Report of Foreign Private Issuer

 

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

the Securities Exchange Act of 1934

 

10 August 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 Nos. 333-203157 and 333-203157-01) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.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

Interim Results 2017

Contents

Page

Forward-looking statements

2

Introduction

4

Presentation of information

4

Condensed consolidated income statement (unaudited) 

6

Condensed consolidated balance sheet (unaudited) 

7

Highlights

8

Segmental income statement reconciliations

17

Analysis of results

20

Segment performance

30

Statutory results

 

Condensed consolidated income statement (unaudited) 

68

Condensed consolidated statement of comprehensive income (unaudited) 

69

Condensed consolidated balance sheet (unaudited) 

70

Condensed consolidated statement of changes in equity (unaudited) 

71

Condensed consolidated cash flow (unaudited) 

73

Notes

74

Risk factors

114

Statement of directors’ responsibilities

117

 

 

Additional information

 

Share information

118

Other financial data

119

Appendix 1 – Capital and risk management

 

Signature page

 

 

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 risk factors and 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 vote to leave in the EU Referendum and from the outcome of general elections in the UK and changes in government policies; 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 increasing 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, including risks arising out of geopolitical events and political developments; 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.

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 (‘the Act’). The statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

 

In this document Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity, which continues to be reported as a separate operating segment. 

 

The unaudited condensed consolidated income statement, condensed consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, condensed consolidated cashflow and related notes presented on pages 68 to 113 inclusive are presented on a statutory basis as described above.

 

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 businesses’ results combining PBB, CPB and NatWest Markets results which are presented to provide investors with a summary of the Group’s business performance.

Reconciliations of these non-GAAP measures to the closest equivalent GAAP measure are presented throughout this document and on pages 17 to 19.

4 

 


 

 

Introduction

 

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.

 

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.

 

Recent developments

Preference share redemption

RBSG has given notice to holders of preference shares and similar securities as follows:

 

4 August 2017 - the redemption on 3 December 2017 of the Non-cumulative Sterling Preference Shares Series 1 (ADS ISIN: XS0121856859). The redemption of these debt accounted Preference Shares is to be paid out of the distributable reserves of RBSG and will reduce subordinated liabilities by approximately £15 million;

7 August 2017 - the redemption on 4 September 2017 of series F (ADS CUSIP: 780097804 ADS ISIN: US7800978048), series H (ADS CUSIP: 780097879; ADS ISIN: US7800978790), and series L (ADS CUSIP: 780097788; ADS ISIN: US7800977883) Non-cumulative Dollar Preference Shares and the redemption on 3 December 2017 of the Non-cumulative Series 1 Dollar Preference Shares (ADS CUSIP: 780097AE1; ADS ISIN: US780097AE13). The redemption of these debt accounted Preference Shares is to be paid out of the distributable reserves of RBSG and will reduce subordinated liabilities by approximately £0.93 billion (sterling equivalent); and

7 August 2017 - the redemption on 5 October 2017 of the outstanding CAD600,000,000 Fixed/Floating Undated Callable StepUp Tier 1 Notes (the "CAD Tier 1 Notes") (ISIN: CA780097AT83 / CUSIP: 780097AT8 / Common Code: 032385311) and the outstanding $1,600,000,000 Fixed Rate/Floating Rate Preferred Capital Securities (the "USD Capital Securities") (ISIN: US780097AS09 /XS0323865047 / CUSIP: 780097AS0 / Common Code: 32386504). The redemption of these securities will reduce the additional paid-in equity of RBSG by approximately £0.43 billion (sterling equivalent).

 

 

Payment Protection Insurance (PPI)

As previously disclosed, on 2 March 2017, the FCA published Policy Statement 17/3, its final rules and guidance on PPI complaint handling.  The Policy Statement made clear the FCA’s intention to implement a two year PPI complaints deadline with effect from 29 August 2017, bringing an end to new PPI complaints in August 2019.

 

In June 2017, the claims management company ‘We Fight Any Claim’ issued judicial review proceedings challenging elements of the FCA’s Policy Statement, including the proposed 2019 deadline. On 4 August 2017, the claim was dismissed. 

 

 

5 

 


 

 

Condensed consolidated income statement for the period ended 30 June 2017 (unaudited)

 

  

Half year ended

  

30 June

30 June

2017 

2016 

  

£m 

£m 

  

  

  

Interest receivable

5,462 

5,692 

Interest payable

(990)

(1,359)

Net interest income (1) 

4,472 

4,333 

  

  

  

Fees and commissions receivable

1,666 

1,676 

Fees and commissions payable

(448)

(392)

Income from trading activities

884 

(17)

Loss on redemption of own debt

(7)

(130)

Other operating income

352 

594 

Non-interest income

2,447 

1,731 

  

  

  

Total income

6,919 

6,064 

  

  

  

Staff costs

(2,447)

(2,695)

Premises and equipment

(678)

(652)

Other administrative expenses

(1,208)

(2,139)

Depreciation and amortisation

(511)

(354)

Write down of other intangible assets

(8)

(89)

  

  

  

Operating expenses

(4,852)

(5,929)

  

  

  

Profit before impairment losses

2,067 

135 

Impairment losses

(116)

(409)

  

  

  

Operating profit/(loss) before tax

1,951 

(274)

Tax charge

(727)

(340)

  

  

  

Profit/(loss) for the period

1,224 

(614)

  

  

  

Attributable to:

  

  

Non-controlling interests

29 

30 

Preference share and other dividends

256 

208 

Dividend access share

1,193 

Ordinary shareholders

939 

(2,045)

  

  

  

  

1,224 

(614)

Earnings/(loss) per ordinary share (EPS)

  

  

Basic earnings/(loss) per ordinary share (2)

7.9p

(17.6p)

 

For further information see Statutory results on pages 68 to 113.

 

 

 

Notes:

(1)

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

re-presented accordingly.

(2)

There is no dilutive impact in any period.

