Report of Foreign Private Issuer

 

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

5 May 2017

 

 

 Form 6-K

 

The Royal Bank of Scotland Group plc

 

 

Gogarburn

PO Box 1000

Edinburgh EH12 1HQ

Scotland

United Kingdom

 

(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-             

 

 

This report on Form 6-K shall be deemed incorporated by reference into the company’s Registration Statement on Form F-3 (File No. 333-203157) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 


 

 

The Royal Bank of Scotland Group plc

Q1 2017 Results

 

Contents

Page 

 

 

Forward-looking statements

2

Introduction

4

Presentation of information

4

Condensed consolidated income statement

6

Condensed consolidated balance sheet

7

Highlights

8

Segmental income statement reconciliations

12

Analysis of results

14

Segment performance

27

Statutory results

 

 

 

Selected statutory financial statements

32

Notes

36

Additional information

 

 

 

Other financial data

39

Signature page

41

 

 

1

 

 


 

 

Forward-looking statements

 

Cautionary statement regarding forward-looking statements

Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’, ‘believe’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions.

 

In particular, this document includes forward-looking statements relating, but not limited to: future profitability and performance, including financial performance targets such as return on tangible equity; cost savings and targets, including cost:income ratios; litigation and government and regulatory investigations, including the timing and financial and other impacts thereof; structural reform and the implementation of the UK ring-fencing regime; the implementation of RBS’s transformation programme, including the further restructuring of the NatWest Markets business; the satisfaction of the Group’s residual EU State Aid obligations; the continuation of RBS’s balance sheet reduction programme, including the reduction of risk-weighted assets (RWAs) and the timing thereof; capital and strategic plans and targets; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWA equivalents (RWAe), Pillar 2 and other regulatory buffer requirements, minimum requirement for own funds and eligible liabilities, and other funding plans; funding and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth; the level and extent of future impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; future pension contributions; RBS’s exposure to political risks, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risks, including as interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions.

 

Limitations inherent to forward-looking statements

These statements are based on current plans, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to the Group’s strategy or operations, which may result in the Group being unable to achieve the current targets, predictions, expectations and other anticipated outcomes expressed or implied by such forward-looking statements. In addition certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. Forward-looking statements speak only as of the date we make them and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

Important factors that could affect the actual outcome of the forward-looking statements

We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements we describe in this document, including in the risk factors and other uncertainties set out in the Group’s 2016 Annual Report on Form 20-F and other materials filed with, or furnished to, the US Securities and Exchange Commission, and other uncertainties discussed in this document. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is or may be subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes and the timing thereof (including where resolved by settlement); economic, regulatory and political risks, including as may result from the uncertainty arising from the EU Referendum; RBS’s ability to satisfy its residual EU State Aid obligations and the timing thereof; RBS’s ability to successfully implement the significant and complex restructuring required to be undertaken in order to implement the UK ring-fencing regime and related costs; RBS’s ability to successfully implement the various initiatives that are comprised in its transformation programme, particularly the proposed further restructuring of the NatWest Markets business, the balance sheet reduction programme and its significant cost-saving initiatives and whether RBS will be a viable, competitive, customer focused and profitable bank especially after its restructuring and the implementation of the UK ring-fencing regime; the exposure of RBS to cyber-attacks and its ability to defend against such attacks; RBS’s ability to achieve its capital and leverage requirements or targets which will depend in part on RBS’s success in reducing the size of its business and future profitability as well as developments which may impact its CET1 capital including additional litigation or conduct costs, additional pension contributions, further impairments or accounting changes; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; RBS’s ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS, RBS entities or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS’s strategic refocus on the UK; as well as creasing competition from new incumbents and disruptive technologies.

2

 

 


 

 

Forward-looking statements

 

In addition, there are other risks and uncertainties that could adversely affect our results, ability to implement our strategy, cause us to fail to meet our targets or the accuracy of forward-looking statements in this document. These include operational risks that are inherent to RBS’s business and will increase as a result of RBS’s significant restructuring initiatives being concurrently implemented; the potential negative impact on RBS’s business of global economic and financial market conditions and other global risks; the impact of a prolonged period of low interest rates or unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; the extent of future write-downs and impairment charges caused by depressed asset valuations; deteriorations in borrower and counterparty credit quality; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates as well as divergences in regulatory requirements in the jurisdictions in which RBS operates; the risks relating to RBS’s IT systems or a failure to protect itself and its customers against cyber threats, reputational risks; risks relating to increased pension liabilities and the impact of pension risk on RBS’s capital position; risks relating to the failure to embed and maintain a robust conduct and risk culture across the organisation or if its risk management framework is ineffective; RBS’s ability to attract and retain qualified personnel; limitations on, or additional requirements imposed on, RBS’s activities as a result of HM Treasury’s investment in RBS; the value and effectiveness of any credit protection purchased by RBS; risks relating to the reliance on valuation, capital and stress test models and any inaccuracies resulting therefrom or failure to accurately reflect changes in the micro and macroeconomic environment in which RBS operates, risks relating to changes in applicable accounting policies or rules which may impact the preparation of RBS’s financial statements or adversely impact its capital position; the impact of the recovery and resolution framework and other prudential rules to which RBS is subject; the recoverability of deferred tax assets by the Group; and the success of RBS in managing the risks involved in the foregoing.

 

The forward-looking statements contained in this document speak only as at the date hereof, and RBS does not assume or undertake any obligation or responsibility to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicit of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

3

 

 


 

 

Introduction

 

Presentation of information

In this document, ‘RBSG plc’ or the ‘parent company’ refers to The Royal Bank of Scotland Group plc, and ‘RBS’ or the ‘Group’ refers to RBSG plc and its subsidiaries.

Non-GAAP financial information

RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (‘GAAP’). This document contains a number of non-GAAP (or non-IFRS) financial measures. A non-GAAP financial measure is defined as one that measures historical or future financial performance, financial position or cash flows but which excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.

 

The non-GAAP measures used in this document generally exclude certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These measures are used internally by management, in conjunction with IFRS financial measures, to measure performance and make decisions regarding the future direction of the business. Management believes these non-GAAP measures, when provided in combination with reported IFRS results, provide helpful supplementary information for investors. These adjusted measures, derived from the reported results are non-IFRS financial measures but are not a substitute to IFRS reported measures.

 

The main non-GAAP measures used in this document include:

 

·         ‘Adjusted’ measures of financial performance, principally operating profit, operating expenses, total income and other performance measures before: own credit adjustments; gain or loss on redemption of own debt; strategic disposals, restructuring costs and litigation and conduct costs;

·         Certain performance ratios based on the adjusted performance measures described above, including the adjusted cost:income ratio (calculated using adjusted operating income and costs), adjusted return on equity ratio (calculated using adjusted operating profit) and the 2017 cost saving progress and targets (calculated using operating expenses excluding litigation and conduct costs, restructuring costs, the operating costs of Williams & Glyn and the VAT recoveries);

·         Personal & Business Banking (PBB) franchise results, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI, Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI) and ‘core bank’ results combining PBB, CPB and NatWest Markets results which are presented to provide investors with a summary of the Group’s business performance; and Reconciliations of these non-GAAP measures to the closest equivalent GAAP measure are presented throughout this document and in the 2017 performance on page 12.

 

Key operating indicators

This document includes a number of operational metrics which management believes may be helpful to investors in understanding the Group’s business, including the Groups position against its own targets. These metrics include performance, funding and credit metrics such as ‘return on tangible equity’ and related RWA equivalents incorporating the effect of capital deductions (RWAes), total assets excluding derivatives (funded assets) and net interest margin (NIM) adjusted for items designated at fair value through profit or loss (non-statutory NIM), cost:income ratio, loan:deposit ratio and REIL/impairment provision ratios. These are internal metrics used to measure business performance.

