)
-21
-6
-21
Ulster Bank (Northern Ireland)(2)
-8
-5
-11
Ulster Bank (Republic of Ireland)(2)
-5
-7
-7
Business Banking
NatWest (England & Wales)(3)
-8
-7
-6
Royal Bank of Scotland (Scotland)(3)
-12
-15
-23
Commercial Banking(4)
22
21
17
 
Trust Scores by Brand
NatWest (England & Wales)(5)
58
57
58
Royal Bank of Scotland (Scotland)(5)
27
27
27
 
We are aware that customer advocacy is not where it should be consistently enough and that we have more work to do in order to achieve our ambition. Our digital strategy is delivering high NPS in these areas; specifically our mobile application, paperless mortgage process and new Bankline are all scoring highly for customer advocacy. Our Commercial Banking NPS has fallen recently; however it remains ahead of the rest of the market and we remain committed to supporting our Commercial and Business customers.
 
Notes:
(1)
Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3103) Royal Bank of Scotland (Scotland) (432). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?“ Base: Claimed main banked current account customers.
(2)
Source: Coyne Research 12 month rolling data. Question: “Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely”. Latest base sizes: Northern Ireland 291; Republic of Ireland 276.
(3)
Source: Charterhouse Research Business Banking Survey, YE Q2 2018. Based on interviews with businesses with an annual turnover up to £2 million. Latest base sizes: NatWest England & Wales (1248), RBS Scotland (425). Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.
(4)
Source: Charterhouse Research Business Banking Survey, YE Q2 2018. Based on interviews with businesses with an annual turnover over £2 million in GB. Latest base size for RBSG is 887. Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain
(5)
Source: Populus. Latest quarter’s data. Measured as a net % of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest,
England & Wales (994), RBS Scotland (208).
 
 
Business performance summary
 
Personal & Business Banking – UK Personal & Business Banking (UK PBB)
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
£m
£m
 
£m
£m
£m
Total income
3,161 
3,172 
 
1,570 
1,591 
1,589 
Operating expenses
(1,582)
(1,744)
 
(746)
(836)
(809)
Impairment losses
(147)
(97)
 
(90)
(57)
(54)
Operating profit
1,432 
1,331 
 
734 
698 
726 
Return on equity
28.9%
26.5%
 
30.0%
27.9%
29.2%
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2018 
2018 
2017 
 
 
 
 
£bn
£bn
£bn
Net loans & advances to customers
 
 
 
161.9 
160.5 
161.7 
Customer deposits
 
 
 
182.2 
180.4 
180.6 
RWAs
 
 
 
43.4 
43.4 
43.0 
 
H1 2018 compared with H1 2017
UK PBB now has 6 million regular mobile app users, 20% higher than H1 2017 and 9% higher than December 2017, supporting 70% digital penetration of active current account customers. Total digital sales increased by 27% in H1 2018 representing 42% of all sales. 57% of mortgage switching is now done digitally, compared with 34% in H1 2017. 56% of personal unsecured loans sales are via the digital channel, with digital volumes 38% higher than in H1 2017. In business banking, 88% of current accounts were opened digitally in H1 2018; 60% of loans less than £50,000 were originated digitally supporting very strong NPS; and accounting software provider FreeAgent was acquired on 1 June 2018.
Total income was £11 million, or 0.3%, lower driven by a £14 million impact associated with income recognition on impaired assets under IFRS 9 and a £24 million transfer to Private Banking(1), partially offset by an £18 million increase in debt sale gains in H1 2018. Net interest income of £2,542 million decreased by 0.9% as balance growth and deposit margin benefits were offset by mortgage margin compression associated with lower new business margins, with net interest margin down by 11 basis points to 2.81%. In addition, overdraft income decreased by £15 million following changes implemented in H2 2017, which included increasing the number of customer alerts.
Operating expenses were £162 million, or 9.3%, lower driven by a 4.8% reduction in staff costs associated with a 10.6% reduction in headcount, lower back-office operations costs and lower strategic costs. Further efficiencies from the integration of the business previously described as Williams and Glyn and lower fraud losses have been partially offset by increased technology investment spend as we build our digital capability.
Impairments were £50 million higher driven by fewer provision releases and recoveries following debt sales in prior years, with the underlying default charge remaining broadly stable.
Net loans and advances increased by 1.9% to £161.9 billion. Growth has slowed since 31 December 2017 as a result of higher mortgage redemptions and lower mortgage gross new business following intense mortgage competition. Gross new mortgage lending in H1 2018 was £13.6 billion. Mortgage market share was 11.5% in Q2 2018, supporting stock share of 10.0%, with mortgage approval share of approximately 14%. The paperless mortgage process has significantly improved customer NPS and supported improved completion rates. Momentum continued in lending in the personal advances and business banking sectors, increasing 8.8% and 1.5% respectively, supported by mobile and digital process improvements and personalised pre-approved limits.
Q2 2018 compared with Q1 2018
Total income was £21 million lower due to the non-repeat of debt sale income of £26 million and annual insurance profit share income of £21 million in Q1 2018. Net interest margin of 2.81% remained stable as mortgage margin pressure was offset by continued higher deposit margins.
Operating expenses were £90 million lower due to lower back-office operations costs, a 4.6% reduction in headcount and lower strategic costs.
Impairments were £33 million higher reflecting increases in the business banking and commercial sectors, the non-repeat of a model benefit in Q1 2018 and a few single name charges in Q2 2018.
Q2 2018 compared with Q2 2017
Total income was £19 million lower driven by an £8 million impact associated with income recognition on impaired assets under IFRS 9, an £12 million transfer to Private Banking and mortgage margin pressure.
Operating expenses were £63 million, or 7.8%, lower principally driven by reduced back-office operations costs and a 10.6% reduction in headcount.
Note:
(1) UK PBB Collective Investment Funds (CIFL) business was transferred to Private Banking on 1 October 2017.
 
Business performance summary
 
 
Personal & Business Banking – Ulster Bank RoI
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
€m
€m
 
€m
€m
€m
Total income
355 
341 
 
190 
165 
173 
Operating expenses
(285)
(342)
 
(140)
(145)
(178)
Impairment releases/(losses)
30 
13 
 
39 
(9)
(15)
Operating profit/(loss)
100 
12 
 
89 
11 
(20)
Return on equity
7.0%
0.8%
 
12.5%
1.6%
(2.4%)
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2018 
2018 
2017 
 
 
 
 
€bn
€bn
€bn
Net loans & advances to customers
 
 
 
21.6 
21.7 
22.0 
Customer deposits
 
 
 
19.9 
19.3 
19.8 
RWAs
 
 
 