 

6 

 


 

 

Condensed consolidated balance sheet as at 30 June 2017 (unaudited)

 

  

30 June

31 December

2017

2016 

  

£m 

£m

  

  

  

Assets

  

  

Cash and balances at central banks

86,807 

74,250 

Net loans and advances to banks

20,685 

17,278 

Reverse repurchase agreements and stock borrowing

14,847 

12,860 

Loans and advances to banks

35,532 

30,138 

Net loans and advances to customers

326,059 

323,023 

Reverse repurchase agreements and stock borrowing

25,183 

28,927 

Loans and advances to customers

351,242 

351,950 

Debt securities

86,169 

72,522 

Equity shares

518 

703 

Settlement balances

12,091 

5,526 

Derivatives

193,531 

246,981 

Intangible assets

6,467 

6,480 

Property, plant and equipment

4,823 

4,590 

Deferred tax

1,677 

1,803 

Prepayments, accrued income and other assets

3,797 

3,713 

  

  

  

Total assets

782,654 

798,656 

  

  

  

Liabilities

  

  

Bank deposits

38,965 

33,317 

Repurchase agreements and stock lending

5,183 

5,239 

Deposits by banks

44,148 

38,556 

Customer deposits

359,882 

353,872 

Repurchase agreements and stock lending

37,855 

27,096 

Customer accounts

397,737 

380,968 

Debt securities in issue

31,997 

27,245 

Settlement balances

11,379 

3,645 

Short positions

29,862 

22,077 

Derivatives

184,161 

236,475 

Provisions for liabilities and charges

11,227 

12,836 

Accruals and other liabilities

6,603 

7,006 

Retirement benefit liabilities

182 

363 

Deferred tax

585 

662 

Subordinated liabilities

14,724 

19,419 

  

  

  

Total liabilities

732,605 

749,252 

  

  

  

Equity

  

  

Non-controlling interests

844 

795 

Owners’ equity*

  

  

  Called up share capital

11,876 

11,823 

  Reserves

37,329 

36,786 

  

  

  

Total equity

50,049 

49,404 

  

  

  

Total liabilities and equity

782,654 

798,656 

  

  

  

*Owners’ equity attributable to:

  

  

Ordinary shareholders

42,149 

41,462 

Other equity owners

7,056 

7,147 

  

  

  

  

49,205 

48,609 

 

For further information see Statutory results on pages 68 to 113.

7 

 


 

 

Highlights

 

RBS reported an operating profit before tax of £1,951 million for H1 2017 and a profit(1)  attributable to ordinary shareholders of £939 million. An operating profit before tax of £1,238 million and profit attributable to ordinary shareholders of £680 million were reported in Q2 2017.

 

Across our Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and NatWest Markets (NWM) businesses(1), RBS reported an operating profit before tax of £2,102 million, an increase of £706 million, or 50% compared with H1 2016. Adjusted operating profit before tax of £2,678 million(1), increased by £608 million, or 29% compared with H1 2016.

 

Key points

In H1 2017, RBS reported a profit attributable to ordinary shareholders of £939 million, 5.6% return on tangible equity, and increased operating profit before tax by 50.6% across its PBB, CPB and NatWest Markets businesses compared with H1 2016.  Adjusted operating profit before tax across its core PBB, CPB and NatWest Markets businesses increased by 29.4%(1) compared with H1 2016. The CET1 ratio remains ahead of target at 14.8%, a 140 basis points increase in the first half. In addition, RBS has made good progress against its stated ambition for the year, as set out in the full year result’s announcement in February 2017. Across our core businesses we committed to grow income, cut costs and use less capital, and have made substantive progress against each:

Core businesses income increased by £305 million, or 5.1% compared with H1 2016. Adjusted core businesses income increased by £496 million(1), or 8.6%, compared with H1 2016. NatWest Markets income increased by 14% to £932 million and adjusted income(1) by 43.9% to £980 million, navigating markets well compared to a more difficult H1 2016. Across PBB and CPB income increased by 3.7% and adjusted income by 3.8%(1) supported by increased lending;

Core businesses operating expenses reduced by £185 million or 4.4% compared with H1 2016. Adjusted core businesses operating expenses reduced by £151 million(1), or 4.2%, compared with H1 2016. This represents 25% (31% on an adjusted basis) of our overall cost reduction(2) in H1 2017 and we retain our expectation that around half of the full year reduction will be across the core businesses. The cost:income ratio(6) improved from 97.7% to 69.8% and the adjusted cost:income ratio(1,6) across the core businesses improved from 61.6% to 54.3%; and

Across the core business RWAs reduced by £12.6 billion(1) to £177.2 billion in H1 2017. Excluding volume growth, RWAs reduced by £8.6 billion in H1 2017 and we remain committed to achieving a reduction of at least £20 billion by the end of 2018.

 

In addition, we committed to continue to make progress on resolving our legacy issues and have made significant progress in the first half:

Capital Resolution RWAs reduced by £7.9 billion in H1 2017 to £26.6 billion and, excluding RBS’s stake in Alawwal Bank (£7.4 billion at 30 June 2017), are now in the £15-£20 billion range we guided to for the end of 2017;

In H1 2017, settlement was reached with the Federal Housing Finance Agency (FHFA) in the US and we also incurred a further provision in relation to settling the 2008 rights issue shareholder litigation; and

On 26 July, it was announced that an alternative remedies package, in respect of RBS’s remaining State Aid obligation regarding Williams & Glyn, has now been agreed in principle between HM Treasury (HMT) and the EC Commissioner responsible for competition.

 

For footnotes refer to page 12.

8 

 


 

 

Highlights

 

H1 2017 RBS Performance Summary

RBS reported a profit attributable to ordinary shareholders of £939 million for H1 2017 compared with an attributable  loss of £2,045 million in H1 2016 which included payment of the final Dividend Access Share (DAS) dividend of £1,193 million. 

Income of £6,919 million was £855 million, or 14.1%, higher than in H1 2016 reflecting strong income growth across the PBB, CPB and NatWest Markets businesses and a £154 million gain in respect of IFRS volatility, compared with a loss of £668 million in H1 2016.  Adjusted income of £6,843 million(4) was £1,294 million, or 23.3%, higher than H1 2016.

The net interest margin (NIM) was stable on H1 2016 at 2.18%. A 9 basis point reduction across PBB and CPB, associated with asset margin pressure and higher liquidity requirements, has been broadly offset by the benefit of a reduction in low yielding Capital Resolution and centrally held assets, down from 12% of total interest earning assets to 5%.

Operating expenses reduced by £1,077 million, or 18.2%. Excluding VAT recoveries of £51 million in H1 2017 and £227 million in H1 2016, adjusted operating expenses(6)  reduced by £494 million, or 11.7%, compared with H1 2016. The cost:income ratio(6) improved from 97.7% to 69.8%. The adjusted cost:income ratio(4,5,6) for H1 2017 was 53.1% compared with 71.4% in H1 2016.

Restructuring costs were £790 million in H1 2017, an increase of £160 million compared with H1 2016, and included a charge of £217 million relating to the reduction of our property portfolio.

Litigation and conduct costs of £396 million include a £151 million charge in respect of the settlement with the FHFA and a £25 million charge relating to the settlement of the UK 2008 rights issue shareholder litigation.

A net impairment loss of £116 million, 7 basis points of gross customer loans, compared with a loss of £409 million in H1 2016, with the reduction principally reflecting a £264 million shipping impairment in H1 2016. REIL represented 2.8% of gross customer loans compared with 3.5% at 30 June 2016 and 2.9% at 31 March 2017.