 

4

 

 


 

 

Introduction

 

Capital and liquidity measures

Certain liquidity and capital measures and ratios are presented in this document as management believes they are helpful for investors’ understanding of the liquidity and capital profile of the business and the

Group’s position against its own targets and applicable regulatory requirements. Some of these measures are used by management for risk management purposes and may not yet required to be disclosed by a government, governmental authority or self-regulatory organisation. As a result, the basis of calculation of these measures may not be the same as that used by the Group’s peers. These capital and liquidity measures and ratios include: the liquidity coverage ratio, stressed outflow coverage and net stable funding ratio.

5

 

 


 

 

Condensed consolidated income statement for the period ended 31 March 2017

 

  

  

Quarter ended

  

  

31 March

31 December

31 March

2017 

2016 

2016 

  

£m 

£m 

£m 

  

  

  

  

Interest receivable

2,732 

2,770 

2,845 

Interest payable

(498)

(562)

(689)

Net interest income (1) 

2,234 

2,208 

2,156 

  

  

  

  

Fees and commissions receivable

822 

821 

866 

Fees and commissions payable

(217)

(213)

(212)

Income from trading activities

399 

590 

38 

Gain on redemption of own debt

Other operating income

(28)

(191)

216 

Non-interest income

978 

1,008 

908 

  

  

  

  

Total income

3,212 

3,216 

3,064 

  

  

  

  

Staff costs

(1,315)

(1,142)

(1,323)

Premises and equipment

(377)

(382)

(324)

Other administrative expenses

(419)

(5,511)

(575)

Depreciation and amortisation

(342)

(249)

(178)

Write down of intangible assets

(70)

(20)

  

  

  

  

Operating expenses

(2,453)

(7,354)

(2,420)

  

  

  

  

Profit/(loss) before impairment (losses)/releases

759 

(4,138)

644 

Impairment (losses)/releases

(46)

75 

(223)

  

  

  

  

Operating profit/(loss) before tax

713 

(4,063)

421 

Tax charge

(327)

(244)

(80)

  

  

  

  

Profit/(loss) for the period

386 

(4,307)

341 

  

  

  

  

Attributable to:

  

  

  

Non-controlling interests

11 

(27)

22 

Preference share and other dividends

116 

161 

94 

Dividend access share

1,193 

Ordinary shareholders

259 

(4,441)

(968)

  

  

  

  

  

386 

(4,307)

341 

  

  

  

  

Earnings/(loss) per ordinary share (EPS)

  

  

  

Basic and diluted EPS from continuing and discontinued operations (2)

2.2p

(37.7p)

(8.3p)

Basic and diluted EPS from continuing operations (2)

2.2p

(37.7p)

(8.3p)

  

  

  

  

 

Notes:

(1)

Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits classed as interest receivable. Q1 2016 has been

re-presented accordingly.

(2)

There is no dilutive impact in any period.

 

 

For further information see statutory results on pages 32 to 38.

6

 

 


 

 

Condensed consolidated balance sheet as at 31 March 2017

  

  

31 March

31 December

2017

2016 

  

£m 

£m 

  

  

  

Assets

  

  

Cash and balances at central banks

83,160 

74,250 

Net loans and advances to banks

20,513 

17,278 

Reverse repurchase agreements and stock borrowing

18,200 

12,860 

Loans and advances to banks

38,713 

30,138 

Net loans and advances to customers

326,733 

323,023 

Reverse repurchase agreements and stock borrowing

27,251 

28,927 

Loans and advances to customers

353,984 

351,950 

Debt securities

76,656 

72,522 

Equity shares

691 

703 

Settlement balances

9,128 

5,526 

Derivatives

204,052 

246,981 

Intangible assets

6,464 

6,480 

Property, plant and equipment

4,996 

4,590 

Deferred tax

1,697 

1,803 

Prepayments, accrued income and other assets

3,642 

3,700 

Assets of disposal groups

92 

13 

  

  

  

Total assets

783,275 

798,656 

  

  

  

Liabilities

  

  

Bank deposits

40,276 

33,317 

Repurchase agreements and stock lending

5,988 

5,239 

Deposits by banks

46,264 

38,556 

Customer deposits

351,498 

353,872 

Repurchase agreements and stock lending

38,978 

27,096 

Customer accounts

390,476 

380,968 

Debt securities in issue

28,163 

27,245 

Settlement balances

9,210 

3,645 

Short positions

28,519 

22,077 

Derivatives

196,224 

236,475 

Provisions for liabilities and charges

11,619 

12,836 

Accruals and other liabilities

6,938 

6,991 

Retirement benefit liabilities

186 

363 

Deferred tax

637 

662 

Subordinated liabilities

15,514 

19,419 

Liabilities of disposal groups

14 

15 

Total liabilities

733,764 

749,252 

  

  

  

Equity

  

  

Non-controlling interests

805 

795 

Owners’ equity*

  

  

  Called up share capital

11,843 

11,823 

  Reserves

36,863 

36,786 

  

  

  

Total equity

49,511 

49,404 

  

  

  

Total liabilities and equity

783,275 

798,656 

  

  

  

*Owners’ equity attributable to:

  

  

Ordinary shareholders

41,650 

41,462 

Other equity owners

7,056 

7,147 

  

  

  

  

48,706 

48,609 

For further information see statutory results on pages 32 to 38.

7

 

 


 

 

Highlights

 

RBS reported an operating profit before tax of £713 million for Q1 2017 and a profit attributable to ordinary shareholders of £259 million.

 

Across our Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and NatWest Markets (NWM) businesses(5), RBS reported an operating profit  before tax of £921 million, a decrease of £92 million, or 9.1%, compared with Q1 2016. An adjusted operating profit(1) of £1,326 million was reported in Q1 2017, an increase of £303 million, or 30%, compared with Q1 2016.

  

Common Equity Tier 1 ratio increased by 70 basis points in the quarter to 14.1%, and remains ahead of our 13.0% target.

 

Q1 2017 RBS Performance Summary

RBS reported a profit attributable to ordinary shareholders of £259 million for Q1 2017 compared with a loss attributable to ordinary shareholders of £968 million in Q1 2016 which included payment of the final Dividend Access Share (DAS) dividend of £1,193 million. 

Q1 2017 operating profit before tax of £713 million compared with £421 million in Q1 2016. An adjusted(1) operating profit of £1,371 million was £931 million higher than Q1 2016. 

Total income of £3,212 million was £148 million, 4.8%, higher than in Q1 2016. Adjusted income(2) of £3,239 million was £425 million, or 15.1%, higher than Q1 2016. NatWest Markets income of £488 million was £147 million, or 43.1%, higher than Q1 2016 reflecting consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, partially offset by an adverse movement in own credit adjustments of £84 million.  Across PBB(5) and CPB (5), income was £104 million, or 4.1%, higher supported by asset growth.

Net interest margin (NIM) of 2.24% for Q1 2017 was 9 basis points higher than Q1 2016, as the benefit associated with the reduction in low yielding assets more than offset asset margin pressure and mix impacts across the core businesses. NIM increased by 5 basis points compared with Q4 2016 principally driven by deposit re-pricing in UK PBB and Commercial Banking.