19.0 
19.2 
20.2 
 
H1 2018 compared with H1 2017
Total income increased by €14 million, or 4.1%, driven by €28 million of one-off benefits, compared with €15 million of non-recurring benefits in 2017, and a continued reduction in the cost of customer deposits, partially offset by a decrease in income from free funds. Net interest margin increased by 18 basis points primarily reflecting a €13 million one-off funding benefit, a reduction in low yielding liquid assets following a dividend payment in January 2018, and an improvement in customer deposit margins.
Operating expenses decreased by €57 million, or 16.7%, principally due to a €45 million reduction in strategic costs and €20 million lower litigation and conduct costs, partially offset by €12 million of one-off accrual releases in H1 2017. Staff costs were €10 million, or 8.9%, lower reflecting the benefit of recent restructuring initiatives and lower pension costs.
A net impairment release of €30 million reflects a more positive economic outlook and improved credit metrics across all portfolios.
Net loans and advances reduced by €0.6 billion, principally reflecting a €0.8 billion reduction in the tracker mortgage book. Further progress was made towards building a more sustainable bank, including raising €1 billion from a recent issuance of mortgage backed bonds and the announcement of our intention to sell a portfolio of non-performing loans in H2 2018.
Customer deposits increased by €0.6 billion, supporting a reduction in the loan:deposit ratio to 108% from 115%.
RWAs reduced by €1.5 billion, or 7.3%, principally reflecting an improvement in credit metrics.
Q2 2018 compared with Q1 2018
Total income increased by €25 million primarily due to €23 million of non-recurring items in Q2 2018 including a one-off funding benefit, a gain on sale of the Easycash ATM business and a benefit associated with a previous asset disposal. Net interest margin increased by 11 basis points principally driven by the one-off funding benefit, partially offset by an increase in low yielding liquid assets in Q2 2018.
A net impairment release of €39 million compared to a charge of €9 million in Q1 2018 reflecting a more positive economic outlook and improved credit metrics.
Q2 2018 compared with Q2 2017
Total operating expenses decreased by €38 million primarily due to a €31 million reduction in litigation and conduct costs and €10 million lower strategic costs.
 
 
Business performance summary
 
Commercial & Private Banking – Commercial Banking
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
£m
£m
 
£m
£m
£m
Total income
1,780 
1,750 
 
915 
865 
885 
Operating expenses
(849)
(996)
 
(404)
(445)
(446)
Impairment (losses)/releases
(19)
(94)
 
(23)
(33)
Operating profit
912 
660 
 
515 
397 
406 
Return on equity
14.1%
8.2%
 
15.9%
12.2%
10.7%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2018 
2018 
2017 
 
 
 
 
£bn
£bn
£bn
Net loans & advances to customers
 
 
 
90.7 
90.7 
97.0 
Customer deposits
 
 
 
96.4 
93.7 
98.0 
RWAs
 
 
 
71.7 
72.4 
71.8 
 
Comparisons with prior periods are impacted by the transfer of shipping and other activities from NatWest Markets, the transfer of whole business securitisations and Relevant Financial Institutions to NatWest Markets in preparation for ring-fencing and the transfer of the funds and trustee depository business to RBS International. The net impact of the transfers on H1 2017 operating profit would have been to reduce income by £142 million, operating expenses by £4 million and impairments by £38 million. The net impact on the H1 2017 balance sheet would have been to reduce net loans and advances by £1.9 billion and RWAs by £0.4 billion, and increase customer deposits by £0.6 billion. The net impact of the transfers on Q2 2017 operating profit would have been to reduce income by £104 million, operating expenses by £2 million and impairments by £35 million. Q1 2018 income would have reduced by £4 million and the net impact on the Q1 2018 balance sheet would have been to reduce net loans and advances by £0.7 billion, customer deposits by £1.7 billion and RWAs by £0.1 billion. The variances in the commentary below have been adjusted for the impact of these transfers, unless otherwise stated.
 
H1 2018 compared with H1 2017 (comparisons adjusted for transfers)
Over 80% of customers regularly interact with us through a digital channel, 41% of whom are using our updated Bankline platform, and we have launched our Bankline Mobile app, which is planned to roll out in H2 2018.
Total income increased by £172 million, or 10.7%, to £1,780 million reflecting asset disposal and fair value gains of £192 million and disposal losses of £46 million in 2017, partially offset by lower lending. On an unadjusted basis, net interest margin decreased by 9 basis points to 1.65% reflecting a reclassification of net interest income to non-interest income under IFRS 9 partially offset by higher funding benefits from deposit balances.
Operating expenses decreased by £143 million, or 14.4%, to £849 million primarily reflecting £76 million lower strategic costs and £28 million lower staff costs, driven by a 13.5% headcount reduction. In addition, operating lease depreciation reduced by £15 million and litigation and conduct costs were £10 million lower.
Impairments reduced by £37 million, or 66.0%, to £19 million with £55 million of single name charges partially offset by net releases of £36 million, largely related to data quality improvements on the performing book.
Net lending reduced by £5.5 billion, or 5.8%, primarily driven by active capital management of the lending book.
RWAs reduced by £4.1 billion, or 5.5%, reflecting gross RWA reductions associated with active capital management, partially offset by £3.9 billion of model updates.
Q2 2018 compared with Q1 2018 (comparisons adjusted for transfers)
Total income increased by £46 million to £915 million primarily reflecting a £38 million increase in asset disposal and fair value gains to £115 million. On an unadjusted basis, net interest margin increased by 2 basis points to 1.66% principally reflecting increased deposit income.
Operating expenses decreased by £41 million to £404 million driven by a reduction in strategic, back-office operations and staff costs, partially offset by the non-repeat of one-off items in Q1 2018.
Net loans and advances decreased by £0.7 billion to £90.7 billion and RWAs reduced by £0.8 billion driven by the continued impact of capital management actions.
Q2 2018 compared with Q2 2017 (comparisons adjusted for transfers)
Total income increased by £134 million, or 17.2%, to £915 million primarily reflecting asset disposal and fair value gains of £115 million, disposal losses of £35 million in Q2 2017 and deposit income benefits, partially offset by lower lending volumes.
Operating expenses decreased by £40 million, or 9.0%, to £404 million primarily reflecting a 13.5% reduction in headcount, £13 million lower strategic costs and a £10 million reduction in operating lease depreciation.
 
 
Business performance summary
 
Commercial & Private Banking – Private Banking
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
£m
£m
 
£m
£m
£m
Total income
382 
321 
 
198 
184 
161 
Operating expenses
(225)
(232)
 
(104)
(121)
(108)
Impairment losses
(1)
(7)
 
--
(1)
(4)
Operating profit
156 
82 
 
94 
62 
49 
Return on equity
15.8%
7.7%
 
19.3%
12.5%
9.6%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2018 
2018 
2017 
 
 
 
 
£bn
£bn
£bn
Net loans & advances to customers
 
 
 
13.8 
13.7 
13.5 
Customer deposits
 
 
 
26.4 
25.3 
26.9 
RWAs
 
 
 
9.4 
9.4 
9.1 
AUM
 
 
 
21.3 
20.3 
21.5 
 
Comparisons with prior periods are impacted by the transfer of the Collective Investment Fund business from UK PBB and by the transfers of Coutts Crown Dependency and the International Client Group Jersey to RBS International. The net impact of the transfers on H1 2017 operating profit would have been to increase income by £18 million and increase operating expenses by £6 million. The net impact on the H1 2017 balance sheet would have been to reduce net loans and advances by £0.3 billion, RWAs by £0.1 billion and to increase assets under management by £1.6 billion. The net impact of the transfers on Q2 2017 operating profit would have been to increase income by £9 million and increase operating expenses by £3 million. The variances in the commentary below have been adjusted for the impact of these transfers, unless otherwise stated.
 