A gain of £156 million was recognised in relation to the disposal of RBS’s stake in Vocalink.

PBB and CPB net loans and advances have increased by 4.1% on an annualised basis in H1 2017 principally driven by mortgage growth within UK PBB.

H1 2017 lending growth has been achieved while remaining within our risk appetite. Personal mortgage lending represented 49% of net loans and advances, compared with 47% as at 31 December 2016, whilst personal unsecured and commercial real estate were flat over the first half at 4% and 8% respectively. Overall LTV across our mortgage portfolio was stable at 58%.  

 

PBB, CPB and NatWest Markets operating performance

Across our three customer facing businesses, PBB, CPB and NatWest Markets, operating profit of £2,102 million(1) was £706 million, or 50.6%, higher than H1 2016. Adjusted operating profit of £2,678(1) million was £608 million, or 29.4%, higher than H1 2016.

UK PBB operating profit of £1,097 million was £564 million, or 105.8% higher than H1 2016. Adjusted operating profit of £1,270 million(1) was £205 million, or 19.2%, higher than H1 2016. Total income of £2,755 million was £140 million, or 5.4%, higher driven by increased lending, with net loans and advances 9.9% higher at £138.5 billion.    

Ulster Bank RoI operating profit of £11 million was £3 million, or 37.5%, higher than in H1 2016 principally reflecting lower operating expenses. Adjusted profit of £90 million(1) was £32 million, or 26.2%, lower than H1 2016 principally reflecting a lower net impairment release and reduced income on free funds. 

Commercial Banking operating profit of £660 million was £48 million, or 7.8%, higher than H1 2016, primarily reflecting reduced expenses associated with lower headcount and an intangible asset write-down in H1 2016. Adjusted operating profit of £781 million(1) was £118 million, or 17.8%, higher than H1 2016. In addition income was £51 million, or 3.0%, higher at £1,750 million driven by customer deposit growth and re-pricing benefits across lending and deposits.

     

 

For footnotes refer to page 12.

9 

 


 

 

Highlights

 

PBB, CPB and NatWest Markets operating performance (continued)

Private Banking operating profit of £82 million was £31 million, or 60.8%, higher than H1 2016, driven by a £46 million, or 16.5%, reduction in operating expenses principally reflecting cost reduction initiatives. Adjusted operating profit of £96 million(1)  was £23 million, or 31.5%, higher than H1 2016.

RBS International operating profit of £96 million reduced by £7 million, or 6.6%, compared with H1 2016, driven by a £23 million, or 32.4%, increase in operating expenses principally reflecting increased regulatory costs in relation to ring-fencing. RBS international adjusted operating profit of £100 million(1) reduced by £6 million, or 5.7%, compared with H1 2016.

NatWest Markets operating profit of £156 million compared with £89 million in H1 2016. An adjusted operating profit(1) of £341 million compared with £41 million in H1 2016. Total income of £932 million was £114 million, or 13.9%, higher than in H1 2016. Adjusted income  of £980 million(1) was £299 million, or 43.9%, higher than H1 2016.

 

Capital Resolution, Williams & Glyn and Central items operating performance

Capital Resolution operating loss of £563 million was £350 million lower that in H1 2016, principally due to a net impairment release compared with a loss in H1 2016 and lower adjusted operating expenses(1). Operating expenses increased by £61 million to £539 million, principally reflecting increased restructuring costs and litigation and conduct costs. Adjusted operating loss of £135 million(1) was £848 million lower than H1 2016 principally reflecting materially lower disposal losses and impairment charges in H1 2017 and a £282 million, or 68.0%, reduction in adjusted operating expenses to £133 million. RWAs of £26.6 billion were £15.7 billion, or 37.1%, lower than H1 2016.

Williams & Glyn operating profit increased by £82 million to £234 million driven by reduced operating expenses, reflecting a substantial reduction in headcount.  Adjusted operating profit increased by £37 million(1), or 18.8%, to £234 million driven by a £39 million, or 19.8%.

Central items operating profit of £178 million compared with a loss of £909 million in H1 2016. Adjusted operating profit  of £284 million(1), compared with a loss of £128 million in H1 2016, and included a £51 million VAT recovery (H1 2016 - £227 million) a £154 million gain in respect of IFRS volatility (H1 2016 - £668 million loss).

 

Q2 2017 RBS Performance Summary

A profit attributable to ordinary shareholders £680 million compared with a loss of £1,077 million in Q2 2016 and a profit of £259 million in Q1 2017. The Q2 2016 loss included litigation and conduct costs of £1,284 million.  

An operating profit of £1,238 million compared with an operating loss of £695 million in Q2 2016 and an operating profit of £713 million in Q1 2017. An adjusted operating profit of £1,690 million(3) was £974 million higher than Q2 2016 and was £319 million above Q1 2017 principally reflecting an IFRS volatility gain of £172 million, compared with a loss of £18 million in Q1 2017.

Across our three customer facing businesses, PBB, CPB and NatWest Markets, operating profit of £1,181 million was £798 million higher than Q2 2016. Adjusted operating profit (of £1,352 million(1) was £305 million, or 29.1%, higher than Q2 2016.

Q2 2017 NIM of 2.13% was 8 basis points lower than Q2 2016 principally reflecting the impact of asset margin pressure and mix impacts across the core businesses. Compared with Q1 2017, NIM reduced by 11 basis points to 2.13%, with the majority of the reduction driven by a conscious build-up in liquidity as we manage for litigation and conduct costs, including FHFA, and accelerate MREL and other wholesale funding plans into H1 2017. In addition, conditions in the UK mortgage market have become more competitive, contributing to a 9 basis point reduction in UK PBB NIM.

Net loans and advances across PBB and CPB increased by £1.8 billion in the quarter to £277.7 (7)  billion driven by mortgage growth in UK PBB.

 

For footnotes refer to page 12.

10 

 


 

 

Highlights

 

Building a stronger RBS

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

The CET1 ratio remains ahead of our 13% target at 14.8%, a 140 basis point increase on Q4 2016 driven by a £12.8 billion reduction in RWAs and the £939 million attributable profit.

RWAs decreased by £12.8 billion compared with Q4 2016 principally reflecting £7.9 billion of disposals and run-off in Capital Resolution and planned RWA reductions in the core businesses. Excluding volume growth, core RWAs reduced by £8.6 billion comprising £0.7 billion in PBB, £4.4 billion in CPB and £3.5 billion in NatWest Markets.