Operating expenses increased by £33 million to £2,453 million compared with £2,420 million in Q1 2106 and included a VAT recovery of £51 million. Excluding the £51 million VAT recovery, adjusted operating expenses(3) have reduced by £278 million, or 12.9%, compared with Q1 2016. The cost:income ratio(4) was 76.1% compared with 78.7% in Q1 2016. The adjusted cost:income ratio(2,3,4) for Q1 2017 was 55.8% compared with 76.1% in Q1 2016. Across the core PBB, CPB and NatWest Markets businesses(5), the cost:income(4) ratio was 86.5% compared with 82.6% in Q1 2016 and the adjusted cost:income(2,3,4) ratio was 54.9% compared with 62.4% in Q1 2016.

Restructuring costs were £577 million in the quarter, an increase of £339 million compared with Q1 2016, and included a charge of £235 million relating to the reduction of our property portfolio.

Litigation and conduct costs of £54 million comprised a number of small charges.

A net impairment loss of £46 million, 6 basis points of gross customer loans, compared with a loss of £223 million in Q1 2016, with the reduction principally reflecting a £226 million shipping impairment in Q1 2016. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016.

PBB(5) and CPB(5) net loans and advances have increased by 5.6% on an annualised basis in Q1 2017 principally driven by mortgage growth within UK PBB.

 

PBB, CPB and NatWest Markets operating performance

Across our three customer facing businesses(5), PBB, CPB and NatWest Markets, operating profit of £921 million was £92 million, 9.1% lower than in Q1 2016. Adjusted operating profit(5) of £1,326 million was £303 million, or 29.6%, higher than Q1 2016.

 

UK PBB operating profit of £494 million was £15 million, or 2.9%, lower than Q1 2016.  Adjusted operating profit(5) of £629 million was £98 million, or 18.5%, higher than Q1 2016. Total income of £1,377 million was £102 million, or 8.0%, higher than Q1 2016 driven by increased lending, with net loans and advances 11.5% higher at £135.8 billion.  

 

Ulster Bank RoI operating profit of £27 million was £34 million lower than Q1 2016. Adjusted operating profit(5) of £62 million was £2 million, or 3.1%, lower than Q1 2016 reflecting an asset disposal gain in Q1 2016 and reduced income on free funds, partially offset by an increased net impairment release. 

 

For notes refer to page 10.

8

 

 


 

 

Highlights

 

 

Commercial Banking operating profit of £254 million was £147 million, or 36.7%, lower than Q1 2016. Adjusted operating profit(5) of £356 million was £47 million, or 11.7%, lower than Q1 2016 primarily driven by an increased impairment charge. Total income was £12 million, or 1.4%, higher at £865 million with the benefit of increased net loans and advances, up 3.4% to £99.7 billion, offset by margin pressure, down 12 basis points to 1.76%.

 

Private Banking(6) operating profit increased by £23 million to £33 million compared with £10 million in Q1 2016. Adjusted operating profit(5) of £44 million was £18 million, or 69.2%, higher than Q1 2016 driven by a £24 million, or 17.5%, reduction in adjusted operating expenses, principally reflecting various management actions to improve operational efficiency.

 

 

RBS International operating profit of £45 million reduced by £7 million, or 13.5% compared with Q1 2016. Adjusted operating profit(5) of £48 million reduced by £5 million, or 9.4%, compared with Q1 2016 driven by an £8 million, or 22.9%, increase in adjusted operating expenses principally reflecting increased regulatory and remediation costs.

 

NatWest Markets income of £488 million was £147 million, or 43.1%, higher than Q1 2016 reflecting the benefit of consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, notably in the Rates business, partly offset by an adverse movement in own credit adjustments of £84 million. An operating profit of £68 million compared with an operating loss of £20 million in Q1 2016 and an adjusted operating profit(5) of £187 million compared with an adjusted operating loss of £54 million for Q1 2016.

 

Capital Resolution & Central items operating performance

Capital Resolution operating loss of £175 million compared with a loss of £301 million in Q1 2016 reflecting a reduction in operating expenses which were £161 million compared with £258 million in Q1 2016. Adjusted operating loss(5) of £76 million compared with a loss of £377 million in Q1 2016 reflecting modest disposal losses and impairments of £5 million and a 70.3% reduction in adjusted operating expenses to £69 million. RWAs reduced by a further £4.0 billion in the quarter to £30.5 billion.

Central items operating loss of £144 million compared with a loss of £372 million in Q1 2016. Adjusted operating profit(5) of £10 million compared with a loss of £307 million in Q1 2016 and included a £18 million loss in respect of IFRS volatility (Q1 2016 - £356 million loss). In addition, a VAT recovery of £51 million was recognised in the quarter.

 

Building a stronger RBS

RBS is progressing with its plan to build a strong, simple, fair bank for customers and shareholders.

CET1 remains ahead of our 13% target at 14.1%, a 70 basis point increase on Q4 2016 driven by a £6.5 billion reduction in RWAs and the £259 million profit attributable to ordinary shareholders.

RWAs decreased by £6.5 billion compared with Q4 2016 principally reflecting £4.0 billion of disposals and run-off in Capital Resolution and planned RWA reductions in the core businesses. Excluding volume growth of £1.1 billion, RWAs across PBB, CPB and NatWest Markets reduced by £3.2 billion (PBB £0.7 billion, CPB £1.4 billion and NatWest Markets £1.1 billion) during Q1 2017, and we remain committed to achieving at least a £20 billion gross reduction by the end of 2018.

On 1 March 2017, RBS issued €1.5 billion Senior holding company (RBSG) debt which it expects to be eligible to meet its ‘Minimum Requirement for Own Funds and Eligible Liabilities’ (MREL). Total MREL eligible securities are now £55.3 billion, or 24.9% of RWAs.      

Leverage ratio reduced by 10 basis points to 5.0% driven by increased lending exposure.

Risk elements in lending (REIL) of £9.7 billion were £0.6 billion lower than 31 December 2016 and represented 2.9% of gross customer loans, compared with 3.1% at 31 December 2016 and 3.6% as at 31 March 2016. REIL in Capital Resolution was £2.1 billion and Ulster Bank RoI was £3.5 billion, with the remaining REIL of £4.1 billion representing 1.4% of the respective gross customer loans.    

As at 31 March 2017, there has been no material change to the surplus ratio of assets to liabilities in the Main Scheme of The Royal Bank of Scotland Group Pension Fund which at 31 December was c.115% under IAS valuation principles.

RBS has continued to utilise the Bank of England’s Term Funding Scheme. A further £9 billion has been drawn since 31 December 2016, taking total RBS participation to £14 billion as at 31 March 2017.

 

For notes refer to page 10.

9

 

 


 

 

 

Highlights

 

Building the number one bank for customer service, trust and advocacy in the UK

RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending of £7.8 billion was 10% higher than Q1 2016 with market share of new mortgages at approximately 13% supporting growth in stock share to approximately 9.0%, up from 8.8% at 31 December 2016 and 8.3% at 31 March 2016. Positive momentum continued across business banking lending with balances up 4.7%, excluding transfers  of £0.9 billion as at 31 March 2017,  compared with Q1 2016.

RBS continues to enhance the functionality of its mobile app. Customers can now view remaining ISA allowances, register their travel plans, and apply for loans and credit cards. There are also improved transaction descriptions to help customers manage their finances and spot transactions they do not recognise. We now have 4.3 million customers regularly using our mobile app in the UK, over 4% higher than Q4 2016. Nearly 80% of our commercial customers’ interaction with us is via digital channels.

In February 2017, RBS launched a fully automated lending platform, ESME, to originate unsecured SME lending of up to £150,000. Where our credit risk appetite permits, these loans can be processed and funded within an hour, responding to our customers’ desire for speed and simplicity.