H1 2018 compared with H1 2017 (comparisons adjusted for transfers)
Total income of £382 million increased by £43 million, or 12.7%, largely due to increased lending and assets under management, partially offset by asset margin pressure. On an unadjusted basis, net interest margin remained stable at 2.53% as increased deposit income was offset by asset margin pressure.
Operating expenses of £225 million decreased by £13 million, or 5.6%, reflecting £6 million lower strategic costs, a £6 million reduction in back-office operations costs and a £5 million decrease in staff costs driven by a 17.6% headcount reduction.
Net loans and advances of £13.8 billion increased by £1.3 billion, or 10.1%, primarily in mortgages, whilst RWAs of £9.4 billion increased by £0.5 billion, or 5.7%, reflecting a continued focus on capital efficient lending.
Assets under management increased by £1.8 billion, or 9.3%, reflecting new business inflows and investment performance. In addition, Private Banking currently manage a further £7.2 billion of assets under management on behalf of RBS Group which sit outside of Private Banking. Total assets under management overseen by Private Banking have increased by 7.1% to £28.6 billion.
Q2 2018 compared with Q1 2018
Total income increased by £14 million to £198 million reflecting increased lending, higher deposit income and a one-off investment income benefit of £4 million.
Operating expenses were £17 million lower at £104 million, primarily driven by £10 million lower strategic costs and a £6 million reduction in back-office operations costs reflecting one-off releases in Q2 2018.
Assets under management increased by £1.0 billion primarily reflecting new business inflows and investment performance.
Q2 2018 compared with Q2 2017 (comparisons adjusted for transfers)
Total income increased by £28 million, or 16.7%, to £198 million reflecting increased lending and assets under management, partially offset by margin pressure.
Operating expenses decreased by £7 million, or 6.3%, to £104 million primarily reflecting lower staff costs, driven by a 17.6% headcount reduction, lower strategic costs and a reduction in back-office operations costs.
 
 
Business performance summary
 
RBS International
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
£m
£m
 
£m
£m
£m
Total income
284 
195 
 
147 
137 
97 
Operating expenses
(114)
(94)
 
(55)
(59)
(48)
Impairment releases/(losses)
(5)
 
Operating profit
173 
96 
 
95 
78 
51 
Return on equity
25.7%
13.1%
 
27.9%
23.2%
14.0%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2018 
2018 
2017 
 
 
 
 
£bn
£bn
£bn
Net loans & advances to customers
 
 
 
13.0 
13.1 
8.7 
Customer deposits
 
 
 
28.5 
27.0 
29.0 
RWAs
 
 
 
6.8 
7.0 
5.1 
 
 
 
 
 
 
 
 
Comparisons with prior periods are impacted by the transfer of the funds and trustee depositary business from Commercial Banking and by the transfers of Coutts Crown Dependency and the International Client Group from Private Banking. The net impact of the transfers on H1 2017 would have increased income by £82 million and increased operating expenses by £7 million. The net impact on the H1 2017 balance sheet would have been to increase net loans and advances by £4.5 billion, customer deposits by £0.9 billion and RWAs by £2.2 billion. The net impact of the transfers on Q2 2017 would have increased income by £42 million and increased operating expenses by £4 million. The net impact of transfers on Q1 2018 would have decreased income by £5 million. The variances in the commentary below have been adjusted for the impact of these transfers, unless otherwise stated.
 
H1 2018 compared with H1 2017 (comparisons adjusted for transfers)
Operating profit of £173 million increased by £2 million, or 1.1%, as higher income, lower impairments and a litigation and conduct release were partially offset by higher operating costs. Return on equity increased to 25.7% from 19.4% driven by the benefit of receiving the advanced internal rating based waiver at the end of 2017.
Total income of £284 million increased by £7 million, or 2.4%, largely driven by deposit margin benefits. On an unadjusted basis, net interest margin increased by 29 basis points to 1.64% primarily driven by the impact of transfers and a change in product mix.
Operating expenses increased by £13 million, or 12.7%, to £114 million due to £16 million higher back-office costs associated with becoming a non ring-fenced bank and £5 million of remediation costs, partially offset by a £10 million litigation and conduct provision release.
Net loans and advances decreased by £0.3 billion, or 2.3%, due to customer activity in the Funds sector. Customer deposits increased by £2.1 billion reflecting a large inflow of short term placements in the Funds sector.
RWAs of £6.8 billion were £4.8 billion lower, in line with reduced lending and the benefit of receiving the advanced internal rating based waiver on the wholesale corporate book in Q4 2017.
Q2 2018 compared with Q1 2018 (comparisons adjusted for transfers)
Total income of £147 million was £15 million higher, principally driven by deposit margin benefits.
Operating expenses were £4 million lower due to an £8 million conduct provision release, partially offset by higher remediation costs.
A net impairment release of £3 million reflects revised credit rating metrics in the quarter.
Q2 2018 compared with Q2 2017 (comparisons adjusted for transfers)
Total income increased by £8 million, or 5.7%, to £147 million driven by deposit margin benefits. On an unadjusted basis, net interest margin increased by 42 basis points to 1.72% primarily reflecting the impact of transfers and change in product mix.
Operating expenses increased by £3 million, or 6.5%, to £55 million due to higher back-office costs associated with becoming a non ring-fenced bank and increased remediation costs, partially offset by a conduct provision release.
 
 
Business performance summary
 
NatWest Markets(1)
 
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2018 
2017 
 
2018 
2018 
2017 
 
£m
£m
 
£m
£m
£m
Total income
721  
830  
 
284  
437  
401  
Operating expenses
(671)
(1,092)
 
(322)
(349)
(511)
Impairment (losses)/releases
(4)
77  
 
(13)
9  
32  
Operating profit/(loss)
46  
(185)
 
(51)
97  
(78)
Return on equity
(0.5%)
(4.2%)
 
(3.0%)
2.0%
(3.9%)
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2018 
2018 
2017 
 
 
 
 
£bn
£bn
£bn
Funded assets
 
 
 
134.5  
135.2  
118.7  
RWAs
 
 
 
50.1  
53.1  
52.9  
 
Note:
(1)
 
The NatWest Markets operating segment should not be assumed to be the same as the NatWest Markets Plc legal entity or group following completion of the capital reduction on 2 July 2018.
 
Comparisons with prior periods are impacted by the transfer of shipping and other activities to Commercial Banking and the transfer of whole business securitisations and Relevant Financial Institutions from Commercial Banking in preparation for ring-fencing. The net impact of the transfers on H1 2017 operating profit would have been to increase total income by £66 million and reduce operating expenses by £1 million and the net release of impairments by £38 million. The net impact on the H1 2017 balance sheet would have been to reduce funded assets by £2.4 billion and RWAs by £1.8 billion. The net impact of the transfers on Q2 2017 operating profit would have been to increase total income by £65 million and reduce the impairment release by £35 million to a net impairment loss. The variances in the commentary below have been adjusted for the impact of these transfers, unless stated otherwise.
 
H1 2018 compared with H1 2017 (comparisons adjusted for transfers)
Total income decreased by £175 million, or 19.5%, primarily reflecting reduced income in the core Rates business, which was impacted by some turbulence in European bond markets during Q2 2018, compared to a strong H1 2017. Income of £721 million includes core income of £728 million, legacy losses of £46 million driven by disposals and own credit adjustments of £39 million.
Operating expenses decreased by £420 million, or 38.5%, to £671 million reflecting lower strategic, litigation and conduct costs and lower other expenses, as the legacy business winds down.
Funded assets decreased by £4.8 billion, or 3.5%, to £134.5 billion principally reflecting the wind down of the legacy business.
RWAs decreased by £6.4 billion to £50.1 billion primarily reflecting a reduction in legacy RWAs.
Q2 2018 compared with Q1 2018
Total income decreased by £153 million, having been impacted by some turbulence in European bond markets in Q2 2018. Income of £284 million includes core income of £316 million, legacy losses of £50 million driven by disposals and own credit adjustments of £18 million.
RWAs decreased by £3.0 billion to £50.1 billion reflecting a reduction of £1.9 billion in legacy RWAs and lower market risk in core RWAs, down £1.1 billion to £34.5 billion.
Q2 2018 compared with Q2 2017 (comparisons adjusted for transfers)
Total income decreased by £182 million to £284 million reflecting a strong Q2 2017 and some turbulence in European bond markets in Q2 2018.
Operating expenses of £322 million decreased by £189 million principally reflecting the legacy business wind down and lower strategic and litigation and conduct costs.
 