During H1 2017, RBS has issued a Sterling equivalent of £3.6 billion (€1.5 billion and $3.0 billion) of senior holding company (RBSG) debt which it expects to be eligible to meet its ‘Minimum Requirement for Own Funds and Eligible Liabilities’ (MREL). Total estimated ‘Loss Absorbing Capital’ (LAC) is now £54.9 billion, or 25.5% of RWAs. In addition, RBS successfully completed its first covered bond issuance in over five years comprising €1.25 billion 7 year and £1.25 billion three year tranches.

During H1 2017, RBS successfully redeemed £4.1 billion Sterling equivalent of legacy capital securities through calls and repurchase. RBS has decided not to exercise the current call option on the non-cumulative US Dollar preference share series U and Euro Preference Shares Series 3. RBS has instead prioritised calling nine other legacy Tier 1 instruments with higher economic benefit. Further details are available in the Capital, liquidity and funding risk section on page 2.

Leverage ratio was stable on Q4 2016 at 5.1%.

Risk elements in lending (REIL) of £9.3 billion were £1.0 billion lower than 31 December 2016 and represented 2.8% of gross customer loans, compared with 3.1% at 31 December 2016 and 3.5% as at 30 June 2016. Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were £4.0 billion or 1.3% of the respective gross customer loans.

As at 30 June 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 with £9 billion drawn since 31 December 2016, taking total RBS participation to £14 billion as at 30 June 2017.

On 15 June 2017, Moody’s announced that they had upgraded their senior debt rating of The Royal Bank of Scotland Group plc (RBS Group) by one notch to Baa3 from Ba1. As a result, all three ratings agencies have now given RBS Group an investment grade senior debt rating.

 

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 was £14.5 billion, with market share of new mortgages at approximately 12% supporting growth in stock share to approximately 9.1%, up from 8.8% at 31 December 2016. Positive momentum continued across business banking lending with net balances up 4%, excluding transfers of £0.6 billion from Commercial Banking as at 30 June 2017, compared with H1 2016.  

RBS continued to enhance the capability of its mobile app, with a corresponding increase in customer usage. We now have 5.0 million customers regularly using the app, up 19% on FY 2016. In the final month of H1 2017 customers logged into the app an average of 58 times a second and sent close to ten million payments. RBS remains the only UK bank to allow customers to use the app to withdraw money from a cash machine without needing to carry a debit card, with customers now using the ‘Get Cash’ service over 200,000 times a month.

We continued to improve our product and service delivery channels to support our lending and income growth targets. In mortgages, while in the past a mortgage renewal would have required an appointment at a branch or a phone call, Royal Bank and NatWest customers can now renew online in a matter of minutes, with close to 19,000 customers renewing online in H1 2017. In addition, for new customers we have piloted a paperless mortgage process which has cut the time taken to issue a firm offer in half, to around ten days.

During H1 2017, RBS launched NatWest Invest, our new digital investment service, which offers NatWest personal and private customers the opportunity to select their own investment online, from a range of five personal portfolio funds.

NatWest Markets has reviewed ways to minimise disruption to the business and continue to serve its customers well in the event of any loss of EU passporting. Should the outcome of the current EU separation negotiations make it necessary, NatWest Markets is ensuring our existing RBS N.V. banking licence in the Netherlands is operationally ready.

 

For footnotes refer to following page.

 

11 

 


 

 

Highlights

 

Notes:

(1)

Refer to the income statement reconciliations on page 17.

(2)

Total operating expenses excluding restructuring costs (H1 2017 - £790 million and H1 2016 - £630 million), litigation and conduct costs (H1 2017 - £396 million and H1 2016 - £1,315 million) and VAT recoveries (H1 2017 - £51 million and H1 2016 - £227 million).

(3)

Operating profit before tax excluding own credit adjustments (H1 2017 - £73 million loss; Q2 2017 - £44 million loss; H1 2016 - £450 million gain; Q1 2017 - £29 million loss; Q2 2016 - £194 million gain), redemption of own debt (H1 2017 - £7 million loss; Q2 2017 - £9 million loss; H1 2016 - £130 million loss; Q1 2017 - £2 million gain; Q2 2016 - £130 million loss), strategic disposals (H1 2017 - £156 million gain; Q2 2017 - £156 million gain; H1 2016 - £195 million gain; Q1 2017 - nil; Q2 2016 - £201 million gain), restructuring costs (H1 2017 - £790 million; Q2 2017 - £213 million; H1 2016 - £630 million; Q1 2017 - £577 million; Q2 2016 - £392 million), and litigation and conduct costs (H1 2017 - £396 million; Q2 2017 - £342 million; H1 2016 - £1,315 million; Q1 2017 - £54 million; Q2 2016 - £1,284 million).

(4)

Total income excluding own credit adjustments (H1 2017 - £73 million loss; Q2 2017 - £44 million loss; H1 2016 - £450 million gain; Q1 2017 - £29 million loss; Q2 2016 - £194 million gain), redemption of own debt (H1 2017 - £7 million loss; Q2 2017 - £9 million loss; H1 2016 - £130 million loss; Q1 2017 - £2 million gain; Q2 2016 - £130 million loss) and strategic disposals (H1 2017 - £156 million gain; Q2 2017 - £156 million gain; H1 2016 - £195 million gain; Q1 2017 - nil; Q2 2016 - £201 million gain)

(5)

Total operating expenses excluding restructuring costs (H1 2017 - £790 million; Q2 2017 - £213 million; H1 2016 - £630 million; Q1 2017 - £577 million; Q2 2016 - £392 million), and litigation and conduct costs (H1 2017 - £396 million; Q2 2017 - £342 million; H1 2016 - £1,315 million; Q1 2017 - £54 million; Q2 2016 - £1,284 million).

(6)

Operating lease depreciation included in income (H1 2017 - £72 million; Q2 2017 - £36 million, H1 2016 - £76 million; Q1 2017 - £36 million and Q2 2016 - £38 million).

(7)

Refer to the segmental performance section on pages 30 to 31.

12 

 


 

 

Highlights

 

Customer

RBS remains committed to achieving its target of being number one bank for customer service, trust and advocacy by 2020.

 

We use independent surveys to measure our customers’ experience and track our progress against our goal in each of our markets.

 

Net Promoter Score (NPS)

Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating ‘extremely likely’ and 0 indicating ‘not at all likely’.  Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. NPS is established by subtracting the proportion of detractors from the proportion of promoters.

 

The table below lists all of the businesses for which we have an NPS. Commercial Banking NPS is up 4 points from H1 2016 at 22, statistically ahead of the rest of the Commercial Banking market. We still have significant work to do to improve customer experience across some of our other businesses and brands.  