RBS launched ‘Royal Bank Assist’, our artificial intelligence-based, ‘always-on’ online support on the Royal Bank of Scotland website, supported by IBM Watson and LivePerson, answering our top 80 customer questions and getting customers to the right place to meet their needs more quickly.

RBS has launched a dedicated team of 1,200 TechXperts, who are in our branches helping customers make the most of online and mobile banking, providing advice on how to stay safe and secure.

 

Capital reorganisation

It is our intention to implement a capital reorganisation in 2017 in order to increase the distributable reserves of the parent company, RBSG plc, providing greater flexibility for future distributions and preference share redemptions. We intend to seek shareholder approval to reduce the share premium account by around £25 billion and to cancel the capital redemption reserve of around £5 billion. This will, subject to approval by shareholders and regulators, and confirmation by the Court of Session in Edinburgh, increase RBSG plc distributable reserves by around £30 billion. As at 31 March 2017, distributable reserves were £7.9 billion.

 

IFRS 9

Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018, RBS has adopted the provisions in respect of the presentation of gains and losses on financial liabilities at fair value that are not held for trading from 1 January 2017. Accordingly, a loss of £20 million has been reported in the Consolidated Statement of Other Comprehensive Income instead of in the Consolidated Income Statement. Comparatives have not been restated, however, in Q1 2016 a gain of £108 million was included in the Consolidated Income Statement. Own credit adjustments on financial liabilities held for trading will continue to be recognised in the Consolidated Income Statement, a loss of £29 million was reported in Q1 2017 (Q1 2016 - gain of £148 million).

 

Williams & Glyn

On 17 February 2017, RBS announced that it had been informed by HM Treasury (HMT) that the Commissioner responsible for EU competition policy planned to propose to the College of Commissioners to open proceedings to gather evidence on an alternative plan for RBS to meet its remaining state aid obligations. On 4 April 2017, the European Commission announced that it had opened an in-depth investigation into whether this alternative plan was an appropriate replacement for the existing requirement to achieve separation and divestment of Williams & Glyn by 31 December 2017.      

 

Notes:

(1)

Operating profit before tax excluding own credit adjustments (Q1 2017 - £29 million loss; Q4 2016 - £144 million loss; Q1 2016 - £256 million gain), gain on redemption of own debt (Q1 2017 - £2 million; Q4 2016 - £1 million; Q1 2016 – nil), strategic disposals (Q1 2017 – nil; Q4 2016 – nil; Q1 2016 - £6 million loss), restructuring costs (Q1 217 - £577 million; Q4 2016 - £1,007 million; Q1 2016 - £238 million) and litigation and conduct costs (Q1 2017 - £54 million; Q4 2016 - £4,128 million; Q1 2016 - £31 million).

(2)

Total income excluding own credit adjustments (Q1 2017 - £29 million loss; Q4 2016 - £144 million loss; Q1 2016 - £256 million gain), gain on redemption of own debt (Q1 2017 - £2 million; Q4 2016 - £1 million; Q1 2016 – nil), and strategic disposals (Q1 2017 – nil; Q4 2016 – nil; Q1 2016 - £6 million loss).

(3)

Operating expenses excluding restructuring costs (Q1 217 - £577 million; Q4 2016 - £1,007 million; Q1 2016 - £238 million) and litigation and conduct costs (Q1 2017 - £54 million; Q4 2016 - £4,128 million; Q1 2016 - £31 million).

(4)

Operating lease depreciation included in income (Q1 2017 - £36 million; Q4 2016 - £37 million and Q1 2016 - £38 million).

(5)

Refer to the income statement reconciliations on page 12.

(6)

Private Banking serves high net worth individuals through Coutts and Adam & Co.

10

 

 


 

 

Highlights

 

Progress on 2017 targets

RBS remains committed to achieving its priority targets for 2017.

 

Strategy goal

2017 target

Q1 2017 Progress

Strength and sustainability

Maintain bank CET1 ratio of 13%

CET1 ratio of 14.1%; up 70 basis points from Q4 2016

Customer experience

Significantly increase NPS or maintain No.1 in chosen customer segments

The March 2017 NatWest Personal NPS score was the highest seen since we started to track it in 2009

Commercial Banking is a market leader for customer advocacy, seeing a significant improvement in NPS since Q1 2013 and as of Q1 2017 we have more promoters of our brand than ever before

Simplifying the bank

Reduce operating expenses by at least £750 million (1)

Operating expenses down £278(2) million, or 12.9%, excluding the VAT recovery

Supporting growth

Net 3% growth on total PBB and CPB loans to customers

Net customer loans in PBB and CPB are up 5.6% on an annualised basis for the year to date; 47% of the total full year target

Employee engagement

Improve employee engagement

Reviewed bi-annually

 

 

Outlook (3)

We retain the 2017 full year guidance and medium term outlook we provided in the 2016 Annual Results document. In addition, and subject to providing fully for remaining significant legacy issues in 2017, our expectation remains that we will be profitable in 2018.

We anticipate that adjusted operating profit will be lower in Q2 2017 compared with Q1 2017 reflecting expected reduced income in NatWest Markets, coupled with increased adjusted operating expenses, in part due to the absence of the Q1 2017 VAT recovery in Q2 2017. Separately, we expect to recognise a gain on the sale of RBS’s stake in Vocalink of approximately £160 million during the quarter.

 

Recent developments

RBS N.V.’s associate Alawwal Bank announced on 25 April 2017 that it was starting merger discussions with Saudi British Bank (SABB).  The 40% stake in Alawwal Bank is the remaining significant shared asset of the RFS Consortium. 

 

 

Notes:

(1)

Cost saving target and progress 2017 calculated using operating expenses excluding restructuring costs, litigation and conduct costs, write down of goodwill and VAT recoveries.

(2)

Cost saving target and progress for Q1 2017 calculated using operating expenses excluding own credit adjustments (Q1 2017 - £29 million loss; Q1 2016 - £256 million gain) , gain on redemption of own debt (Q1 2017 - £2; Q1 2016 – nil), strategic disposals (Q1 2017 – nil; Q1 2016 - £6 million loss), restructuring costs (Q1 217 - £577 million; Q1 2016 - £238 million) and litigation and conduct costs (Q1 2017 - £54 million; Q1 2016 - £31 million) and the VAT recovery of £51 million in Q1 2017.

(3)

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 509 to 578 of the 2016 Annual Report on Form 20-F. These statements constitute forward-looking statements; refer to Forward-looking statements in this announcement.