Central items & other
Central items not allocated represented a charge of £979 million in H1 2018, compared with a £44 million charge in H1 2017. Litigation and conduct costs of £783 million increased by £521 million compared with H1 2017 as RMBS related charges are now included within central items. H1 2018 Treasury funding costs were a charge of £68 million, compared with gain of £132 million in H1 2017, and included a £111 million IFRS volatility charge compared with a £154 million IFRS volatility gain in H1 2017.
 
Business performance summary
 
Capital and leverage ratios
 
 
 
End-point CRR basis (1)
 
30 June 
31 December 
 
2018 
2017 
Risk asset ratios
 
 
 
CET1
16.1 
15.9 
Tier 1
18.1 
17.9 
Total
21.5 
21.3 
 
 
 
Capital
£m
£m
 
 
 
Tangible equity
34,564 
35,164 
 
 
 
Expected loss less impairment provisions
(636)
(1,286)
Prudential valuation adjustment
(608)
(496)
Deferred tax assets
(746)
(849)
Own credit adjustments
(224)
(90)
Pension fund assets
(316)
(287)
Cash flow hedging reserve
151 
(227)
Other deductions
(235)
28 
 
 
 
Total deductions
(2,614)
(3,207)
 
 
 
CET1 capital
31,950 
31,957 
AT1 capital
4,051 
4,041 
 
 
 
Tier 1 capital
36,001 
35,998 
Tier 2 capital
6,659 
6,765 
 
 
 
Total regulatory capital
42,660 
42,763 
 
 
 
Risk-weighted assets
 
 
 
 
 
Credit risk
 
 
  - non-counterparty
144,000 
144,700 
  - counterparty
15,100 
15,400 
Market risk
17,300 
17,000 
Operational risk
22,400 
23,800 
 
 
 
Total RWAs
198,800 
200,900 
 
 
 
Leverage
 
 
 
 
 
Cash and balances at central banks
102,600 
98,300 
Derivatives
151,100 
160,800 
Loans and advances
338,100 
339,400 
Reverse repos
38,900 
40,700 
Other assets
117,600 
98,900 
 
 
 
Total assets
748,300 
738,100 
Derivatives
 
 
  - netting and variation margin
(153,400)
(161,700)
  - potential future exposures
46,200 
49,400 
Securities financing transactions gross up
2,700 
2,300 
Undrawn commitments
50,700 
53,100 
Regulatory deductions and other adjustments
(1,200)
(2,100)
 
 
 
CRR leverage exposure
693,300 
679,100 
 
 
 
CRR leverage ratio %
5.2 
5.3 
 
 
 
UK leverage exposure (2)
597,700 
587,100 
 
 
 
UK leverage ratio % (2)
6.0 
6.1 
 
Notes:
(1)
Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.
(2)
Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.
 
Segment performance
 
Half year ended 30 June 2018
 
PBB
 
CPB
 
 
 
Central
 
 
 
Ulster
 
Commercial
Private
RBS
 
NatWest
items &
Total
 
UK PBB
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
RBS
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
2,542 
224 
 
997 
252 
219 
 
67 
25 
4,326 
Other non-interest income
619 
88 
 
783 
130 
65 
 
615 
37 
2,337 
Own credit adjustments
 
 
39 
39 
 
 
 
 
 
 
 
 
 
 
 
Total income
3,161 
312 
 
1,780 
382 
284 
 
721 
62 
6,702 
Direct expenses - staff costs
(374)
(90)
 
(217)
(69)
(51)
 
(309)
(793)
(1,903)
                           - other costs
(85)
(41)
 
(85)
(21)
(33)
 
(115)
(1,301)
(1,681)
Indirect expenses
(997)
(100)
 
(512)
(126)
(37)
 
(201)
1,973 
 
 
 
 
 
 
 
 
 
 
 
Strategic costs - direct
(25)
 
(5)
(1)
 
(28)
(293)
(350)
                         - indirect
(97)
(6)
 
(36)
(7)
(3)
 
(6)
155 
Litigation and conduct costs
(4)
(17)
 
(1)
10 
 
(12)
(783)
(801)
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
(1,582)
(252)
 
(849)
(225)
(114)
 
(671)
(1,042)
(4,735)
 
 
 
 
 
 
 
 
 
 
 
Operating profit/(loss) before impairment (losses)/releases
1,579 
60 
 
931 
157 
170 
 
50 
(980)
1,967 
Impairment (losses)/releases
(147)
26 
 
(19)
(1)
 
(4)
(141)
Operating profit/(loss)
1,432 
86 
 
912 
156 
173 
 
46 
(979)
1,826 
 
 
 
 
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
28.9%
7.0%
 
14.1%
15.8%
25.7%
 
(0.5%)
nm
5.3%
Cost:income ratio (3)
50.0%
80.8%
 
46.0%
58.9%
40.1%
 
93.1%
nm
70.4%
Impairments as a % of gross loans and advances to customers
0.18%
(0.26%)
 
0.04%
nm
nm
 
nm
nm
0.09%
Net interest margin %
2.81%
1.85%
 
1.65%
2.53%
1.64%
 
0.50%
nm
2.02%
Third party customer asset rate %
3.42%
2.39%
 
2.77%
2.85%
2.44%
 
nm
nm
nm
Third party customer funding rate %
(0.27%)
(0.21%)
 
(0.31%)
(0.18%)
(0.09%)
 
nm
nm
nm
Average interest earning assets (£bn)
182.4 
24.4 
 
121.7 
20.1 
26.9 
 
27.1 
28.6 
431.2 
Total assets (£bn)
192.3 
24.9 
 
141.8 
20.9 
29.8 
 
285.0 
53.6 
748.3 
Funded assets (£bn)
192.3 
24.8 
 
141.8 
20.9 
29.8 
 
134.5 
53.1 
597.2 
Net loans and advances to customers (£bn)
161.9 
19.1 
 
90.7 
13.8 
13.0 
 
21.2 
0.3 
320.0 
Impairment provisions (£bn) (4)
(1.5)
(1.1)
 
(1.1)
(0.1)
 
(0.2)
0.1 
(3.9)
Customer deposits (£bn)
182.2 
17.6 
 
96.4 
26.4 
28.5 
 
14.8 
0.4 
366.3 
Risk-weighted assets (RWAs) (£bn)
43.4 
16.8 
 
71.7 
9.4 
6.8 
 
50.1 
0.6 
198.8 
RWA equivalent (RWAes) (£bn)
44.5 
17.3 
 
74.9 
9.5 
6.8 
 
54.1 
0.8 
207.9 
Employee numbers (FTEs - thousands)
18.6 
2.8 
 
4.5 
1.4 
1.7 
 
5.6 
35.4 
70.0 
For the notes to this table refer to the following page. nm = not meaningful.
 