 

                 

 

 

Q2 2016

Q1 2017

Q2 2017

Personal Banking

NatWest (England & Wales)(1)

12

15

13

Royal Bank of Scotland (Scotland)(1)

(7)

(13)

(21)

Ulster Bank (Northern Ireland)(2)

(16)

(15)

(8)

Ulster Bank (Republic of Ireland)(2)

(11)

(8)

(5)

Business Banking

NatWest (England & Wales)(3)

4

(3)

(8)

Royal Bank of Scotland (Scotland)(3)

(4)

(7)

(12)

Business & Commercial

Ulster Bank (Northern Ireland)(4)

3

(6)

(5)

Ulster Bank (Republic of Ireland)(5)

N/A

N/A

13

Commercial Banking(6)

18

21

22

 

13 

 


 

 

Highlights

 

Customer Trust

We also use independent experts to measure our customers’ trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).

 

Customer trust in NatWest in England & Wales continues to improve and has exceeded its 2017 target of 57. Trust in RBS in Scotland has improved since last year, but is behind target trajectory. This is primarily due to ongoing reputational and legacy issues that the bank continues to work to resolve.

 

 

 

Q2 2016

Q1 2017

Q2 2017

Customer trust(7)

NatWest (England & Wales)

48

55

58

Royal Bank of Scotland (Scotland)

23

28

27

 

Notes:

(1)

Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3365) Royal Bank of Scotland (Scotland) (510). 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. Latest base sizes: Ulster Bank NI (309) Ulster Bank RoI (273) 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”.   

(3)

Source: Charterhouse Research Business Banking Survey, YE Q2 2017.  Based on interviews with businesses with an annual turnover up to £2 million. Latest base sizes: NatWest England & Wales (1228), RBS Scotland (401). 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 2017.  Based on interviews with businesses with an annual turnover up to £1 billion. Base size: 383. 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 Northern Ireland.

(5)

Source: Red C SME survey based on interviews with businesses with an estimated annual turnover of €2-25m (6-monthly study only).  Latest sample size: Ulster Bank (252).

(6)

Source: Charterhouse Research Business Banking Survey, YE Q2 2017.  Commercial £2m+ in GB (RBSG sample size, excluding don’t knows: 913).  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.

(7)

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 (942), RBS Scotland (206).

 

 

14 

 


 

 

Highlights

 

Capital reorganisation

Following a resolution at the parent company’s 2017 Annual General Meeting, on 15 June 2017 we announced completion of the legal capital reduction process to cancel the share premium account and capital redemption reserve whose combined balances were £30.3 billion. As a result, the parent company’s retained earnings increased by an equal amount. There has been no change in the interests of ordinary and preference shareholders.

 

IFRS 9 (1) 

 

RBS continues to work towards the implementation of IFRS 9 on 1 January 2018.  In terms of shareholders equity, RBS’s current estimate of the opening balance sheet adjustment, if applied on 1 July 2017, is to increase credit impairment provisions by £0.5 billion before tax.  Separately, there is an increase in asset values of £1.0 billion before tax in respect of changes on classification and measurement.  This results in a net increase in shareholders equity, after tax, of £0.4 billion.  As at end Q2 2017, this would have equated to an increase in tangible net asset value per share of approximately 3 pence per share

In terms of CET1 capital, under the current rules, the increase in credit impairment provisions is fully offset by a reduction in the regulatory expected loss deduction, so is anticipated  to have no CET1 capital impact.  The increase in asset values of £1.0 billion noted above is partially offset by tax and an expected additional prudential valuation deduction driving an overall increase in CET1 capital of some £0.6 billion.  As at end Q2 2017, this would have equated to an increase in the CET1 ratio of approximately 30 basis points.

RBS will continue to calibrate and refine its models and methodologies during 2017 and 2018 which may impact IFRS 9 at adoption on 1 January 2018; changes will also follow from disposals, changes in the portfolio composition, economic or credit conditions. For further information on the implementation of IFRS 9 refer to pages 397 to 401 of the 2016 Annual Report on Form 20-F.

 

Progress on 2017 targets

RBS remains committed to achieving its priority targets for 2017. 

 

Strategy goal

2017 target

Q2 2017 Progress

Strength and sustainability

Maintain bank CET1 ratio of 13%

CET1 ratio of 14.8%; up 70 basis points from Q1 2017 and 140 basis points from Q4 2016

Customer experience

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

Our Commercial Banking franchise remains a clear market leader. We still have significant work to do to improve customer experience across some of our other businesses and brands

Simplifying the bank

Reduce operating expenses by at least £750 million (2)

Operating expenses down £494 (3) million, or 11.7%, excluding VAT recoveries; 66% of the total full year target

Supporting growth

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

Net customer loans in PBB and CPB are up 4.1% on an annualised basis for the year to date; 69% of the total full year target

Employee engagement

Improve employee engagement

Employee engagement improved by 4 points in H1 2017

 

Notes:

(1)

The 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.

(2)

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

(3)

Total operating expenses excluding restructuring costs (H1 2017 - £790 million and H1 2016 - £630 million), litigation and conduct costs (H1 2017 - £396 million and H1 2016 - £1,315 million) and VAT recoveries (H1 2017 - £51 million and H1 2016 - £227 million).

 

15 

 


 

 

Highlights

 

Williams & Glyn

On 26 July, RBS announced that it had been informed by HM Treasury (HMT) that, following the consultation process carried out by the European Commission (EC) and a market testing exercise carried out by HMT, an alternative remedies package has now been agreed in principle between HMT and the EC Commissioner responsible for competition.     

This revised package is focused on the following two remedies to promote competition in the market for banking services to small and medium enterprises (“SMEs”) in the UK.

 

A £425 million Capability and Innovation Fund, to be administered by an independent body, that will grant funding to a range of competitors in the UK banking and financial technology sectors; and

 

 

An Incentivised Switching Scheme which will provide £275 million of funding for eligible challenger banks to help them incentivise SME customers of the business previously described as Williams & Glyn to switch their accounts and loans from RBS paid in the form of “dowries” to the receiving bank. An additional £75 million will be made available by RBS to cover customers’ costs of switching.

 

This revised package will be submitted to the EC’s College of Commissioners for approval and if agreed will form the basis of a new term sheet in relation to RBS’s remaining State Aid commitments. It is expected to come into effect during H2 2017, upon which RBS will no longer be obliged to achieve separation and divestment of the business previously described as Williams & Glyn by 31 December 2017.

A £750 million provision was recognised in RBS’s 2016 Annual Results in relation to the previously proposed package of measures. An incremental charge of £50 million has been recognised in Q2 2017 in relation to the revised package and its implementation costs, taking the total provision to £800 million.

RBS will incur running costs for the duration of the scheme, which are estimated at around £35 million and will be substantially incurred before the end of 2019. Furthermore, under the terms of the revised package, should the uptake within the Incentivised Switching Scheme not be sufficient, RBS could be required to make a further contribution, capped at £50 million.