 

                         

11

 

 


 

 

Segmental income statement reconciliations

  

PBB

  

CPB

  

  

  

  

Central

  

  

  

Ulster

  

Commercial

Private

RBS

  

NatWest

Capital

Williams

 items &

Total

  

UK PBB

Bank RoI

  

Banking

Banking

International

  

Markets

Resolution

& Glyn

other  

RBS

Quarter ended 31 March 2017

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

1,377 

145 

  

865 

160 

98 

  

488 

(59)

206 

(68)

3,212 

Own credit adjustments

  

  

20 

29 

Gain on redemption of own debt

  

  

(2)

(2)

Total income  - adjusted

1,377 

146 

  

865 

160 

98 

  

508 

(52)

206 

(69)

3,239 

Operating expenses - statutory

(851)

(142)

  

(550)

(124)

(46)

  

(420)

(161)

(84)

(75)

(2,453)

Restructuring costs  - direct

20 

19 

  

39 

  

70 

429 

577 

                                  - indirect

111 

15 

  

60 

11 

  

68 

16 

(284)

Litigation and conduct costs

  

  

31 

10 

54 

Operating expenses - adjusted

(716)

(108)

  

(448)

(113)

(43)

  

(321)

(69)

(84)

80 

(1,822)

Impairment (losses)/releases

(32)

24 

  

(61)

(3)

(7)

  

45 

(11)

(1)

(46)

Operating profit/(loss) - statutory

494 

27 

  

254 

33 

45 

  

68 

(175)

111 

(144)

713 

Operating profit/(loss) - adjusted

629 

62 

  

356 

44 

48 

  

187 

(76)

111 

10 

1,371 

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

24.8%

4.0%

  

5.7%

6.0%

12.0%

  

1.7%

nm

nm

nm

3.1%

Return on equity  - adjusted (1,2) 

32.0%

9.3%

  

8.9%

8.6%

13.0%

  

7.9%

nm

nm

nm

9.7%

Cost income ratio (3) 

61.8%

97.9%

  

62.0%

77.5%

46.9%

  

86.1%

nm

40.8%

nm

76.1%

Cost income ratio - adjusted (2,3) 

52.0%

74.0%

  

49.7%

70.6%

43.9%

  

63.2%

nm

40.8%

nm

55.8%

Quarter ended 31 December 2016

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

1,339 

137 

  

867 

161 

96 

  

285 

(293)

217 

407 

3,216 

Own credit adjustments

  

  

29 

77 

114 

Gain on redemption of own debt

  

  

(1)

(1)

Total income  - adjusted

1,339 

137 

  

867 

161 

96 

  

314 

(285)

217 

483 

3,329 

Operating expenses - statutory

(1,042)

(226)

  

(1,009)

(159)

(64)

  

(850)

(3,340)

(97)

(567)

(7,354)

Restructuring costs  - direct

  

12 

  

21 

957 

1,007 

                                  - indirect

50 

(2)

  

34 

  

43 

(13)

(121)

Litigation and conduct costs

214 

77 

  

407 

(1)

  

466 

3,156 

(192)

4,128 

Operating expenses - adjusted

(777)

(145)

  

(556)

(146)

(61)

  

(338)

(176)

(97)

77 

(2,219)

Impairment (losses)/releases

(16)

47 

  

(83)

  

130 

(11)

(1)

75 

Operating profit/(loss) - statutory

281 

(42)

  

(225)

10 

33 

  

(565)

(3,503)

109 

(161)

(4,063)

Operating profit/(loss) - adjusted

546 

39 

  

228 

23 

36 

  

(24)

(331)

109 

559 

1,185 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

13.5%

(5.8%)

  

(9.1%)

1.6%

8.8%

  

(30.2%)

nm

nm

nm

(48.2%)

Return on equity  - adjusted (1,2) 

27.8%

5.4%

  

5.3%

4.5%

9.8%

  

(2.7%)

nm

nm

nm

8.6%

Cost income ratio (3) 

77.8%

165.0%

  

117.1%

98.8%

66.7%

  

nm

nm

44.7%

nm

230.2%

Cost income ratio - adjusted (2,3) 

58.0%

105.8%

  

62.6%

90.7%

63.5%

  

107.6%

nm

44.7%

nm

66.3%

For notes to this table refer to page 13

  

  

  

  

  

  

  

  

  

  

                                   

12

 

 


 

 

 

Segmental income statement reconciliations

  

PBB

  

CPB

  

  

  

  

Central

  

  

  

Ulster

  

Commercial

Private

RBS

  

NatWest

Capital

Williams

 items &

Total

  

UK PBB

Bank RoI

  

Banking

Banking

International

  

Markets

Resolution

& Glyn

other  

RBS

Quarter ended 31 March 2016

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

1,275 

158 

  

853 

165 

90 

  

341 

153 

205 

(176)

3,064 

Own credit adjustments

(3)

  

  

(64)

(108)

(81)

(256)

Strategic disposals

  

  

Total income  - adjusted

1,275 

155 

  

853 

165 

90 

  

277 

51 

205 

(257)

2,814 

Operating expenses - statutory

(750)

(110)

  

(438)

(153)

(36)

  

(361)

(258)

(118)

(196)

(2,420)

Restructuring costs - direct

13 

  

  

20 

190 

238 

                                 - indirect

  

(1)

15 

  

12 

(45)

Litigation and conduct costs

  

  

18 

10 

31 

Operating expenses - adjusted

(728)

(104)

  

(436)

(137)

(35)

  

(331)

(232)

(98)

(50)

(2,151)

Impairment (losses)/releases

(16)

13 

  

(14)

(2)

(2)

  

(196)

(6)

(223)

Operating profit/(loss) - statutory

509 

61 

  

401 

10 

52 

  

(20)

(301)

81 

(372)

421 

Operating profit/(loss) - adjusted

531 

64 

  

403 

26 

53 

  

(54)

(377)

101 

(307)

440 

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

26.1%

8.8%

  

11.1%

1.5%

16.0%

  

(2.6%)

nm

nm

nm

(9.6%)

Return on equity  - adjusted (1,2) 

27.3%

9.2%

  

11.2%

5.1%

16.3%

  

(4.4%)

nm

nm

nm

(9.4%)

Cost income ratio (3) 

58.8%

69.6%

  

49.3%

92.7%

40.0%

  

105.9%

nm

57.6%

nm

78.7%

Cost income ratio - adjusted (2,3) 

57.1%

67.1%

  

49.0%

83.0%

38.9%

  

119.5%

nm

47.8%

nm

76.1%

 

Notes:

(1)

RBS’s CET1 target is 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% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 12% (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.

(2)

Excluding own credit adjustments, gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

(3)

Operating lease depreciation included in income (Q1 2017 - £36 million; Q4 2016 - £37 million and Q1 2016 - £38 million).

 

13

 

 


 

 

Analysis of results

 

  

  

Quarter ended

  

  

31 March

31 December

31 March

2017

2016

2016

Net interest income

£m

£m

£m

  

  

  

  

Net interest income

  

  

  

RBS

2,234 

2,208 

2,156 

  

  

  

  

  - UK Personal & Business Banking

1,111 

1,093 

1,019 

  - Ulster Bank RoI

105 

105 

105 

  - Commercial Banking

567 

542 

536 

  - Private Banking

112 

111 

113 

  - RBS International

80 

77 

75 

  - NatWest Markets

29 

29 

19 

  - Capital Resolution

33 

44 

86 

  - Williams & Glyn

165 

170 

162 

  - Central items & other

32 

37 

41 

  

  

  

  

Average interest-earning assets (IEA)

  

  

  

RBS

405,107 

401,492 

403,275 

  

  

  

  

  - UK Personal & Business Banking

149,581 

147,703 

135,793 

  - Ulster Bank RoI

24,424 

26,259 

24,178 

  - Commercial Banking

130,885 

128,174 

114,855 

  - Private Banking

17,597 

17,679 

16,259 

  - RBS International

22,949 

22,793 

21,075 

  - NatWest Markets

17,192 

14,029 

11,568 

  - Capital Resolution

16,771 

19,696 

30,767 

  - Williams & Glyn

25,170 

25,145 

23,356 

  - Central items & other

538 

14 

25,424 

  

  

  

  

Yields, spreads and margins of the banking business

  

  

  

Gross yield on interest-earning assets

  

  

  

  of the banking business (1,2) 

2.70%

2.72%

2.82%

Cost of interest-bearing liabilities of banking business (1) 

(0.70%)

(0.82%)

(1.04%)

  

  

  

  

Interest spread of the banking business (1,3) 

