Report of Foreign Private Issuer

 

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

the Securities Exchange Act of 1934

 

20 May 2016

 

 

 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(File Nos. 333-184147 and 333-184147-01) and to be a part thereof from the date which it was filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 

 


 

 

The Royal Bank of Scotland Group plc

 

Contents

Page 

 

 

Forward-looking statements

2

Presentation of information

3

Consolidated income statement

5

Consolidated balance sheet

6

Highlights

7

Analysis of results

14

Segment performance

23

Selected statutory financial statements

31

Notes

36

Appendix 1 - Additional segment information

 

Appendix 2 – Additional capital resources, RWA and leverage information

 

 

1

 


 

 

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’, ‘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: The Royal Bank of Scotland Group’s (RBS) restructuring which includes the separation and divestment of Williams & Glyn, the proposed restructuring of RBS’s CIB business, the implementation of the UK ring-fencing regime, the implementation of a major development program to update RBS’s IT infrastructure and the continuation of its balance sheet reduction programme, as well as capital and strategic plans, divestments, capitalisation, portfolios, net interest margin, capital and leverage ratios and requirements liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), Pillar 2A, return on equity (ROE), profitability, cost:income ratios, loan:deposit ratios, AT1 and other funding plans, funding and credit risk profile; litigation, government and regulatory investigations RBS’s future financial performance; the level and extent of future impairments and write-downs; including with respect to Goodwill; future pension contributions and RBS’s exposure to political risks, operational risk, conduct risk and credit rating risk and to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates, targets and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

 

Other factors that could adversely affect our results and the accuracy of forward-looking statements in this document include the risk factors and other uncertainties discussed in RBS’s 2015 Annual Report on Form 20-F. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes (including where resolved by settlement); the uncertainty relating to the referendum on the UK’s membership of the European Union and the consequences of it; the separation and divestment of Williams & Glyn; RBS’s ability to successfully implement the various initiatives that are comprised in its restructuring plan, particularly the proposed restructuring of its CIB business and the balance sheet reduction programme as well as the significant restructuring required to be undertaken by RBS in order to implement the UK ring fencing regime; the significant changes, complexity and costs relating to the implementation of its restructuring, the separation and divestment of Williams & Glyn and the UK ring-fencing regime; whether RBS will emerge from its restructuring and the UK ring-fencing regime as a viable, competitive, customer focused and profitable bank; RBS’s ability to achieve its capital and leverage requirements or targets which will depend on RBS’s success in reducing the size of its business and future profitability; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; the ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS’s strategic refocus on the UK the impact of global economic and financial market conditions (including low or negative interest rates) as well as increasing competition. In addition, there are other risks and uncertainties. These include operational risks that are inherent to RBS’s business and will increase as a result of RBS’s significant restructuring; the potential negative impact on RBS’s business of actual or perceived global economic and financial market conditions and other global risks; the impact of unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates; the risk of failure to realise the benefit of RBS’s substantial investments in its information technology and systems, the risk of failing to preventing a failure of RBS’s IT systems or to protect itself and its customers against cyber threats, reputational risks; 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; risks relating to increased pension liabilities and the impact of pension risk on RBS’s capital position; increased competitive pressures resulting from new incumbents and disruptive technologies; RBS’s ability to attract and retain qualified personnel; HM Treasury exercising influence over the operations of RBS; limitations on, or additional requirements imposed on, RBS’s activities as a result of HM Treasury’s investment in RBS; the extent of future write-downs and impairment charges caused by depressed asset valuations; deteriorations in borrower and counterparty credit quality; 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; 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.

 

2

 


 

 

Presentation of information

 

Basis of preparation

RBS reports in conformity with International Financial Reporting Standards (IFRS) as adopted for use in the European Union (the “statutory” basis). In 2015, the Group implemented reporting changes in relation to the presentation of its results and the following items which were previously reported separately as reconciling items after operating profit, are now reported within operating profit on a statutory basis: Own credit adjustments; Gain/(loss) on redemption of own debt; Write-down of goodwill and Strategic disposals.

 

The directors manage RBS’s performance by class of business, as is presented in the analysis of results on pages 14 to 21 (the “non-statutory” basis). As a result non-statutory results continue to show such items as separate line items: Own credit adjustments; Gain/(loss) on redemption of own debt; Write-down of goodwill; Strategic disposals; Restructuring costs; and Litigation and conduct costs.

 

The presentation of operating profit, operating expenses, total income and other performance measures excluding the impact of: Own credit adjustments; Gain/(loss) on redemption of own debt; Write-down of goodwill; Strategic disposals; Restructuring costs; and Litigation and conduct costs are a non-GAAP financial measures.

 

In addition, management manages the Group’s operations by franchise. As a result, the presentation of Personal & Business Banking (PBB) combines the reportable segments of UK Personal & Business Banking and Ulster Bank RoI and is a non-GAAP financial measure. The presentation of Commercial and Private Banking (CPB) combines the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI) and is also a non-GAAP financial measure.

 

Lastly the presentation of the cost savings against 2015 target shown within the Highlights which excludes litigation and conduct costs, restructuring costs, write down of goodwill and other intangible assets and other operating costs of William’s & Glyn is a non-GAAP financial measure.