 

 

Outlook (1)

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

Excluding RBS’s stake in Alawwal Bank, we now expect that Capital Resolution RWAs will be at the lower end of our previous £15-£20 billion guidance for end 2017. We anticipate that Capital Resolution disposal losses will be substantially higher in H2 2017, at around £0.7 billion.

In Q3 2017 we expect to recognise a debt sale gain of approximately £160 million in UK PBB.

 

 

 

 

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 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.

 

16 

 


 

 

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

Half year ended 30 June 2017

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

2,755 

293 

  

1,750 

321 

195 

  

932 

(102)

417 

358 

6,919 

Own credit adjustments

  

  

48 

22 

73 

Loss on redemption of own debt

  

  

Strategic disposals

  

  

(156)

(156)

Total income - adjusted

2,755 

296 

  

1,750 

321 

195 

  

980 

(80)

417 

209 

6,843 

Operating expenses - statutory

(1,586)

(293)

  

(996)

(232)

(94)

  

(775)

(539)

(158)

(179)

(4,852)

Restructuring costs  - direct

23 

24 

  

40 

  

30 

130 

543 

790 

Restructuring costs  - indirect

137 

19 

  

77 

14 

  

73 

(328)

Litigation and conduct costs

13 

33 

  

  

34 

272 

40 

396 

Operating expenses - adjusted

(1,413)

(217)

  

(875)

(218)

(90)

  

(638)

(133)

(158)

76 

(3,666)

Impairment (losses)/releases

(72)

11 

  

(94)

(7)

(5)

  

(1)

78 

(25)

(1)

(116)

Operating profit/(loss) - statutory

1,097 

11 

  

660 

82 

96 

  

156 

(563)

234 

178 

1,951 

Operating profit/(loss) - adjusted

1,270 

90 

  

781 

96 

100 

  

341 

(135)

234 

284 

3,061 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

27.8%

0.8%

  

8.2%

7.7%

13.1%

  

2.3%

nm

22.2%

nm

5.6%

Return on equity     - adjusted (1,2) 

32.4%

6.8%

  

10.1%

9.3%

13.7%

  

7.2%

nm

22.2%

nm

11.5%

Cost:income ratio (3) 

57.6%

100.0%

  

55.1%

72.3%

48.2%

  

83.2%

nm

37.9%

nm

69.8%

Cost:income ratio - adjusted (2,3) 

51.3%

73.3%

  

47.9%

67.9%

46.2%

  

65.1%

nm

37.9%

nm

53.1%

Half year ended 30 June 2016

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

2,615 

293 

  

1,699 

331 

185 

  

818 

(172)

411 

(116)

6,064 

Own credit adjustments

(3)

  

  

(137)

(184)

(126)

(450)

Loss on redemption of own debt

  

  

130 

130 

Strategic disposals

  

  

51 

(246)

(195)

Total income - adjusted

2,615 

290 

  

1,699 

331 

185 

  

681 

(305)

411 

(358)

5,549 

Operating expenses - statutory

(2,042)

(312)

  

(984)

(278)

(71)

  

(729)

(478)

(242)

(793)

(5,929)

Restructuring costs  - direct

51 

24 

  

  

10 

12 

45 

485 

630 

Restructuring costs  - indirect

60 

  

40 

19 

  

23 

25 

(170)

Litigation and conduct costs

421 

92 

  

10 

  

56 

26 

708 

1,315 

Operating expenses - adjusted

(1,510)

(195)

  

(933)

(256)

(68)

  

(640)

(415)

(197)

230 

(3,984)

Impairment (losses)/releases

(40)

27 

  

(103)

(2)

(11)

  

(263)

(17)

(409)

Operating profit/(loss) - statutory

533 

  

612 

51 

103 

  

89 

(913)

152 

(909)

(274)

Operating profit/(loss) - adjusted

1,065 

122 

  

663 

73 

106 

  

41 

(983)

197 

(128)

1,156 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

11.9%

0.6%

  

8.1%

5.1%

15.4%

  

0.8%

nm

14.3%

nm

(10.3%)

Return on equity  - adjusted (1,2) 

25.5%

9.3%

  

8.9%

7.6%

15.9%

  

(0.5%)

nm

18.6%

nm

(3.2%)

Cost:income ratio (3) 

78.1%

106.5%

  

56.1%

84.0%

38.4%

  

89.1%

nm

58.9%

nm

97.7%

Cost:income ratio - adjusted (2,3) 

57.7%

67.2%

  

53.0%

77.3%

36.8%

  

94.0%

nm

47.9%

nm

71.4%

17 

 


 

 

 

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 30 June 2017

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

1,378 

148 

  

885 

161 

97 

  

444 

(43)

211 

426 

3,707 

Own credit adjustments

  

  

28 

15 

(1)

44 

Loss on redemption of own debt

  

  

Strategic disposals

  

  

(156)

(156)

Total income  - adjusted

1,378 

150 

  

885 

161 

97 

  

472 

(28)

211 

278 

3,604 

Operating expenses - statutory

(735)

(151)

  

(446)

(108)

(48)

  

(355)

(378)

(74)

(104)

(2,399)

Restructuring costs  - direct

  

  

10 

60 

134 

213 

Restructuring costs  - indirect

26 

  

17 

  

25 

(12)

(64)

Litigation and conduct costs

33 

  

  

266 

30 

342 

Operating expenses - adjusted

(697)

(109)

  

(427)

(105)

(47)

  

(317)

(64)

(74)

(4)

(1,844)

Impairment (losses)/releases

(40)

(13)

  

(33)

(4)

  

(1)

33 

(14)

(70)

Operating profit/(loss) - statutory

603 

(16)

  

406 

49 

51 

  

88 

(388)

123 

322 

1,238 

Operating profit/(loss) - adjusted

641 

28 

  

425 

52 

52 

  

154 

(59)

123 

274 

1,690 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

30.8%

(2.4%)

  

10.7%

9.6%

14.0%

  

2.9%

nm

23.5%

nm

8.0%

Return on equity  - adjusted (1,2) 

32.8%

4.3%

  

11.4%

10.3%

14.3%

  

6.6%

nm

23.5%

nm

12.9%

Cost:income ratio (3) 

53.3%

102.0%

  

48.3%

67.1%

49.5%

  

80.0%

nm

35.1%

nm

64.4%

Cost :ncome ratio - adjusted (2,3) 

50.6%

72.7%

  

46.1%

65.2%

48.5%

  

67.2%

nm

35.1%

nm

50.7%

Quarter ended 31 March 2017

  

  

  

  

  

  

  

  

  

  

  

  

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 

  

20 

70 

409 

577 

Restructuring costs  - indirect

111 

15 

  