2.00%

1.90%

1.78%

Benefit from interest-free funds

0.24%

0.29%

0.37%

  

  

  

  

Net interest margin (4) 

  

  

  

RBS

2.24%

2.19%

2.15%

  

  

  

  

  - UK Personal & Business Banking

3.01%

2.94%

3.02%

  - Ulster Bank RoI

1.74%

1.59%

1.75%

  - Commercial Banking

1.76%

1.68%

1.88%

  - Private Banking

2.58%

2.50%

2.80%

  - RBS International

1.41%

1.34%

1.43%

  - NatWest Markets

0.68%

0.82%

0.66%

  - Capital Resolution

0.80%

0.89%

1.12%

  - Williams & Glyn

2.66%

2.69%

2.79%

 

Third party customer rates (5)

  

  

  

Third party customer asset rate

  

  

  

  - UK Personal & Business Banking

3.57%

3.64%

3.95%

  - Ulster Bank RoI (6)

2.47%

2.20%

2.33%

  - Commercial Banking

2.67%

2.65%

2.87%

  - Private Banking

2.71%

2.76%

3.01%

  - RBS International

2.75%

2.93%

3.29%

Third party customer funding rate

  

  

  

  - UK Personal & Business Banking

(0.17%)

(0.28%)

(0.62%)

  - Ulster Bank RoI (6)

(0.40%)

(0.42%)

(0.59%)

  - Commercial Banking

(0.14%)

(0.27%)

(0.35%)

  - Private Banking

(0.07%)

(0.12%)

(0.23%)

  - RBS International

(0.03%)

(0.08%)

(0.24%)

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

  

  

  

14

 

 


 

 

 

Analysis of results

 

Notes:                                                                                                                                           

(1)

For the purpose of calculating gross yields and interest spread, interest receivable has been decreased by £18 million and interest payable has been decreased by £18 million in respect of negative interest relating to both financial assets and financial liabilities that attracted negative interest.

(2)

Gross yield is the interest earned on average interest-earning assets as a percentage of average interest-earning assets.

(3)

Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.

(4)

Net interest margin is net interest income as a percentage of average interest-earning assets.

(5)

Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.

(6)

Ulster Bank Ireland DAC manages its funding and liquidity requirements locally. Its liquid asset portfolios and non-customer related funding sources are included within its net interest margin, but excluded from its third party asset and liability rates.

 

Net interest income

Key points

·

Net interest income of £2,234 million was £78 million, or 3.6%, higher than Q1 2016 principally reflecting higher volumes in UK PBB, up £92 million or 9.0%, and Commercial Banking, up £31 million or 5.8%. Partially offsetting, Capital Resolution reduced by £53 million in line with the planned shrinkage of the balance sheet.  

·

NIM of 2.24% for Q1 2017 was 9 basis points higher than Q1 2016, as the benefit associated with the reduction in low yielding assets more than offset asset margin pressure and mix impacts across the core businesses. NIM increased by 5 basis points compared with Q4 2016 largely driven by increases in UK PBB and Commercial Banking associated with deposit book re-pricing.

·

Across PBB and CPB, NIM reduced by 6 basis points to 2.32% compared with Q1 2016, but increased by 8 basis points compared with Q4 2016.

·

UK PBB NIM decreased by 1 basis point compared with Q1 2016 to 3.01% principally reflecting a decline in current account hedge returns and reduced mortgage margins, partially offset by savings re-pricing benefits. Compared with Q4 2016, NIM increased by 7 basis points driven by the full effect of savings re-pricing in November 2016.

·

Ulster Bank RoI NIM of 1.74% increased by 15 basis points compared with Q4 2016 principally reflecting income recognised on a cohort of non performing loans in Q1 2017.

·

Commercial Banking NIM fell by 12 basis points from Q1 2016 to 1.76% driven by asset margin pressure in a competitive market and lower rate environment. Compared with Q4 2016, NIM increased by 8 basis points due to the active re-pricing of the deposit book and asset pricing actions on new lending.

·

Private Banking NIM of 2.58% reduced by 22 basis points compared with Q1 2016 reflecting the competitive market and low rate environment.

·

Structural hedges of £126 billion generated a benefit of £0.3 billion through net interest income for Q1 2017.

 

15

 

 


 

 

 

Analysis of results

 

The following table reconciles adjusted non-interest income (a non-GAAP financial measure) to the statutory basis.

  

  

Quarter ended

  

  

31 March

31 December

31 March

  

2017 

2016 

2016 

Non-interest income

£m

£m

£m

  

  

  

  

Net fees and commissions - statutory basis

605 

608 

654 

  

  

  

  

Income from trading activities

  

  

  

  - adjusted basis

428 

622 

(110)

  - own credit adjustments

(29)

(32)

148 

Statutory basis

399 

590 

38 

  

  

  

  

Own credit adjustments (1)

  

  

  

  - adjusted basis

(29)

(114)

256 

  - income from trading activities

29 

32 

(148)

  - other operating income

82 

(108)

Statutory basis

  

  

  

  

Gain on redemption of own debt

  

  

  

  

Strategic disposals (1)

  

  

  

  - adjusted basis

(6)

  - other operating income

Statutory basis

  

  

  

  

Other operating income

  

  

  

  - adjusted basis

(28)

(109)

114 

  - own credit adjustments

(82)

108 

  - strategic disposals

(6)

Statutory basis

(28)

(191)

216 

  

  

  

  

Total non-interest income - adjusted basis

978 

1,008 

908 

  

  

  

  

Total non-interest income - statutory basis

978 

1,008 

908 

 

Note:

(1)

Items reallocated to other expense lines, not reconciling items.

Key points

·

Non-interest income was £978 million, an increase of £70 million, or 7.7%, compared with Q1 2016. NatWest Markets non-interest income increased by £137 million, or 42.5%, to £459 million reflecting consistent customer activity and an improved trading environment compared to a particularly difficult Q1 2016, partially offset by an £84 million adverse movement in OCA. Central items non-interest income improved by £117 million principally reflecting a reduction in IFRS volatility losses, £18 million compared with £356 million in Q1 2016, partially offset by a £52 million FX loss (compared with a £52 million gain in Q1 2016) and a £105 million charge in respect of the unwind of securitisations relating to our property portfolio. Partially offsetting, Capital Resolution non-interest income was a loss of £92 million compared with a gain of £67 million in Q1 2016 reflecting a £115 million adverse movement in OCA and increased disposal losses, £50 million compared with £2 million in Q1 2016.    

 

 

·

Income from trading activities increased by £361 million compared with Q1 2016 largely reflecting reduced IFRS volatility losses and increased NatWest Markets income, partially offset by an adverse movement in own credit adjustments of £177 million.

 

 

·

Other operating income decreased by £244 million compared with Q1 2016 largely reflecting a £105 million charge in respect of the unwind of securitisations relating to our property portfolio and own credit adjustments which were nil in Q1 2017, compared with a £108 million credit in Q1 2016.

 

16

 

 


 

 

 

Analysis of results

 

The following table reconciles adjusted operating expenses (a non-GAAP financial measure) to the statutory basis.