 

RBS prepares its financial statements in accordance with IFRS as adopted by the European Union (EU). The EU has not adopted the complete text of IAS 39; it has relaxed some of the standard's hedging requirements. RBS has not taken advantage of this relaxation. Its financial statements are prepared in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (‘GAAP’). A non-GAAP financial measure excludes or includes amounts that would be included or excluded in the most comparable GAAP measure. RBS presents certain non-GAAP (‘non-statutory’) measures as management believes that they facilitate a more meaningful analysis of RBS’s results and financial condition. These non-statutory financial measures do not replace GAAP measures and reconciliations to the closest equivalent GAAP measure are presented throughout this document and in the segment performance on pages 22 to 30.

 

Recent developments

Set out below are certain recent developments that are subsequent to the issuance of the IMS on 29 April and are additional to those disclosed in Note 6.

 

Appointment of a Non-Executive Director

On 16 May 2016 RBS announced that Frank Dangeard had been appointed as a Non-executive Director, with immediate effect.

 

3

 


 

 

Conclusion of Crown Office investigation into RBS

On 12 May 2016, the Crown Office and Procurator Fiscal Service in Scotland announced that it has concluded its investigation into RBS’s 2008 Rights Issue and that it had found insufficient evidence of criminal conduct either in relation to RBS as an institution or any directors or other senior management involved in the Rights Issue.

 

UK retail banking

On 17 May 2016, the Competition & Markets Authority (CMA) published its provisional decision on remedies. The CMA has provisionally decided upon remedies which are broadly similar to those set out in its October 2015 notice of possible remedies, and its March 2016 supplemental notice of possible remedies. Responses to the provisional decision on remedies are due by 7 June 2016. Following this the CMA is scheduled to publish its final report in early August 2016, ahead of the statutory deadline.

4

 


 

 

Consolidated income statement for the period ended 31 March 2016

 

  

Quarter ended

  

31 March

31 December

31 March

2016 

2015 

2015*

  

£m 

£m 

£m 

  

  

  

  

Interest receivable

2,829 

2,855 

3,076 

Interest payable

(673)

(693)

(873)

  

  

  

  

Net interest income

2,156 

2,162 

2,203 

  

  

  

  

Fees and commissions receivable

866 

904 

989 

Fees and commissions payable

(212)

(251)

(177)

Income from trading activities

38 

15 

330 

Loss on redemption of own debt

(263)

Other operating income

216 

(83)

174 

  

  

  

  

Non-interest income

908 

322 

1,316 

  

  

  

  

Total income

3,064 

2,484 

3,519 

  

  

  

  

Staff costs

(1,323)

(1,277)

(1,341)

Premises and equipment

(324)

(447)

(419)

Other administrative expenses

(575)

(3,192)

(1,339)

Depreciation, amortisation and write downs

(178)

(186)

(512)

Write down of goodwill and other intangible assets

(20)

(659)

  

  

  

  

Operating expenses

(2,420)

(5,761)

(3,611)

  

  

  

  

Profit/(loss) before impairment losses

644 

(3,277)

(92)

Impairment (losses)/releases

(223)

327 

129 

  

  

  

  

Operating profit/(loss) before tax

421 

(2,950)

37 

Tax (charge)/credit

(80)

261 

(190)

  

  

  

  

Profit/(loss) from continuing operations

341 

(2,689)

(153)

Profit/(loss) from discontinued operations, net of tax

90 

(316)

  

  

  

  

Profit/(loss) for the period

341 

(2,599)

(469)

  

  

  

  

Attributable to:

  

  

  

Non-controlling interests

22 

20 

(84)

Preference share and other dividends

94 

121 

74 

Dividend access share

1,193 

Ordinary shareholders

(968)

(2,740)

(459)

  

  

  

  

  

341 

(2,599)

(469)

  

  

  

  

Loss per ordinary share (EPS)

  

  

  

Basic and diluted EPS from continuing and discontinued operations

(8.3p)

(23.6p)

(4.0p)

Basic and diluted EPS from continuing operations

(8.3p)

(24.5p)

(2.2p)

 

*  Restated, refer to Note 1 on page 36 for further details.

 

Statutory results for further information see pages 31 to 40.

 

 

5

 


 

 

Consolidated balance sheet at 31 March 2016

 

  

31 March

31 December

2016 

2015 

  

£m 

£m 

  

  

  

Assets

  

  

Cash and balances at central banks

72,083 

79,404 

Net loans and advances to banks

19,295 

18,361 

Reverse repurchase agreements and stock borrowing

15,037 

12,285 

Loans and advances to banks

34,332 

30,646 

Net loans and advances to customers

317,088 

306,334 

Reverse repurchase agreements and stock borrowing

27,319 

27,558 

Loans and advances to customers

344,407 

333,892 

Debt securities

87,622 

82,097 

Equity shares

1,255 

1,361 

Settlement balances

9,331 

4,116 

Derivatives

312,217 

262,514 

Intangible assets

6,534 

6,537 

Property, plant and equipment

4,552 

4,482 

Deferred tax

2,160 

2,631 

Prepayments, accrued income and other assets

5,032 

4,242 

Assets of disposal groups

3,405 

3,486 

  