60 

11 

  

48 

16 

(264)

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

20.9%

nm

3.1%

Return on equity  - adjusted (1,2) 

32.0%

9.3%

  

8.9%

8.6%

13.0%

  

7.9%

nm

20.9%

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%

18 

 


 

 

 

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 30 June 2016

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

1,340 

135 

  

846 

166 

95 

  

477 

(325)

206 

60 

3,000 

Own credit adjustments

  

  

(73)

(76)

(45)

(194)

Loss on redemption of own debt

  

  

130 

130 

Strategic disposals

  

  

45 

(246)

(201)

Total income  - adjusted

1,340 

135 

  

846 

166 

95 

  

404 

(356)

206 

(101)

2,735 

Operating expenses - statutory

(1,292)

(202)

  

(546)

(125)

(35)

  

(368)

(220)

(124)

(597)

(3,509)

Restructuring costs - direct

38 

18 

  

  

10 

25 

295 

392 

Restructuring costs - indirect

51 

  

41 

  

11 

16 

(125)

Litigation and conduct costs

421 

92 

  

  

38 

16 

707 

1,284 

Operating expenses - adjusted

(782)

(91)

  

(497)

(119)

(33)

  

(309)

(183)

(99)

280 

(1,833)

Impairment (losses)/releases

(24)

14 

  

(89)

(9)

  

(67)

(11)

(186)

Operating profit/(loss) - statutory

24 

(53)

  

211 

41 

51 

  

109 

(612)

71 

(537)

(695)

Operating profit/(loss) - adjusted

534 

58 

  

260 

47 

53 

  

95 

(606)

96 

179 

716 

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

(0.4%)

(8.2%)

  

4.9%

8.6%

15.0%

  

4.3%

nm

13.3%

nm

(11.0%)

Return on equity  - adjusted (1,2) 

24.2%

9.0%

  

6.6%

9.9%

15.7%

  

3.5%

nm

18.0%

nm

3.2%

Cost income ratio (3) 

96.4%

149.6%

  

63.0%

75.3%

36.8%

  

77.1%

nm

60.2%

nm

117.2%

Cost income ratio - adjusted (2,3) 

58.4%

67.4%

  

57.0%

71.7%

34.7%

  

76.5%

nm

48.1%

nm

66.6%

 

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, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

(3)

Operating lease depreciation included in income (H1 2017 - £72 million; Q2 2017 - £36 million; H1 2016 – £76 millions; Q1 2017 - £36 million and Q2 2016 - £38 million).

19 

 


 

 

Analysis of results

 

  

Half year ended

  

Quarter ended

  

30 June

30 June

  

30 June

31 March

30 June

  

2017 

2016 

  

2017 

2017 

2016 

Net interest income

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

Net interest income

  

  

  

  

  

  

RBS

4,472 

4,333 

  

2,238 

2,234 

2,177 

  

  

  

  

  

  

  

  - UK Personal & Business Banking

2,231 

2,109 

  

1,120 

1,111 

1,090 

  - Ulster Bank RoI

206 

198 

  

101 

105 

93 

  - Commercial Banking

1,141 

1,067 

  

574 

567 

531 

  - Private Banking

226 

226 

  

114 

112 

113 

  - RBS International

161 

151 

  

81 

80 

76 

  - NatWest Markets

42 

43 

  

13 

29 

24 

  - Capital Resolution

24 

168 

  

(9)

33 

82 

  - Williams & Glyn

333 

324 

  

168 

165 

162 

  - Central items & other

108 

47 

  

76 

32 

  

  

  

  

  

  

  

Average interest-earning assets (IEA)

  

  

  

  

  

  

RBS

413,588 

399,640 

  

421,980 

405,107 

396,008 

  

  

  

  

  

  

  

  - UK Personal & Business Banking

151,659 

138,192 

  

153,714 

149,581 

140,591 

  - Ulster Bank RoI

24,858 

24,233 

  

25,288 

24,424 

24,288 

  - Commercial Banking

131,807 

117,312 

  

132,719 

130,885 

119,768 

  - Private Banking

18,068 

16,441 

  

18,533 

17,597 

16,622 

  - RBS International

23,997 

21,436 

  

25,034 

22,949 

21,798 

  - NatWest Markets

17,021 

11,745 

  

16,853 

17,192 

11,923 

  - Capital Resolution

15,959 

29,962 

  

15,156 

16,771 

29,157 

  - Williams & Glyn

25,334 

23,764 

  

25,495 

25,170 

24,172 

  - Central items & other

4,885 

16,555 

  

9,188 

538 

7,689 

  

  

  

  

  

  

  

Yields, spreads and margins of the banking business

  

  

  

  

  

  

  

  

  

  

  

  

  

Gross yield on interest-earning assets

  

  

  

  

  

  

  of the banking business (1,2) 

2.63%

2.85%

  

2.56%

2.70%

2.87%

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

(0.68%)

(1.03%)

  

(0.66%)

(0.70%)

(1.02%)

  

  

  

  

  

  

  

Interest spread of the banking business (1,3) 

1.95%

1.82%

  

1.90%

2.00%

1.85%

Benefit from interest-free funds

0.23%

0.36%

  

0.23%

0.24%

0.36%

  

  

  

  

  

  

  

Net interest margin (4) 

  

  

  

  

  

  

RBS

2.18%

2.18%

  

2.13%

2.24%

2.21%

  

  

  

  

  

  

  

  - UK Personal & Business Banking

2.97%

3.07%

  

2.92%

3.01%

3.12%

  - Ulster Bank RoI

1.67%

1.64%

  

1.60%

1.74%

1.54%

  - Commercial Banking

1.75%

1.83%

  

1.73%

1.76%

1.78%

  - Private Banking

2.52%

2.76%

  

2.47%

2.58%

2.73%

  - RBS International

1.35%

1.42%

  

1.30%

1.41%

1.40%

  - NatWest Markets

0.50%

0.74%

  

0.31%

0.68%

0.81%

  - Capital Resolution

0.30%

1.13%

  

(0.24%)

0.80%

1.13%

  - Williams & Glyn

2.65%

2.74%

  

2.64%

2.66%

2.70%

 

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

20 

 


 

 

Analysis of results

 

 

  

Half year ended

  

Quarter ended

  

30 June

30 June

  

30 June

31 March

30 June

Third party customer rates (5)

2017 

2016 

  

2017 

2017 

2016 

Third party customer asset rate

  

  

  

  

  

  

  - UK Personal & Business Banking

3.54%

3.96%

  

3.50%

3.57%

3.96%

  - Ulster Bank RoI (6)

2.37%

2.20%

  

2.28%

2.47%

2.07%

  - Commercial Banking

2.66%

2.85%

  