  

  

Quarter ended

  

  

31 March

31 December

31 March

  

2017 

2016 

2016 

Operating expenses

£m

£m

£m

  

  

  

  

Staff costs

  

  

  

  - adjusted basis (1)

(1,024)

(1,025)

(1,202)

  - restructuring costs

(291)

(117)

(121)

Statutory basis

(1,315)

(1,142)

(1,323)

  

  

  

  

Premises and equipment

  

  

  

  - adjusted basis (1)

(310)

(346)

(315)

  - restructuring costs

(241)

(107)

(9)

  - depreciation and amortisation

174 

71 

Statutory basis

(377)

(382)

(324)

  

  

  

  

Other administrative expenses

  

  

  

  - adjusted basis (1)

(320)

(601)

(446)

  - litigation and conduct costs

(54)

(4,128)

(31)

  - restructuring costs

(45)

(782)

(98)

Statutory basis

(419)

(5,511)

(575)

  

  

  

  

Restructuring costs (2) 

  

  

  

  - adjusted basis

(577)

(1,007)

(238)

  - staff costs

291 

117 

121 

  - premises and equipment

241 

107 

  - other administrative expenses

45 

782 

98 

  - write down of other intangible assets

10 

Statutory basis

  

  

  

  

Litigation and conduct costs (2) 

  

  

  

  - adjusted basis

(54)

(4,128)

(31)

  - other administrative expenses

54 

4,128 

31 

Statutory basis

  

  

  

  

Administrative expenses - adjusted basis

(2,285)

(7,107)

(2,232)

Administrative expenses - statutory basis

(2,111)

(7,035)

(2,222)

  

  

  

  

Depreciation and amortisation

  

  

  

  - adjusted basis (1)

(168)

(178)

(178)

  - premises and equipment

(174)

(71)

Statutory basis

(342)

(249)

(178)

  

  

  

  

Write down of intangible assets

  

  

  

  - adjusted basis (2)

(69)

(10)

  - write down of other intangible assets

69 

10 

Statutory basis

  

  

  

  

Write down of goodwill and other intangible assets

  

  

  

  - adjusted basis (1) 

  - write off other intangible assets

(69)

(10)

  - restructuring costs

(1)

(10)

Statutory basis

(70)

(20)

Operating expenses - adjusted basis

(2,453)

(7,354)

(2,420)

Operating expenses - statutory basis

(2,453)

(7,354)

(2,420)

Notes:

(1)

Adjusted basis is calculated as operating expenses before restructuring costs and litigation and conduct costs.

(2)

Items reallocated to other expense lines, not reconciling items.

 

17

 

 


 

 

 

Analysis of results

 

 

Operating expenses

Key points

·

Total operating expenses of £2,453 million were £33 million, or 1.4%, higher than Q1 2016 reflecting a £339 million increase in restructuring costs and a £23 million increase in litigation and conduct costs, partially offset by a £178 million decrease in staff costs and a £126 million decrease in administrative expenses. Adjusted operating expenses (1), which excluded restructuring costs (Q1 2017 - £577 million; Q1 2016 - £238 million), litigation and conduct costs (Q1 2017 - £54 million; Q1 2016 - £ 31 million) and write-down of intangible assets (Q1 2017 – nil; Q1 2016 - £10 million) reduced by £329 million, or 15.3%.

·

Operating expenses excluding restructuring costs (Q1 2017 - £577 million; Q1 2016 - £238 million), litigation and conduct costs (Q1 2017 - £54 million; Q1 2016 - £31 million), write down of intangible assets (Q1 2017 – nil; Q1 2016 – £10 million) and a £51 million VAT recovery in Q1 2017, reduced by £278 million, or 12.9%, compared with Q1 2016 and we remain on target to achieve a £750 million reduction for the full year. The cost reduction was principally driven by Capital Resolution, down £163 million or 70.3%(1), and Central items, down £79 million(1), excluding the VAT recovery (£51 million). Across PBB, CPB and NatWest Markets, operating expenses increased by £285 million, or 15.4%, primarily reflecting an increase in restructuring costs of £289 million. Adjusted operating expenses(3) reduced by £22 million, or 1.2%.   

·

Staff costs of £1,315 million, were £8 million lower than Q1 2016 underpinned by a 16,200, or 17.5%, reduction in FTEs, partly offset by a £170 million increase in restructuring costs.

·

Total restructuring costs of £577 million included a £235 million charge associated with the planned reduction of our property portfolio, a £73 million net settlement relating to the RBS Netherlands pension scheme and a £70 million charge in Capital Resolution, primarily in respect of Asia-Pacific restructuring.

·

Litigation and conduct costs of £54 million were £23 million higher than Q1 2016 and reflected a number of small items.

·

Compared with Q4 2016, operating expenses decreased by £4,901 million, principally reflecting a decrease in litigation and conduct costs of £4,074 million. Adjusted operating expenses(1) reduced by £397 million principally reflecting the £190 million UK bank levy charge and a £69 million write down of intangible assets in Q4 2016 and a £51 million VAT recovery in Q1 2017.  

 

 

Note:

(1)

Refer to income statement reconciliations on page 12.

18

 

 


 

 

Analysis of results

 

  

  

Quarter ended

  

  

31 March

31 December

31 March

2017

2016

2016

Impairment losses/(releases)

£m

£m

£m

  

  

  

  

Loan impairment losses/(releases)

  

  

  

  - individually assessed

42 

(40)

186 

  - collectively assessed

38 

(1)

16 

  - latent

(25)

21 

  

  

  

  

Total loan impairment losses/(releases)

84 

(66)

223 

Securities

(38)

(9)

  

  

  

  

Total impairment losses/(releases)

46 

(75)

223 

 

  

  

  

  

  

31 March 

31 December 

31 March 

Credit metrics (1) 

2017 

2016 

2016 

  

  

  

  

Gross customer loans

£330,843m

£327,478m

£325,339m

Loan impairment provisions

£4,110m

£4,455m

£6,701m

Risk elements in lending (REIL)

£9,726m

£10,310m

£11,867m

Provisions as a % of REIL

42%

43%

57%

REIL as a % of gross customer loans

2.9%

3.1%

3.6%

Provisions as a % of gross customer loans

1.2%

1.4%

2.1%

 

Note:

(1)

Includes disposal groups and excludes reverse repos.

 

Key points 

·

A net impairment loss of £46 million, 6 basis points of gross customer loans, compared with a loss of £223 million in Q1 2016. 

·

Capital Resolution reported a net impairment release of £45 million in Q1 2017 compared with a loss of £196 million in Q1 2016 which included a £226 million charge in respect of the shipping portfolio. 

·

Commercial Banking reported a net impairment loss of £61 million in Q1 2017, £47 million higher than Q1 2016 with four specific impairment charges totalling £47 million in the quarter.

·

REIL reduced by £2,141 million, compared with Q1 2016, to £9,726 million reflecting Capital Resolution run-down and a portfolio sale in Ulster Bank RoI partially offset by an increase in the shipping portfolio, foreign exchange movements and the implementation of a revised mortgage methodology in Ulster Bank RoI. REIL represented 2.9% of gross customer loans compared with 3.6% at 31 March 2016 and 3.1% at 31 December 2016. Provision coverage was 42% compared with 57% at 31 March 2016 and 43% at 31 December 2016.   

·

REIL in Capital Resolution was £2.1 billion and Ulster Bank RoI was £3.5 billion, with the remaining REIL of £4.1 billion representing 1.4% of the respective gross customer loans.    

  

 

Capital and leverage

Key points 

·

CET1 has increased by 70 basis points to 14.1% as a result of the attributable profit and the reduction in RWAs in the period.

·

RWAs have decreased by £6.5 billion to £221.7 billion primarily driven by a £4.0 billion reduction in Capital Resolution reflecting disposal and run offs in line with exit strategy and a £1.1 billion reduction in NatWest Markets principally due to business movements. Excluding volume growth of £1.1 billion, RWAs across PBB, CPB and NatWest Markets reduced by £3.2 billion (PBB £0.7 billion, CPB £1.4 billion and NatWest Markets £1.1 billion) during Q1 2017.