  

  

Total assets

882,930 

815,408 

  

  

  

Liabilities

  

  

Bank deposits

31,774 

28,030 

Repurchase agreements and stock lending

12,120 

10,266 

Deposits by banks

43,894 

38,296 

Customer deposits

352,344 

343,186 

Repurchase agreements and stock lending

26,910 

27,112 

Customer accounts

379,254 

370,298 

Debt securities in issue

29,576 

31,150 

Settlement balances

8,808 

3,390 

Short positions

22,666 

20,809 

Derivatives

304,789 

254,705 

Provisions, accruals and other liabilities

14,748 

15,115 

Retirement benefit liabilities

519 

3,789 

Deferred tax

825 

882 

Subordinated liabilities

20,870 

19,847 

Liabilities of disposal groups

2,816 

2,980 

  

  

  

Total liabilities

828,765 

761,261 

  

  

  

Equity

  

  

Non-controlling interests

788 

716 

Owners’ equity*

  

  

  Called up share capital

11,662 

11,625 

  Reserves

41,715 

41,806 

  

  

  

Total equity

54,165 

54,147 

  

  

  

Total liabilities and equity

882,930 

815,408 

  

  

  

* Owners’ equity attributable to:

  

  

Ordinary shareholders

47,426 

47,480 

Other equity owners

5,951 

5,951 

  

  

  

  

53,377 

53,431 

 

Statutory results for further information see pages 31 to 40.

 

6

 


 

 

Highlights

 

RBS continues to deliver on its plan to build a strong, simple and fair bank for both customers and shareholders, and remains committed to delivering its 2016 targets. RBS reported an operating profit before tax of £421 million for Q1 2016. A loss attributable to ordinary shareholders of £968 million included payment of the final Dividend Access Share (DAS) dividend of £1,193 million to the UK Government.

 

Total income was broadly stable compared with Q1 2015 across our core Personal & Business Banking (PBB) (consisting of UK Personal & Business Banking (UKPBB) and Ulster Bank RoI) and Commercial & Private Banking (CPB) (consisting of Commercial Banking, Private Banking and RBS International (RBSI)) franchises. In Q1 2016, core PBB and CPB net loans and advances grew by 15% on an annualised basis with strong growth in both the mortgage and commercial businesses. RBS has made good progress on customer Net Promoter Score (NPS) in the last year, although there still remains much to do. Common Equity Tier 1 ratio (CET1) of 14.6% remains in excess of target.

 

As a result of further extensive analysis on the separation and divestment of Williams & Glyn throughout Q1 2016, we have recently concluded that there is a significant risk that this will not be achieved by 31 December 2017 and alternative means to achieve this are being explored.

 

A loss attributable to ordinary shareholders of £968 million in Q1 2016 compared with £459 million in Q1 2015. Excluding the final DAS dividend of £1,193 million, the Bank made an attributable profit attributable to ordinary shareholders of £225 million notwithstanding IFRS volatility(1) losses of £356 million, restructuring costs of £238 million and an impairment charge of £223 million largely related to its shipping portfolio. An own credit adjustment gain of £256 million was recorded in Q1 2016.

Operating profit before tax was £421 million in Q1 2016 compared with £37 million in Q1 2015. Operating profit before tax excluding restructuring costs (Q1 2016 - £238 million; Q1 2015 - £447 million), litigation and conduct costs (Q1 2016 - £31 million; Q1 2015 - £856 million) and strategic disposals (Q1 2016 - £6 million loss; Q1 2015 - £135 million loss) of £440 million in Q1 2016 was down from £1,355 million in Q1 2015 primarily due to Capital Resolution and the IFRS volatility charge. 

 

UK PBB operating profit was £509 million compared with £201 million in Q1 2015. Operating profit excluding restructuring costs (Q1 2016 - £22 million; Q1 2015 - £30 million) and litigation and conduct costs (Q1 2016 - nil; Q1 2015 - £354 million) of £531 million was £54 million, or 9%, lower than in Q1 2015.  Including business transfers of £1.1 billion, net loans and advances increased by £10.1 billion compared with Q1 2015 primarily driven by strong mortgage growth. Total income fell by 3% compared with Q1 2015 reflecting margin pressure and reduced fee income, but was 2% higher than Q4 2015 as margins stabilised.

 

Commercial Banking operating profit of £401 million was 7% up on Q1 2015.  Including transfers of £1.1 billion, net loans and advances increased by £5.1 billion in the quarter helping to drive an 8% increase in income.

 

Ulster Bank RoI operating profit was stable at £61 million compared with £63 million in Q1 2015.

 

Private Banking operating profit was 77% lower at £10 million, as the business continues to invest in its infrastructure, whilst RBS International operating profit was stable compared with Q1 2015 at £52 million, with return on equity remaining strong at 16%.

 

Notes:

(1)

IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.

