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)	7	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	8		-	26	-
FX gains/losses in Central items and other	4	(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)	1	(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)		4	(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)	3	(5)		3	-	2
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)	2		(5)	(1)	-		(28)	(293)	(350)
- indirect	(97)	(6)		(36)	(7)	(3)		(6)	155	-
Litigation and conduct costs	(4)	(17)		6	(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)	3		(4)	1	(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)	3		(7)	-	-		(11)	(107)	(141)
- indirect	(23)	(3)		2	1	(2)		-	25	-
Litigation and conduct costs	(3)	(8)		7	(1)	9		(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		4	-	3		(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