·

Operational risk RWAs have decreased by £1.9 billion as a result of the annual recalculation.

·

Leverage ratio decreased marginally to 5.0% as increased lending exposure was offset by movements in capital.

 

19

 

 


 

 

Capital and leverage ratios

 

 

End-point CRR basis (1) 

  

31 March 

31 December 

  

2017 

2016 

Risk asset ratios

  

  

  

CET1

14.1 

13.4 

Tier 1

15.9 

15.2 

Total

19.2 

19.2 

  

  

  

Capital

£m

£m

Tangible equity

35,186 

34,982 

  

  

  

Expected loss less impairment provisions

(1,396)

(1,371)

Prudential valuation adjustment

(377)

(532)

Deferred tax assets

(887)

(906)

Own credit adjustments

(245)

(304)

Pension fund assets

(186)

(208)

Cash flow hedging reserve

(888)

(1,030)

Other deductions

45 

(8)

  

  

  

Total deductions

(3,934)

(4,359)

  

  

  

CET1 capital

31,252 

30,623 

AT1 capital

4,041 

4,041 

  

  

  

Tier 1 capital

35,293 

34,664 

Tier 2 capital

7,370 

9,161 

  

  

  

Total regulatory capital

42,663 

43,825 

  

  

  

Risk-weighted assets

  

  

Credit risk

  

  

  - non-counterparty

160,100 

162,200 

  - counterparty

20,800 

22,900 

Market risk

17,000 

17,400 

Operational risk

23,800 

25,700 

  

  

  

Total RWAs

221,700 

228,200 

Leverage (2) 

  

  

Derivatives

204,100 

247,000 

Loans and advances

347,200 

340,300 

Reverse repos

45,500 

41,800 

Other assets

186,500 

169,600 

  

  

  

Total assets

783,300 

798,700 

Derivatives

  

  

  - netting and variation margin

(204,200)

(241,700)

  - potential future exposures

63,400 

65,300 

Securities financing transactions gross up

2,800 

2,300 

Undrawn commitments

55,100 

58,600 

Regulatory deductions and other adjustments

300 

100 

  

  

  

CRR leverage exposure

700,700 

683,300 

  

  

  

Tier 1 capital

35,293 

34,664 

  

  

  

CRR leverage ratio %

5.0 

5.1 

  

  

  

UK leverage exposure (3)

622,200 

614,600 

  

  

  

UK leverage ratio % (3)

5.7 

5.6 

 

Notes:

(1)

CRR as implemented by the PRA in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on available-for-sale securities which have been included from 2015 under the PRA transitional basis.

(2)

Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

(3)

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.

20

 

 


 

 

Segment performance

  

Quarter ended 31 March 2017

  

PBB

  

CPB

  

  

  

  

Central

  

  

  

Ulster

  

Commercial

Private

RBS

  

NatWest

Capital

Williams

 items &

Total

  

UK PBB

Bank RoI

  

Banking

Banking

International

  

Markets

Resolution

& Glyn (1)

other (2)

RBS

  

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Net interest income

1,111 

105 

  

567 

112 

80 

  

29 

33 

165 

32 

2,234 

Other non-interest income

266 

41 

  

298 

48 

18 

  

479 

(85)

41 

(101)

1,005 

Total income - adjusted (3) 

1,377 

146 

  

865 

160 

98 

  

508 

(52)

206 

(69)

3,239 

Own credit adjustments

(1)

  

  

(20)

(7)

(1)

(29)

Gain on redemption of own debt

  

  

Total income - statutory

1,377 

145 

  

865 

160 

98 

  

488 

(59)

206 

(68)

3,212 

Direct expenses - staff costs

(163)

(49)

  

(125)

(38)

(12)

  

(71)

(16)

(53)

(497)

(1,024)

                           - other costs

(64)

(12)

  

(55)

(7)

(3)

  

(17)

(9)

(11)

(620)

(798)

Indirect expenses

(489)

(47)

  

(268)

(68)

(28)

  

(233)

(44)

(20)

1,197 

Operating expenses - adjusted (4)

(716)

(108)

  

(448)

(113)

(43)

  

(321)

(69)

(84)

80 

(1,822)

Restructuring costs  - direct

(20)

(19)

  

(39)

  

(70)

(429)

(577)

                                  - indirect

(111)

(15)

  

(60)

(11)

(3)

  

(68)

(16)

284 

Litigation and conduct costs

(4)

  

(3)

  

(31)

(6)

(10)

(54)

Operating expenses - statutory

(851)

(142)

  

(550)

(124)

(46)

  

(420)

(161)

(84)

(75)

(2,453)

Operating profit/(loss) before impairment (losses)/releases

526 

  

315 

36 

52 

  

68 

(220)

122 

(143)

759 

Impairment (losses)/releases

(32)

24 

  

(61)

(3)

(7)

  

45 

(11)

(1)

(46)

Operating profit/(loss) - statutory

494 

27 

  

254 

33 

45 

  

68 

(175)

111 

(144)

713 

Operating profit/(loss) - adjusted (3,4)

629 

62 

  

356 

44 

48 

  

187 

(76)

111 

10 

1,371 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (5)

24.8%

4.0%

  

5.7%

6.0%

12.0%

  

1.7%

nm

nm

nm

3.1%

Return on equity - adjusted (3,4,5)

32.0%

9.3%

  

8.9%

8.6%

13.0%

  

7.9%

nm

nm

nm

9.7%

Cost:income ratio (6)

61.8%

97.9%

  

62.0%

77.5%

46.9%

  

86.1%

nm

40.8%

nm

76.1%

Cost:income ratio - adjusted (3,4,6)

52.0%

74.0%

  

49.7%

70.6%

43.9%

  

63.2%

nm

40.8%

nm

55.8%

Total assets (£bn)

159.1 

24.7 

  

153.3 

18.1 

25.1 

  

225.3 

119.2 

25.8 

32.7 

783.3 

Funded assets (£bn) (7)

159.1 

24.6 

  

153.3 

18.1 

25.1 

  

113.9 

29.2 

25.8 

30.1 

579.2 

Net loans and advances to customers (£bn) 

135.8 

19.0 

  

99.7 

12.5 

8.9 

  

17.9 

12.3 

20.6 

-  

326.7 

Risk elements in lending (£bn)

1.9 

3.5 

  

1.7 

0.1 

0.1 

  

-  

2.1 

0.3 

-  

9.7 

Impairment provisions (£bn)

(1.2)

(1.1)

  

(0.8)

-  

-  

  

-  

(0.7)

(0.2)

(0.1)

(4.1)

Customer deposits (£bn)

146.3 

16.6 

  

97.2 

25.7 

25.3 

  

8.0 

7.6 

24.0 

0.8 

351.5 

Risk-weighted assets (RWAs) (£bn)

32.7 

17.7 

  

77.8 

8.7 

9.5 

  

34.1 

30.5 

9.7 

1.0 

221.7 

RWA equivalent (£bn) (5)

35.7 

18.9 

  

81.8 

8.7 

9.5 

  

36.0 

32.7 

10.2 

1.2 

234.7 

Employee numbers (FTEs - thousands)

18.2 

3.1 

  

5.4 

1.7 

0.8 

  

1.2 

0.3 

4.3 

41.2 

76.2 

  

  

  

  

  

  

  

  

  

  

  

  

  

For the notes to this table refer to page 23. nm = not meaningful

  

  

  

  

  

  

                                           

21

 

 


 

 

 

Segment performance