7

 


 

 

Highlights

 

 

CIB recorded total income of £341 million in Q1 2016. Total income excluding own credit adjustment gain (Q1 2016 - £64 million; Q1 2015 - £46 million) and which included a £42 million transfer of portfolios to Commercial Banking of £277 million was £207 million lower than Q1 2015, reflecting difficult market conditions and the reduced scale of the business. Operating loss was £20 million compared with £279 million in Q1 2015. Excluding own credit adjustments (Q1 2016 - £64 million; Q1 2015 - £46 million), restructuring costs (Q1 2016 - £12 million; Q1 2015 - £91 million and litigation and conduct costs (Q1 2016 - £18 million; Q1 2015 - £334 million) operating loss was £54 million compared with a £100 million profit in Q1 2015. Expenses reduced by 56% compared with Q1 2015 as CIB moves towards a sustainable cost base.

 

Capital Resolution reported an operating loss of £301 million compared with £172 million in Q1 2015.   Excluding own credit adjustments (Q1 2016 - £108 million; Q1 2015 - £65 million), strategic disposal losses (Q1 2016 - £6 million; Q1 2015 - £14 million), restructuring costs (Q1 2016 - £16 million; Q1 2015 - £200 million) and litigation and conduct costs (Q1 2016 - £10 million; Q1 2015 - £166 million) operating loss was £377 million, compared with an operating profit of £143 million in Q1 2015. A net impairment charge of £196 million was recognised in Q1 2016, principally in relation to the shipping portfolio. RWAs reduced by £36.7 billion from Q1 2015 to £47.6 billion.

 

Net interest margin (NIM) was stable compared with Q1 2015 at 2.15% as the benefit from reductions in the low yielding non-core assets has been largely offset by modest asset margin pressure and mix impacts across the core franchises.

 

Operating expenses were down by £1,191 million compared with Q1 2015.  Operating expenses excluding restructuring costs (Q1 2016 - £238 million; Q1 2015 - £447 million), litigation and conduct costs (Q1 2016 - £31 million; Q1 2015 - £856 million), losses on strategic disposals (Q1 2016 - £6 million; Q1 2015 - £135 million), write down of intangible assets, (Q1 2016 - £10 million; Q1 2015 – nil), and costs associated with Williams & Glyn (Q1 2016 - £98 million; Q1 2015 - £76 million) were down £189 million

 

Restructuring costs were £238 million in the quarter, down £209 million, or 47%, compared with Q1 2015.  Litigation and conduct costs of £31 million compared with £856 million in Q1 2015 and £2,124 million in Q4 2015, which included additional provisions for mortgage-backed securities and foreign exchange litigation in the US, additional PPI provisions and other customer redress.

 

Further to the announcement on 27 January 2016, RBS made a payment of £4.2 billion during March to The Royal Bank of Scotland Group Pension Fund, being an accelerated payment of existing committed future contributions. The impact of the £4.2 billion accelerated payment was largely reflected in the year end financial statements; the incremental impact of the accelerated payment being made during March was to reduce the CET1 ratio by around 30 basis points.   

 

8

 


 

 

 

Progress on 2016 targets

RBS remains committed to achieving all its priority targets for 2016

 

Strategy goal

2016 target

Q1 2016 Progress

Strength and sustainability

Maintain Bank CET1 ratio of 13%

CET1 ratio of 14.6%

£2 billion AT1 issuance

Continue to plan to issue in 2016, subject to market conditions

Capital Resolution RWAs around £30 billion

RWAs down £1.4 billion to £47.6 billion despite adverse exchange rate and interest rate movements

Customer experience

Narrow the gap to No.1 in NPS in every primary UK brand

Year on year Ulster Bank Personal (NI) has narrowed the gap, and our NatWest and Royal Bank brands show improvements in NPS

Simplifying the bank

Reduce operating expenses by £800 million

Operating expenses down £189 million(1); on track

Supporting growth

Net 4% growth in PBB and CPB customer loans

Net lending in PBB and CPB up 15% on an annualised basis in the quarter

Employee engagement

Raise employee engagement to within two points of the GFS norm

Reviewed annually during Q3

 

Note:

(1)

Excluding restructuring costs (Q1 2016 - £238 million; Q1 2015 - £447 million), litigation and conduct costs (Q1 2016 - £31 million; Q1 2015 - £856 million), losses on strategic disposals (Q1 2016 - £6 million; Q1 2015 - £135 million), write down of intangible assets, (Q1 2016 - £10 million; Q1 2015 – nil), and costs associated with Williams & Glyn (Q1 2016 - £98 million; Q1 2015 - £76 million) were down £189 million.

9

 


 

 

Highlights

 

Building a stronger RBS

RBS remains on track with its plan to build a strong, simple, fair bank for customers and shareholders.

CET1 ratio remains ahead of our 13% target. The 90 basis points reduction in the CET1 ratio during the quarter was largely due to the payment of the final Dividend Access Share dividend, 50 basis points, and the accelerated pension payment, 30 basis points, actions that have been taken to normalise the ownership structure and increase the long-term resilience of the Bank.