 
 
 
 
 
Segment performance
 
Quarter ended 30 June 2018
 
PBB
 
CPB
 
 
 
Central
 
 
 
Ulster
 
Commercial
Private
RBS
 
NatWest
items &
Total
 
UK PBB
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
RBS
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
 
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
1,283 
118 
 
505 
129 
115 
 
31 
(1)
2,180 
Other non-interest income
287 
48 
 
410 
69 
32 
 
235 
121 
1,202 
Own credit adjustments
 
 
18 
18 
Total income
1,570 
166 
 
915 
198 
147 
 
284 
120 
3,400 
 
 
 
 
 
 
 
 
 
 
 
Direct expenses - staff costs
(188)
(45)
 
(107)
(34)
(27)
 
(144)
(394)
(939)
                            - other costs
(37)
(24)
 
(49)
(10)
(18)
 
(62)
(662)
(862)
Indirect expenses
(476)
(47)
 
(250)
(60)
(17)
 
(99)
949 
 
 
 
 
 
 
 
 
 
 
 
Strategic costs - direct
(19)
 
(7)
 
(11)
(107)
(141)
                         - indirect
(23)
(3)
 
(2)
 
25 
Litigation and conduct costs
(3)
(8)
 
(1)
 
(6)
(780)
(782)
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
(746)
(124)
 
(404)
(104)
(55)
 
(322)
(969)
(2,724)
 
 
 
 
 
 
 
 
 
 
 
Operating profit/(loss) before impairment (losses)/releases
824 
42 
 
511 
94 
92 
 
(38)
(849)
676 
Impairment (losses)/releases
(90)
34 
 
 
(13)
(1)
(63)
 
 
 
 
 
 
 
 
 
 
 
Operating profit/(loss)
734 
76 
 
515 
94 
95 
 
(51)
(850)
613 
 
 
 
 
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
30.0%
12.5%
 
15.9%
19.3%
27.9%
 
(3.0%)
nm
1.1%
Cost:income ratio (3)
47.5%
74.7%
 
42.5%
52.5%
37.4%
 
113.4%
nm
80.0%
Impairments as a % of gross loans and advances to customers
0.22%
(0.67%)
 
(0.02%)
nm
nm
 
nm
nm
0.08%
Net interest margin %
2.81%
1.91%
 
1.66%
2.54%
1.72%
 
0.46%
nm
2.01%
Third party customer asset rate %
3.41%
2.40%
 
2.79%
2.82%
2.34%
 
nm
nm
nm
Third party customer funding rate %
(0.27%)
(0.21%)
 
(0.31%)
(0.17%)
(0.11%)
 
nm
nm
nm
Average interest earning assets (£bn)
183.1 
24.8 
 
121.9 
20.3 
26.9 
 
27.0 
30.9 
434.9 
Total assets (£bn)
192.3 
24.9 
 
141.8 
20.9 
29.8 
 
285.0 
53.6 
748.3 
Funded assets (£bn)
192.3 
24.8 
 
141.8 
20.9 
29.8 
 
134.5 
53.1 
597.2 
Net loans and advances to customers (£bn)
161.9 
19.1 
 
90.7 
13.8 
13.0 
 
21.2 
0.3 
320.0 
Impairment provisions (£bn) (4)
(1.5)
(1.1)
 
(1.1)
(0.1)
 
(0.2)
0.1 
(3.9)
Customer deposits (£bn)
182.2 
17.6 
 
96.4 
26.4 
28.5 
 
14.8 
0.4 
366.3 
Risk-weighted assets (RWAs) (£bn)
43.4 
16.8 
 
71.7 
9.4 
6.8 
 
50.1 
0.6 
198.8 
RWA equivalent (RWAes) (£bn)
44.5 
17.3 
 
74.9 
9.5 
6.8 
 
54.1 
0.8 
207.9 
Employee numbers (FTEs - thousands)
18.6 
2.8 
 
4.5 
1.4 
1.7 
 
5.6 
35.4 
70.0 
 
 
 
 
 
 
 
 
 
 
 
nm = not meaningful
 
 
 
 
 
Notes:
(1)
Central items include unallocated transactions which principally comprise volatile items under IFRS and RMBS related charges.
(2)
RBS’s CET 1 target is in excess of 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 14% (Ulster Bank RoI), 11% (Commercial Banking), 13.5% (Private Banking), 16% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.
(3)
Operating lease depreciation included in income (H1 2018 - £57 million; Q2 2018 - £26 million).
(4)
Prepared under IFRS 9. Refer to the February 2018 IFRS 9 Transition report for further details.
 
Condensed consolidated income statement for the period ended 30 June 2018 (unaudited)
 
Half year ended
 
30 June
30 June
2018 
2017 
 
£m 
£m 
Interest receivable
5,444 
5,462 
Interest payable
(1,118)
(990)
Net interest income (1)
4,326 
4,472 
 
 
 
Fees and commissions receivable
1,646 
1,666 
Fees and commissions payable
(451)
(448)
Income from trading activities
847 
884 
Loss on redemption of own debt
(7)
Other operating income
334 
352 
Non-interest income
2,376 
2,447 
Total income
6,702 
6,919 
 
 
 
Staff costs
(2,086)
(2,447)
Premises and equipment
(644)
(678)
Other administrative expenses
(1,636)
(1,208)
Depreciation and amortisation
(338)
(511)
Write down of other intangible assets
(31)
(8)
Operating expenses
(4,735)
(4,852)
 
 
 
Profit before impairment losses
1,967 
2,067 
Impairment losses
(141)
(116)
 
 
 
Operating profit before tax
1,826 
1,951 
Tax charge
(741)
(727)
 
 
 
Profit for the period
1,085 
1,224 
Attributable to:
 
 
Non-controlling interests
(16)
29 
Preference share and other dividends
213 
256 
Ordinary shareholders
888 
939 
 
 
 
Basic earnings per ordinary share (2)
7.4p
7.9p
 
Notes:
(1)
Negative interest on loans and advances is reported as interest payable. Negative interest on customer deposits is reported as interest receivable.
(2)
There is no dilutive impact in any period.
 
Condensed consolidated statement of comprehensive income for the period ended 30 June 2018 (unaudited)
 
 
Half year ended
 
30 June
30 June
 
2018 
2017 
 
£m
£m
Profit for the period
1,085 
1,224 
 
 
 
Items that do not qualify for reclassification
 
 
Loss on remeasurement of retirement benefit schemes
(26)
Profit/(loss) on fair value of credit in financial liabilities designated
 
 
  at fair value through profit or loss due to own credit risk
95 
(77)
Fair value through other comprehensive income (FVOCI) (1)
Funding commitment to retirement benefit schemes (2)
(2,000)
Tax
500 
(8)
 
 
 
 
(1,402)
(111)
Items that do qualify for reclassification
 
 
FVOCI financial assets (1)
199 
29 
Cash flow hedges
(521)
(611)
Currency translation
18 
103 
Tax
97 
161 
 
 
 
 
(207)
(318)
 
 
 
Other comprehensive loss after tax
(1,609)
(429)
 
 
 
Total comprehensive (loss)/income for the period
(524)
795 
 
 
 
Total comprehensive (loss)/income is attributable to:
 
 
Non-controlling interests
(29)
49 
Preference shareholders
74 
85 
Paid-in equity holders
139 
171 
Ordinary shareholders
(708)
490 
 
 
 
 
(524)
795 
 Notes:
(1)
Refer to Note 2 for further information on the impact of IFRS 9 on classification and basis of preparation, half year ended 30 June 2018 prepared under IFRS 9 and half year ended 30 June 2017 under IAS 39.
(2)
On 17 April 2018 RBS agreed a Memorandum of Understanding (MoU) with the Trustees of the RBS Group Pension Fund in connection with the requirements of ring-fencing.  NatWest Markets Plc cannot continue to be a participant in the Main section and separate arrangements are required for its employees.  Under the MoU NatWest Bank will make a contribution of £2 billion to strengthen funding of the Main section in recognition of the changes in covenant. The contribution will be made later in 2018.
 