2.65%

2.67%

2.82%

  - Private Banking

2.70%

3.00%

  

2.68%

2.71%

2.97%

  - RBS International

2.73%

3.14%

  

2.72%

2.75%

3.02%

Third party customer funding rate

  

  

  

  

  

  

  - UK Personal & Business Banking

(0.18%)

(0.54%)

  

(0.18%)

(0.17%)

(0.46%)

  - Ulster Bank RoI (6)

(0.36%)

(0.56%)

  

(0.31%)

(0.40%)

(0.53%)

  - Commercial Banking

(0.13%)

(0.36%)

  

(0.11%)

(0.14%)

(0.36%)

  - Private Banking

(0.07%)

(0.22%)

  

(0.07%)

(0.07%)

(0.20%)

  - RBS International

(0.02%)

(0.18%)

  

(0.01%)

(0.03%)

(0.13%)

 

Notes:                                                                                                                                           

(1)

For the purpose of calculating gross yields and interest spread, interest receivable has been decreased by £77 million (Q2 2017 - £42 million; Q1 2017 - £35 million) and interest payable has decreased by £77 million (Q2 2017 - £42 million; Q1 2017 – £35 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.

 

21 

 


 

 

Analysis of results

 

  

  

  

  

  

  

  

  

  

Half year ended

  

Half year ended

  

30 June 2017

  

30 June 2016

  

Average

  

  

  

Average

  

  

  

balance

Interest

Rate

  

balance

Interest

Rate

Average balance sheet

£m

£m

%

  

£m

£m

%

  

  

  

  

  

  

  

  

Assets

  

  

  

  

  

  

  

Loans and advances to banks

70,191 

81 

0.23 

  

66,179 

115 

0.35 

Loans and advances to customers

296,421 

5,114 

3.48 

  

287,575 

5,364 

3.75 

Debt securities

46,976 

190 

0.82 

  

45,886 

177 

0.78 

  

  

  

  

  

  

  

  

Interest-earning assets

  

  

  

  

  

  

  

  - banking business (1,2) 

413,588 

5,385 

2.63 

  

399,640 

5,656 

2.85 

  - trading business (3) 

116,600 

  

  

  

132,839 

  

  

  

  

  

  

  

  

  

  

Non-interest earning assets

235,625 

  

  

  

339,014 

  

  

  

  

  

  

  

  

  

  

Total assets

765,813 

  

  

  

871,493 

  

  

  

  

  

  

  

  

  

  

Memo: Funded assets

539,196 

  

  

  

535,848 

  

  

  

  

  

  

  

  

  

  

Liabilities

  

  

  

  

  

  

  

Deposits by banks

16,905 

31 

0.37 

  

4,437 

12 

0.54 

Customer accounts

226,600 

290 

0.26 

  

233,165 

575 

0.50 

Debt securities in issue

21,817 

254 

2.35 

  

18,022 

298 

3.33 

Subordinated liabilities

15,012 

317 

4.26 

  

19,130 

442 

4.65 

Internal funding of trading business

(9,776)

21 

(0.43)

  

(17,508)

(4)

0.05 

  

  

  

  

  

  

  

  

Interest-bearing liabilities

  

  

  

  

  

  

  

  - banking business (1,2) 

270,557 

913 

0.68 

  

257,246 

1,323 

1.03 

  - trading business (3) 

126,164 

  

  

  

141,714 

  

  

  

  

  

  

  

  

  

  

Non-interest-bearing liabilities

  

  

  

  

  

  

  

  - demand deposits

99,029 

  

  

  

84,660 

  

  

  - other liabilities

220,310 

  

  

  

333,459 

  

  

Owners’ equity

49,753 

  

  

  

54,414 

  

  

  

  

  

  

  

  

  

  

Total liabilities and owners’ equity

765,813 

  

  

  

871,493 

  

  

 

Notes:

(1)

For the purpose of calculating gross yields and interest spread, interest receivable has been decreased by £77 million (H1 2016 - £36 million) and interest payable has decreased by £77 million (H1 2016 - £36 million) in respect of negative interest relating to both financial assets and financial liabilities that attracted negative interest.

(2)

Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers.

(3)

Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.

 

22 

 


 

 

Analysis of results

 

Key points

Net interest income of £4,472 million increased by £139 million, or 3.2%, compared with H1 2016 principally reflecting higher volumes in UK PBB, up £122 million or 5.8%, and increased deposit volumes and re-pricing benefits in Commercial Banking, up £74 million or 6.9%. Partially offsetting, Capital Resolution reduced by £144 million in line with the planned shrinkage of the balance sheet.

The net interest margin (NIM) was stable on H1 2016 at 2.18%. A 9 basis point reduction across PBB and CPB, associated with asset margin pressure and higher liquidity requirements, has been broadly offset by the benefit of a reduction in low yielding Capital Resolution and centrally held assets, down from 12% of total interest earning assets to 5%.

 

UK PBB declined by 10 basis points to 2.97% driven by lower mortgage margins and reduced current account hedge yield, partially offset by savings re-pricing benefits from actions taken in 2016.

 

 

Ulster Bank RoI NIM of 1.67% was 3 basis points higher than H1 2016 reflecting a combination of improved deposit and loan margins, one off income adjustments in H1 2017 and deleveraging measures in 2016 which have reduced the concentration of low yielding non-performing loans.

 

 

In Commercial Banking, active re-pricing of assets and deposits has been offset by wider asset margin pressure in a lower rate environment causing net interest margin to fall by 8 basis points to 1.75%.      

 

 

Private Banking fell 24 basis points to 2.52% reflecting the competitive market and lower rate environment.

 

 

RBS International NIM of 1.35% was 7 basis points lower as margin pressures outweigh mitigating pricing actions.

 

Structural hedges of £126 billion generated a benefit of £651 million through net interest income for H1 2017.

Compared with Q1 2017, NIM reduced by 11 basis points to 2.13%, with the majority of the reduction driven by a conscious build-up in liquidity as we manage for litigation and conduct costs, including FHFA, and accelerate MREL and other wholesale funding plans into H1 2017. In addition, conditions in the UK mortgage market have become more competitive, contributing to a 9 basis point reduction in UK PBB NIM. Front book mortgage NIM was around 40 basis points lower than the back book. SVR balances were around 11% of total mortgage balances, broadly in line with Q1 2017.

NIM was 8 basis points lower than Q2 2016 principally reflecting asset margin pressure and mix impacts across the core businesses.

   

23 

 


 

 

Analysis of results

 

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

  

Half year ended

  

Quarter ended

  

30 June

30 June

  

30 June

31 March

30 June

  

2017 

2016 

  

2017 

2017 

2016 

Non-interest income

£m

£m

  

£m

£m

£m