RWAs increased by £6.9 billion during the quarter to £249.5 billion driven by strong loan growth alongside market volatility and exchange rate movements as sterling weakened over the quarter. Although market conditions have been difficult in Q1 2016, we remain on track to reduce RWAs by £19 billion in Capital Resolution to around £30 billion by the end of 2016.

RBS’s leverage ratio reduced from 5.6% to 5.3% principally due to the loss attributable to ordinary shareholders in the quarter. RBS continues to plan to issue £2 billion AT1 capital notes in 2016, subject to market conditions, which will provide further balance sheet resilience.

RBS successfully completed two senior unsecured debt issuances: €1.5 billion seven year 2.5% notes and $1.5 billion ten year 4.8% notes. The debt will be eligible to meet RBS’s Minimum Requirement for Own Funds and Eligible Liabilities (MREL) and forms a significant part of our targeted £3-5 billion senior debt issuance for 2016.

On 8 April 2016, RBS successfully completed the cash tender of £2.3 billion of certain US dollar, sterling and euro senior debt securities.  The tender offers were part of the on-going transition to a holding company capital and term funding model in line with regulatory requirements and included securities that RBS considers non-compliant for MREL purposes. RBS will recognise a loss of c.£66 million in its Q2 2016 results in relation to the tender offer. Over the last six months to the end of April, RBS has reduced term funding by £11.7 billion.    

On 11 April 2016, we completed the successful transfer of the Coutts International businesses in Asia and the Middle East to Union Bancaire Privée, the final milestone in the sale of our International Private Bank. We also completed the sale of our Russian subsidiary in early April.

RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending almost doubled from a subdued Q1 2015 performance to £7.0 billion. Our flow market share in Q1 2016 was approximately 11.4% compared with stock share of 8.3%. Buy-to-let new mortgage lending was £1.5 billion compared with £0.8 billion in Q1 2015 and £1.3 billion in Q4 2015. We now have nearly 1,000 mortgage advisors supporting our customers, an increase of over 20% since the beginning of 2015. Net new lending in Commercial Banking totalled £6.5 billion. Q1 2016 represents the fifth successive quarter of net lending growth in Commercial Banking.

The Reward account continues to show positive momentum and now has 539,000 fee-paying customers compared with 202,000 at 31 December 2015.

We continue to make better use of our digital channels to make it simpler to serve our customers and for them to do business with us.  Online mortgage renewals more than doubled to £3.0 billion compared with Q1 2015, and NatWest customers can now apply for personal loans or credit cards via the mobile app. Active users of our mobile app increased by 20% over the last year, with over 200,000 new users in Q1 2016.

10

 


 

 

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 for 2016. Year-on-year, NatWest Personal Banking, NatWest Business Banking and Royal Bank of Scotland Personal Banking have seen significant improvements in NPS. 

 

In recent years, the bank has launched a number of initiatives to make it simpler, fairer and easier to do business, and it continues to deliver on the commitments that it made to its customers in 2014.

 

 

 

Q1 2015

Q4 2015

Q1 2016

Year end 2016 target

Personal Banking

NatWest (England & Wales)(1)

5

9

13

15

Royal Bank of Scotland (Scotland)(1)

-18

-9

-6

-5

Ulster Bank (Northern Ireland)(2)

-18

-9

-14

-3

Ulster Bank (Republic of Ireland)(2)

-16

-14

-12

-10

Business Banking

NatWest (England & Wales)(3)

-6

9

9

13

Royal Bank of Scotland (Scotland)(3)

-17

-7

-7

2

Ulster Bank Corporate

Ulster Bank (Northern Ireland) (4)

n/a

-19

-10

-4

Ulster Bank (Republic of Ireland) (5)

n/a

-21

n/a

-15

Commercial Banking(6)

12

9

15

17

11

 


 

 

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 RBS has continued to improve and is at its highest in two years. NatWest has not changed since last quarter - both are currently on track to meet the 2016 year end target.

 

 

 

Q1 2015

Q4 2015

Q1 2016

Year end 2016 target

Customer trust(7)

NatWest (England & Wales)

44%

48%

48%

51%

Royal Bank of Scotland (Scotland)

10%

14%

21%

26%

 

Notes:

(1)

Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3464) Royal Bank of Scotland (Scotland) (607). 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?“

(2)

Source: Coyne Research 12 month rolling data. Latest base sizes: Ulster Bank NI (359) Ulster Bank RoI (344) 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 (GB), based on interviews with businesses with an annual turnover up to £2 million. Quarterly rolling data. Latest base sizes: NatWest England & Wales (1347), RBS Scotland (425). Weighted by region and turnover to be representative of businesses in England & Wales/Scotland, 4 quarter rolling data.

(4)

Source: Charterhouse Research Business Banking Survey (NI). Latest base size: Ulster (383) Weighted by turnover and industry sector to be representative of businesses in Northern Ireland, 4 quarter rolling data.

In 2016 we switched the source of advocacy measurement for Ulster Bank Corporate NI to the Charterhouse Business Banking Study.  Charterhouse is a recognised, independent syndicate study that provides more frequent reporting of NPS as well as additional diagnostic customer feedback to help us improve the customer experience.  The Q4 2015 figure has been restated to reflect this.