 
Condensed consolidated balance sheet as at 30 June 2018 (unaudited)
 
 
30 June
31 December
2018 
2017 
 
£m
£m 
 
 
 
Assets
 
 
Cash and balances at central banks
102,590 
98,337 
Net loans and advances to banks
18,100 
16,254 
Reverse repurchase agreements and stock borrowing
9,739 
13,997 
Loans and advances to banks
27,839 
30,251 
Net loans and advances to customers
319,961 
323,184 
Reverse repurchase agreements and stock borrowing
29,177 
26,735 
Loans and advances to customers
349,138 
349,919 
Debt securities
92,269 
78,933 
Equity shares
581 
450 
Settlement balances
8,325 
2,517 
Derivatives
151,136 
160,843 
Intangible assets
6,570 
6,543 
Property, plant and equipment
4,370 
4,602 
Deferred tax
1,815 
1,740 
Prepayments, accrued income and other assets
3,620 
3,726 
Assets of disposal groups
83 
195 
 
 
 
Total assets
748,336 
738,056 
 
 
 
Liabilities
 
 
Bank deposits
40,059 
39,479 
Repurchase agreements and stock lending
8,651 
7,419 
Deposits by banks
48,710 
46,898 
Customer deposits
366,341 
367,034 
Repurchase agreements and stock lending
35,459 
31,002 
Customer accounts
401,800 
398,036 
Debt securities in issue
36,723 
30,559 
Settlement balances
7,799 
2,844 
Short positions
35,041 
28,527 
Derivatives
143,689 
154,506 
Provisions for liabilities and charges
6,995 
7,757 
Accruals and other liabilities
5,841 
6,392 
Retirement benefit liabilities
2,130 
129 
Deferred tax
501 
583 
Subordinated liabilities
10,602 
12,722 
Liabilities of disposal groups
14 
10 
 
 
 
Total liabilities
699,845 
688,963 
 
 
 
Equity
 
 
Non-controlling interests
734 
763 
Owners’ equity*
 
 
  Called up share capital
12,028 
11,965 
  Reserves
35,729 
36,365 
 
 
 
Total equity
48,491 
49,093 
 
 
 
Total liabilities and equity
748,336 
738,056 
 
 
 
*Owners’ equity attributable to:
 
 
Ordinary shareholders
41,134 
41,707 
Other equity owners
6,623 
6,623 
 
 
 
 
47,757 
48,330 
 
Condensed consolidated statement of changes in equity for the period ended 30 June 2018 (unaudited)
 
 
Half year ended
 
30 June
30 June
2018
2017
£m
£m
 
 
 
Called-up share capital - at beginning of period
11,965 
11,823 
Ordinary shares issued
63 
53 
 
 
 
At end of period
12,028 
11,876 
 
 
 
Paid-in equity - at beginning of period
4,058 
4,582 
Redemption call by RBS Capital Trust III (1)
(91)
 
 
 
At end of period
4,058 
4,491 
 
 
 
Share premium account - at beginning of period
887 
25,693 
Ordinary shares issued
108 
96 
Capital reduction (2)
 
(25,789)
 
 
 
At end of period
995 
 
 
 
Merger reserve - at beginning and end of period
10,881 
10,881 
 
 
 
Fair value through other comprehensive income reserve - at beginning of period (3)
255 
238 
Implementation of IFRS 9 on 1 January 2018
 
34 
Unrealised gains
203 
100 
Realised gains
(3)
(71)
Tax
(47)
(8)
 
 
 
At end of period
442 
259 
 
 
 
Cash flow hedging reserve - at beginning of period
227 
1,030 
Amount recognised in equity
(156)
(240)
Amount transferred from equity to earnings
(365)
(371)
Tax
143 
156 
 
 
 
At end of period
(151)
575 
 
 
 
 
Foreign exchange reserve - at beginning of period
2,970 
2,888 
Retranslation of net assets
(58)
124 
Foreign currency gains/(losses) on hedges of net assets
14 
(8)
Tax
13 
Recycled to profit or loss on disposal of businesses (4)
74 
(33)
 
 
 
At end of period
3,001 
2,984 
 
 
 
 
Capital redemption reserve - at beginning of period
4,542 
Capital reduction (2)
 
(4,542)
At end of period
 
 
 
 
 
Retained earnings - at beginning of period
 
17,130 
(12,936)
Implementation of IFRS 9 on 1 January 2018
 
(105)
Profit attributable to ordinary shareholders and other equity owners
1,101 
1,195 
Equity preference dividends paid
 
(74)
(85)
Paid-in equity dividends paid, net of tax
 
(139)
(171)
Capital reduction (2)
30,331 
Realised gains in period on FVOCI equity shares
Remeasurement of retirement benefit schemes
 
 
  - gross
 
(26)
  - tax
 
(20)
Funding commitment to retirement benefit schemes (5)
 
 
  - gross
 
(2,000)
  - tax
 
516 
Changes in fair value of credit in financial liabilities designated at fair value through profit
 
 
  - gross
 
95 
(77)
  - tax
 
(16)
12 
Shares issued under employee share schemes
(2)
(5)
Share-based payments
 
 
 
  - gross
 
18 
(34)
 
 
 
 
At end of period
 
16,527 
18,184 
 
 
 
 
For notes to this table, refer to the following page.
 
 
 
Condensed consolidated statement of changes in equity for the period ended 30 June 2018  (unaudited)
 
 
Half year ended
 
30 June
30 June
2018
2017
 
£m
£m
 
 
 
Own shares held - at beginning of period
(43)
(132)
Purchase of own shares
(63)
(69)
Shares issued under employee share schemes
82 
156 
 
 
 
At end of period
(24)
(45)
 
 
 
Owners’ equity at end of period
47,757 
49,205 
 
 
 
Non-controlling interests - at beginning of period
763 
795 
Currency translation adjustments and other movements
(12)
20 
(Loss)/profit attributable to non-controlling interests
(16)
29 
Movements in Fair value through other comprehensive income - unrealised losses
(1)
 
 
 
At end of period
734 
844 
 
 
 
Total equity at end of period
48,491 
50,049 
 
 
 
Total equity is attributable to:
 
 
Non-controlling interests
734 
844 
Preference shareholders
2,565 
2,565 
Paid-in equity holders
4,058 
4,491 
Ordinary shareholders
41,134 
42,149 
 
 
 
 
48,491 
50,049 
 
Notes:
(1)
Paid in equity reclassified to liabilities as a result of the call of RBS capital Trust D in March 2017, redeemed in June 2017.
(2)
On 15 June 2017, the Court of Session approved a reduction of RBSG plc capital so that the amounts which stood to the credit of share premium account and capital redemption reserve were transferred to retained earnings.
(3)
Refer to Note 2 for further information on the impact of IFRS 9 on classification and basis of preparation, half year ended 30 June 2018 prepared under IFRS 9 and half year ended 30 June 2017 under IAS 39.
(4)
No tax impact.
(5)
On 17 April 2018 RBS agreed a Memorandum of Understanding (MoU) with the Trustees of the RBS Group Pension Fund in connection with the requirements of ring-fencing.  NatWest Markets Plc cannot continue to be a participant in the Main section and separate arrangements are required for its employees.  Under the MoU NatWest Bank will make a contribution of £2 billion to strengthen funding of the Main section in recognition of the changes in covenant. The contribution will be made later in 2018.
 
 
Condensed consolidated cash flow statement for the period ended 30 June 2018 (unaudited)
 
 
Half year ended
 
30 June
30 June
 
2018 
2017 
 
£m
£m
 
 
 
Operating activities
 
 
Operating profit before tax
1,826 
1,951 
Adjustments for non-cash items
(1,280)
(2,181)
 
 
 
Net cash inflow/(outflow) from trading activities
546 
(230)
Changes in operating assets and liabilities
9,408 
30,797 
 
 
 
Net cash flows from operating activities before tax
9,954 
30,567 
Income taxes paid
(156)
(248)
 
 
 
Net cash flows from operating activities
9,798 
30,319 
 
 
 
Net cash flows from investing activities
(3,769)
(6,319)
 
 
 
Net cash flows from financing activities
(2,307)
(4,814)
 
 
 
Effects of exchange rate changes on cash and cash equivalents
38 
(64)
 
 
 
Net increase in cash and cash equivalents
3,760 
19,122 
Cash and cash equivalents at beginning of year
122,605 
98,570 
 
 
 
Cash and cash equivalents at end of year
126,365 
117,692 
 
 
 

 
Notes
 
1. Basis of preparation
The Group condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and IAS 34 ‘Interim Financial Reporting’. They should be read in conjunction with RBS’s 2017 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).
 
Going concern
The Group’s business activities and financial position, and the factors likely to affect its future development and performance are discussed on pages 1 to 45. The risk factors which could materially affect the Group’s future results are described on pages 48 to 49.
 
Having reviewed the Group’s forecasts, projections and other relevant evidence, the directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future. Accordingly, the results for the half year ended 30 June 2018 have been prepared on a going concern basis.
 
2. Accounting policies
In July 2014, the IASB published IFRS 9 ‘Financial instruments’ with an effective date of 1 January 2018. For further details see pages 261 and 262 of the Group’s 2017 Annual Report and Accounts and Appendix 2, which is consistent with the RBS Group February 2018 IFRS 9 Transition report. There has been no restatement of accounts prior to 2018. The impact on the Group’s balance sheet at 1 January 2018 is as follows:
 
 
 
 
 
 
 
 
Impact of IFRS 9
 
 
 
 
Expected
 
 
 
31 December
Classification &
 credit
 
1 January
 
2017 
measurement
 losses
Tax
2018 
 
£m
£m
£m
£m
£m
Cash and balances at central banks
98,337 
(1)
98,336 
Net loans and advances to banks
30,251 
(3)
30,248 
Net loans and advances to customers
349,919 
517 
(524)
349,912 
Debt securities and equity shares
79,383 
44 
(3)
79,424 
Other assets
19,323 
25 
19,348 
 
 
 
 
 
 
Total assets
738,056 
561 
(531)
25 
738,111 
 
 
 
 
 
 
Total liabilities
688,963 
85 
41 
689,089 
Total equity
49,093 
561 
(616)
(16)
49,022 
Total liabilities and equity
738,056 
561 
(531)
25 
738,111 
 
 
Total
Key differences in moving from IAS 39 to IFRS 9 on impairment loss
£m
31 December 2017 - IAS 39 impairment provision (1)
3,832 
Removal of IAS 39 latent provision
(390)
IFRS 9 12 month expected credit loss (ECL) on Stage 1 and 2
513 
Increase in Stage 2 ECL to lifetime (discounted)
356 
Stage 3 loss estimation (EAD, LGD)
73 
Impact of multiple economic scenarios
64 
1 January 2018 - IFRS 9 ECL
4,448 
 
 
Note:
(1) IAS 39 provision includes £28 million relating to AFS and LAR debt securities and £3,814 million relating to loans less £10 million on loans that are now carried at fair value.
 
The Group’s principal accounting policies are as set out on pages 251 to 263 of the Group’s 2017 Annual Report and Accounts. From 1 January 2018 the accounting policies have been updated to reflect the adoption of IFRS 9 as mentioned above. Other than in relation to IFRS 9 other amendments to IFRS effective for 2018, including IFRS 15 ‘Revenue from contracts with customers’, IFRS 2 ‘Share-based payments’ and IAS 40 ‘Investment Property’ have not had a material effect on the Group’s 2018 Interim results.
 
 
Notes
 
2. Accounting policies continued
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of the Group’s financial condition are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on pages 259 to 261 of the Group’s 2017 Annual Report and Accounts. From 1 January 2018, the previous critical accounting policy relating to loan impairment provisions has been superceded on the adoption of IFRS 9 for which details are included in Appendix 2, which is consistent with the details included in the RBS Group February 2018 IFRS 9 Transition report.
 
3. Analysis of income, expenses and impairment losses
 
 
 
 
Half year ended
 
30 June
30 June
 
2018
2017
 
£m
£m
 
 
 
Loans and advances to customers
4,978 
5,152 
Loans and advances to banks
236 
120 
Debt securities
230 
190 
 
 
 
Interest receivable
5,444 
5,462 
 
 
 
Customer accounts
415 
328 
Balances by banks
113 
70 
Debt securities in issue
337 
254 
Subordinated liabilities
226 
317 
Internal funding of trading businesses
27 
21 
 
 
 
Interest payable
1,118 
990 
 
 
 
Net interest income
4,326 
4,472 
 
 
 
Net fees and commissions
1,195 
1,218 
 
 
 
Foreign exchange
336 
228 
Interest rate
275 
652 
Credit
187 
58 
Own credit adjustments
39 
(73)
Other
10 
19 
 
 
 
Income from trading activities
847 
884 
 
 
 
Loss on redemption of own debt
(7)
 
 
 
Operating lease and other rental income
128 
142 
Changes in the fair value of financial assets and liabilities designated as at fair
 
 
  value through profit or loss and related derivatives
(76)
41 
Changes in fair value of investment properties
(7)
(10)
Profit on sale of securities
33 
Profit on sale of property plant equipment
21 
(Loss)/profit on sale of subsidiaries and associates
(9)
206 
Profit/(loss) on disposal or settlement of loans and advances
22 
(150)
Share of profits of associated undertakings
17 
60 
Other income
237 
27 
 
 
 
Other operating income
334 
352 
 
 
 
Total non-interest income
2,376 
2,447 
 
 
 
Total income
6,702 
6,919 
 
 
Notes
 
3. Analysis of income, expenses and impairment losses
 
 
Half year ended
 
30 June
30 June
2018
2017 
 
£m
£m
 
 
 
Staff costs
(2,086)
(2,447)
Premises and equipment
(644)
(678)
Other (1)
(1,636)
(1,208)
 
 
 
Administrative expenses
(4,366)
(4,333)
Depreciation and amortisation
(338)
(511)
Write down of other intangible assets
(31)
(8)
 
 
 
Operating expenses
(4,735)
(4,852)
 
 
 
 
 
 
Impairment losses
(141)
(116)
Impairments as a % of gross loans and advances to customers
0.09%
0.07%
 
Note:
(1)
Includes costs relating to customer redress, DoJ and litigation and other regulatory (including RMBS) – refer to Note 4 for further details.
 