(5)

Source: PWC Republic of Ireland Business Banking Tracker. Data collected annually. Latest base sizes: Ulster Bank RoI (222). Weighted by turnover to be representative of businesses in the Republic of Ireland.

(6)

Source: Charterhouse Research Business Banking Survey (GB), based on interviews with businesses with annual turnover between £2 million and £1 billion.  Latest base size: RBSG Great Britain (888). Weighted by region and turnover to be representative of businesses in Great Britain, 4 quarter rolling data.

(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 (920), RBS Scotland (199).

 

12

 


 

 

Highlights

 

Outlook

We expect PBB and CPB income to be broadly stable in 2016 compared with 2015 as strong planned balance sheet growth, particularly in mortgages but also in core commercial lending, is balanced by headwinds from low interest rates and the uncertain macroeconomic environment.  In Q1 2016 income was broadly stable across the combined PBB and CPB business. Compared with 2015, we expect to see modest income erosion in CIB following a difficult Q1 2016, albeit performance improved towards the end of the quarter.

RBS remains on track to achieve an £800 million cost reduction in 2016 after achieving a £189 million(1) reduction in the first quarter. We retain our expectation that cost reduction will exceed any income erosion across our combined core businesses. We will incur a charge of approximately £50 million in respect of the Financial Services Compensation Scheme (FSCS) levy in our Q2 2016 results.

We anticipate a modest net impairment charge for the year in our core franchises. The impairment charge taken in the quarter largely related to the shipping portfolio and we continue to anticipate additional net impairments in the Capital Resolution business. We also recognise the increased risk of large single name events across our portfolios given the uncertain macroeconomic environment.

Restructuring costs are expected to remain high in 2016, totalling over £1 billion. 

We expect Capital Resolution disposal losses of approximately £1.5 billion over the period 2015-19, and we anticipate that we will incur most of the remaining losses in 2016 (2015 - £367 million). Losses in Q1 2016 almost entirely comprise the £226 million impairment relating to the shipping portfolio. Although market conditions have been difficult in Q1 2016, Capital Resolution remains on track to reduce RWAs to around £30 billion by the end of 2016 following a £1.4 billion reduction in Q1 2016.     

We continue to deal with a range of uncertainties in the external environment, not least those caused by the forthcoming referendum on the UK’s continuing membership of the European Union.  We will also have to manage conduct-related investigations and litigation, including US RMBS, throughout 2016, and substantial related incremental provisions may be recognised during the year.

 

 

Williams & Glyn

RBS announced an update on its plans to divest Williams & Glyn on 28 April 2016. Since the last update provided with the 2015 Annual Results, we have undertaken further extensive analysis on the separation and divestment of Williams & Glyn. As a result of this analysis, we have concluded that there is a significant risk that the separation and divestment to which we are committed will not be achieved by 31 December 2017. Due to the complexities of Williams & Glyn's customer and product mix, the programme to create a cloned banking platform continues to be very challenging and the timetable to achieve separation is uncertain. RBS is exploring alternative means to achieve separation and divestment. The overall financial impact on RBS is now likely to be significantly greater than previously estimated.

 

Note:

(1)

Excluding restructuring costs (Q1 2016 - £238 million; Q1 2015 - £447 million), litigation and conduct costs (Q1 2016 - £31 million; Q1 2015 - £856 million), losses on strategic disposals (Q1 2016 - £6 million; Q1 2015 - £135 million), write down of intangible assets, (Q1 2016 - £10 million; Q1 2015 – nil), and costs associated with Williams & Glyn (Q1 2016 - £98 million; Q1 2015 - £76 million) were down £189 million.

 

 

13

 


 

 

Analysis of results*

 

  

Quarter ended

  

31 March

31 December

31 March

2016

2015 

2015

Net interest income

£m

£m

£m

  

  

  

  

Net interest income

  

  

  

RBS

2,156 

2,162 

2,203 

  

  

  

  

  - UK Personal & Business Banking

1,019 

1,030 

1,032 

  - Ulster Bank RoI

105 

85 

95 

  - Commercial Banking

536 

512 

482 

  - Private Banking

113 

108 

110 

  - RBS International

75 

78 

76 

  - Corporate & Institutional Banking

19 

28 

14 

  - Capital Resolution

86 

157 

  - Williams & Glyn

162 

165 

163 

  - Central items & other

41 

150 

74 

  

  

  

  

Average interest-earning assets (IEA)

  

  

  

RBS

403,275 

406,952 

415,579 

  

  

  

  

  - UK Personal & Business Banking

135,793 

134,687 

127,973 

  - Ulster Bank RoI

24,178 

23,195 

23,244 

  - Commercial Banking

114,855 

111,600 

103,479 

  - Private Banking

16,259 

16,025 

15,575 

  - RBS International

21,075 

20,773 

20,639 

  - Corporate & Institutional Banking

11,568 

10,190 

14,227 

  - Capital Resolution

30,767 

39,875 

82,990 

  - Williams & Glyn

23,356 

23,327 

22,636 

  - Central items & other

25,424 

27,280 

4,816 

  

  

  

  

  

  

  

  

Yields, spreads and margins of the banking business

  

  

  

  

  

  

  

Gross yield on interest-earning assets of the banking business (1) 

2.82%

2.78%

3.00%

Cost of interest-bearing liabilities of banking business

(1.04%)

(1.02%)

(1.25%)

  

  

  

  

Interest spread of banking business (2) 

1.78%

1.76%

1.75%

Benefit from interest-free funds

0.37%

0.35%

0.40%

  

  

  

  

Net interest margin (3) 

  

  

  

RBS

2.15%

2.11%

2.15%

  

  

  

  

  - UK Personal & Business Banking (4) 

3.02%

3.03%

3.27%

  - Ulster Bank RoI (4) 

1.75%

1.45%

1.66%

  - Commercial Banking (4) 

1.88%

1.82%

1.89%

  - Private Banking (4) 

2.80%

2.67%

2.86%

  - RBS International (4) 

1.43%

1.49%

1.49%

  - Corporate & Institutional Banking

0.66%

1.09%

0.40%

  - Capital Resolution

1.12%

0.06%

0.77%

  - Williams & Glyn

2.79%

2.81%

2.92%

 

Third party customer rates (5)

  

  

  

Third party customer asset rate

  

  

  

  - UK Personal & Business Banking

3.95%

4.00%

4.21%

  - Ulster Bank RoI (6)

2.33%

2.19%

2.28%

  - Commercial Banking

2.87%

2.84%

2.98%

  - Private Banking

3.01%

3.06%

3.19%

  - RBS International

3.29%

3.09%

3.15%

Third party customer funding rate

  

  

  

  - UK Personal & Business Banking

(0.62%)

(0.63%)

(0.71%)

  - Ulster Bank RoI (6)

(0.59%)

(0.74%)

(1.05%)

  - Commercial Banking

(0.35%)

(0.36%)

(0.39%)

  - Private Banking

(0.23%)

(0.25%)

(0.28%)

  - RBS International

(0.24%)

(0.24%)

(0.45%)

 

* statutory basis

 

14

 


 

 

Analysis of results

 

Key points

·

Net interest income of £2,156 million was down £47 million, or 2%, compared with £2,203 million in Q1 2015 principally driven by a 45% reduction in Capital Resolution to £86 million in line with the planned shrinkage of the balance sheet. Partially offsetting, Commercial Banking net interest income increased £54 million, or 11%, to £536 million reflecting increased asset volumes. Q1 2016 net interest income benefits from one additional day compared with Q1 2015, £24 million, and is impacted by one fewer day compared with Q4 2015, £24 million. 

·

NIM for RBS of 2.15% was stable compared with Q1 2015 as the benefit associated with reductions in the low yielding ‘non-core’ assets has been offset by modest asset margin pressure and mix impacts across the core franchises.  NIM was 4 basis points higher than Q4 2015 principally reflecting rundown of the low yielding ‘non-core’ assets.

·

NIM for our combined core PBB and CPB franchises was 2.38% in Q1 2016 compared with 2.50% in Q1 2015 and 2.35% in Q4 2015.

·

In UK PBB, NIM declined by 25 basis points to 3.02% compared with Q1 2015 reflecting lower current account hedge income, the impact of the overall portfolio mix being increasingly weighted towards secured lending and mortgage customers switching from standard variable rate (SVR) to lower rate products. SVR balances represented 16% of the mortgage book at 31 March 2016 compared with 20% a year earlier and 17% at the end of Q4 2015.  NIM was broadly stable compared with Q4 2015.

·

Commercial Banking NIM was broadly stable compared with Q1 2015.

 

Notes:

 

(1)

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

(2)

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.

(3)

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

(4)

PBB NIM was 2.83% (Q4 2015 - 2.80%; Q1 2015 - 3.02%); CPB NIM was 1.91% (Q4 2015 - 1.87%; Q1 2015 - 1.94%).

(5)

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

(6)

Ulster Bank Ireland Limited 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.

 

15

 


 

 

Analysis of results

 

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

  

Quarter ended

  

31 March

31 December

31 March

  

2016 

2015 

2015 

Non-interest income

£m

£m

£m

  

  

  

  

Net fees and commissions

654 

653 

812 

  

  

  

  

Income from trading activities

  

  

  

  - non-statutory basis

(110)

59 

235 

  - own credit adjustments

148 

(44)

95 

  

  

  

  

Statutory basis

38 

15 

330 

  

  

  

  

Own credit adjustments (1) 

  

  

  

  - non-statutory basis

256 

(115)

120 

  - income from trading activities

(148)

44 

(95)

  - own credit adjustments

(108)

71 

(25)

  

  

  

  

Statutory basis

  

  

  

  

Loss on redemption of own debt - statutory basis

(263)

  

  

  

  

Strategic disposals (1) 

  

  

  

  - non-statutory basis

(6)

(22)

(135)

  - other operating income

22 

135 

  

  

  

  

Statutory basis

  

  

  

  

Other operating income

  

  

  

  - non-statutory basis

114 

10 

284 

  - own credit adjustments

108 

(71)

25 

  - strategic disposals

(6)

(22)

(135)

  

  

  

  

Statutory basis

216 

(83)

174 

  

  

  

  

Total non-interest income - non-statutory basis

908 

322 

1,316 

  

  

  

  

Total non-interest income - statutory basis

908 

322 

1,316 

 

Key points

·

Non-interest income was £908 million, a reduction of £408 million, or 31%, compared with £1,316 million in Q1 2015. The reduction principally reflects a £234 million fall in Capital Resolution due to planned asset disposals, a £233 million increase in the charge for volatile items under IFRS (£356 million in Q1 2016 compared with £123 million in Q1 2015) and a £194 million reduction in CIB, reflecting a challenging market and the reduced scale of the business. Partially offsetting, strategic disposal losses were £135 million in Q1 2015, largely in respect of International Private Banking.