 
4. Provisions for liabilities and charges
 
 
 
 
 
 
 
 
 
 
 
Litigation
 
 
 
Payment
Other
 
and other
 
 
 
protection
 customer
 
regulatory
 
 
 
insurance
 redress
DoJ (1)
(incl. RMBS)
Other
Total
 
£m
£m
£m
£m
£m
£m
 
 
 
 
 
 
 
At 1 January 2018
1,053 
870 
3,243 
641 
1,950 
7,757 
Implementation of IFRS 9 on 1 January 2018 (2)
85 
85 
Currency translation and other movements
(5)
(119)
(4)
(1)
(129)
Charge to income statement
19 
111 
133 
Releases to income statement
(10)
(1)
(5)
(15)
(31)
Provisions utilised
(152)
(115)
(90)
(52)
(100)
(509)
At 31 March 2018
901 
759 
3,033 
583 
2,030 
7,306 
RMBS transfers (1)
(567)
567 
Currency translation and other movements
209 
32 
(24)
217 
Charge to income statement
46 
1,040 
23 
93 
1,202 
Releases to income statement
(51)
(305)
(119)
(475)
Provisions utilised
(156)
(104)
(189)
(806)
(1,255)
At 30 June 2018
745 
650 
3,715 
711 
1,174 
6,995 
 
 
Notes:
(1)
RMBS provision has been redesignated ‘DoJ’ and the remaining RMBS litigation matters transferred to Litigation and other regulatory as of 1 April 2018 to reflect progress on resolution.
(2)
Refer to Note 2 for further details on the impact of IFRS 9 on classification and basis of preparation.
 
 
Notes
 
4. Provisions for liabilities and charges (continued)
 
Payment Protection Insurance (PPI)
The cumulative charge in respect of PPI is £5.1 billion, of which £4.0 billion (78%) in redress and £0.4 billion in administrative expenses had been utilised by 30 June 2018. Of the £5.1 billion cumulative charge, £4.6 billion relates to redress and £0.5 billion to administrative expenses.
 
The principal assumptions underlying RBS’s provision in respect of PPI sales are: assessment of the total number of complaints that RBS will receive before 29 August 2019; the proportion of these that will result in redress; and the average cost of such redress. The number of complaints has been estimated from an analysis of RBS’s portfolio of PPI policies sold by vintage and by product. Estimates of the percentage of policyholders that will lodge complaints (the take up rate) and of the number of these that will be upheld (the uphold rate) have been established based on recent experience, guidance in FCA policy statements and the expected rate of responses from proactive customer contact. The average redress assumption is based on recent experience and FCA calculation rules. The table below shows the sensitivity of the provision to changes in the principal assumptions (all other assumptions remaining the same).
 
 
 
 
Sensitivity
 
Actual to date 
 
Future expected 
Change in 
assumption 
Consequential 
change in 
provision 
Assumption
£m 
 
 
 
 
 
Customer initiated complaints (1)
2,578k
371k
+/-5
+/-26
Uphold rate (2)
90%
89%
+/-1
+/-6
Average redress (3)
£1,673
£1,559
+/-5
+/-26
Processing cost per claim (4)
£156
£113
+/-20k claims
+/-2
 
Notes:
(1)
Claims received directly by RBS to date, including those received via CMCs and Plevin (commission) only. Excluding those for proactive mailings and where no PPI policy exists.
(2)
Average uphold rate per customer initiated claims received directly by RBS to end of timebar for both PPI (mis-sale) and Plevin (commission), excluding those for which no PPI policy exists.
(3)
Average redress for PPI (mis-sale) and Plevin (commission) pay-outs.
(4)
Processing costs per claim on a valid complaints basis, includes direct staff costs and associated overhead - excluding FOS fees.
 
Interest that will be payable on successful complaints has been included in the provision as has the estimated cost to RBS of administering the redress process. There are uncertainties as to the eventual cost of redress which will depend on actual complaint volumes, take up and uphold rates and average redress costs. Assumptions related to these are inherently uncertain and the ultimate financial impact may be different from the amount provided. We continue to monitor the position closely and refresh the underlying assumptions. Background information in relation to PPI claims is given in Note 11.
 
Department of Justice
In May 2018, RBSG reached a civil settlement in principle to resolve the DoJ’s RMBS investigation. Under the terms of the proposed settlement, RBSG agreed, in principle, to pay a civil monetary cash penalty of US$4,901 million (£3,715 million). Of this amount, US$3,461 million (£2,675 million) is covered by existing provisions. An additional charge of US$1,440 million (£1,040 million) was taken in May 2018.
 
Litigation and other regulatory (incl. RMBS)
RBS is party to certain legal proceedings and regulatory investigations and continues to co-operate with a number of regulators. All such matters are periodically reassessed with the assistance of external professional advisers, where appropriate, to determine the likelihood of RBS incurring a liability and to evaluate the extent to which a reliable estimate of any liability can be made.
 
In the US, RBS companies are subject to civil litigation and investigations relating to their issuance and underwriting of US RMBS. Detailed descriptions of such matters are given in Note 11.
 
 
Notes
 
4. Provisions for liabilities and charges (continued)
 
In March 2018, the New York Attorney General announced that it had resolved its RMBS investigation. RBS Financial Products Inc. paid US$100 million (£73 million) to the State of New York, and provided US$400 million of consumer relief credits at a cost of approximately US$130 million (£94 million). In July 2018, the Illinois Attorney General announced that it too had resolved its RMBS investigation. RBS Financial Products Inc. paid US$20 million (£15 million) to the State of Illinois to settle this matter.
 
RBS has released a provision of US$318 million (£241 million) which had been established to cover a judgment in favour of the US Federal Housing Finance Agency (FHFA) as conservator for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) in civil RMBS litigation against NatWest Markets Securities Inc. and Nomura Holding America Inc. and subsidiaries. In July 2018, Nomura paid the full amount due under the judgment, thereby extinguishing NatWest Markets Securities Inc.'s liability in this case.
 
Other
RBS recognised a £800 million provision as a consequence of the announcement in 2017 that HM Treasury is seeking a revised package of remedies that would conclude its remaining State Aid commitments. In the last quarter, costs totalling £722 million have been utilised against this provision.
 
5. Tax
The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 19% (2017 - 19.25%), as analysed below.
 
 
Half year ended
 
30 June
30 June
2018
2017
 
£m
£m
 
 
 
Profit before tax
1,826 
1,951 
 
 
 
Expected tax charge
(347)
(376)
Losses and temporary differences in period where no
 
 
  deferred tax asset recognised
(8)
(156)
Foreign profits taxed at other rates
72 
Items not allowed for tax
 
 
  - losses on disposals and write-downs
(26)
(59)
  - UK bank levy
(16)
(20)
  - regulatory and legal actions
(154)
(21)
  - other disallowable items
(34)
(34)
Non-taxable items
62 
Taxable foreign exchange movements
(5)
Losses brought forward and utilised
18 
Reduction in carrying value of deferred tax in respect of UK losses
(15)
Banking surcharge
(188)
(199)
Adjustments in respect of prior periods
25 
(8)
 
 
 
Actual tax charge
(741)
(727)
 
At 30 June 2018, the Group has recognised a deferred tax asset of £1,815 million (31 December 2017 - £1,740 million) and a deferred tax liability of £501 million (31 December 2017 - £583 million). These include amounts recognised in respect of UK trading losses of £665 million (31 December 2017 - £680 million). Under UK tax legislation, these UK losses can be carried forward indefinitely. The Finance Act 2016 limited the offset of the UK banking losses carried forward to 25% of taxable profits. The Group has considered the carrying value of this asset as at 30 June 2018 and concluded that it is recoverable based on future profit projections.
 
Notes
 
6. Profit attributable to non-controlling interests
 
 
 
 
Half year ended
 
30 June
30 June
2018
2017
 
£m
£m