 

 

·

Compared with Q4 2015, non-interest income was £586 million higher principally reflecting an own credit adjustment gain of £256 million compared with a charge of £115 million in Q4 2015, a £263 million loss on redemption of own debt in Q4 2015 and a reduction in Capital Resolution losses.  Partially offsetting, a £356 million charge for volatile items under IFRS was reported in the quarter compared with a gain of £59 million in Q4 2015.

 

 

·

Net fees and commissions fell by £158 million, or 19%, compared with Q1 2015 to £654 million reflecting the planned Capital Resolution asset run-down, £59 million, lower CIB income, down £104 million, and lower interchange fees in UK PBB, down £25 million.

 

 

·

Losses from trading activities totalled £110 million in Q1 2016 compared with income of £235 million in Q1 2015, reflecting an increased charge for volatile items under IFRS as well as income reductions across CIB and Capital Resolution.

 

 

·

Other operating income of £114 million was £170 million lower than Q1 2015 principally reflecting planned Capital Resolution run-down.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

 

(1)

Items reallocated to other expense lines, not reconciling items.

16

 


 

 

Analysis of results

 

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

  

Quarter ended

  

31 March

31 December

31 March

  

2016 

2015 

2015 

Operating expenses

£m

£m

£m

  

  

  

  

Staff costs

  

  

  

  - non-statutory basis

(1,202)

(1,072)

(1,285)

  - restructuring costs

(121)

(205)

(56)

  

  

  

  

Statutory basis

(1,323)

(1,277)

(1,341)

  

  

  

  

Premises and equipment

  

  

  

  - non-statutory basis

(315)

(422)

(411)

  - restructuring costs

(9)

(25)

(8)

  

  

  

  

Statutory basis

(324)

(447)

(419)

  

  

  

  

Other administrative expenses

  

  

  

  - non-statutory basis

(446)

(786)

(380)

  - litigation and conduct costs

(31)

(2,124)

(856)

  - restructuring costs

(98)

(282)

(103)

  

  

  

  

Statutory basis

(575)

(3,192)

(1,339)

  

  

  

  

Restructuring costs (1) 

  

  

  

  - non-statutory basis

(238)

(614)

(447)

  - staff costs

121 

205 

56 

  - premises and equipment

25 

  - other administrative expenses

98 

282 

103 

  - write-down of goodwill and other intangible assets

10 

86 

  - depreciation and amortisation

16 

280 

  

  

  

  

Statutory basis

  

  

  

  

Litigation and conduct costs (1) 

  

  

  

  - non-statutory basis

(31)

(2,124)

(856)

  - other administrative expenses

31 

2,124 

856 

  

  

  

  

Statutory basis

  

  

  

  

Depreciation and amortisation

  

  

  

  - non-statutory basis

(178)

(170)

(232)

  - restructuring costs

(16)

(280)

  

  

  

  

Statutory basis

(178)

(186)

(512)

  

  

  

  

Write down of goodwill (1) 

  

  

  

  - non-statutory basis

(498)

  - write down of goodwill and other intangible assets

498 

  

  

  

  

Statutory basis

  

  

  

  

Write-down of other intangible assets

  

  

  

  - non-statutory basis

(10)

(75)

  - write down of goodwill and other intangible assets

10 

75 

  

  

  

  

Statutory basis

  

  

  

  

Write down of goodwill and other intangible assets

  

  

  

  - non-statutory basis

  - write down of goodwill

(498)

  - write down of other intangible assets

(10)

(75)

  - restructuring costs

(10)

(86)

  

  

  

  

Statutory basis

(20)

(659)

  

  

  

  

Operating expenses - non-statutory basis

(2,420)

(5,761)

(3,611)

  

  

  

  

Operating expenses - statutory basis

(2,420)

(5,761)

(3,611)

 

Note:

(1)

Items reallocated to other expense lines, not reconciling items.

17

 


 

 

Analysis of results

 

Key points

·

Total operating expenses of £2,420 million were £1,191 million, or 33%, lower than Q1 2015 principally reflecting lower litigation and conduct costs of £31 million (Q1 2015 - £856 million) and lower restructuring costs of £238 million (Q1 2015 - £447 million).

·

Operating expenses excluding restructuring costs (Q1 2016 - £238 million; Q1 2015 - £447 million), litigation and conduct costs (Q1 2016 - £31 million; Q1 2015 - £856 million) fell by £157 million, or 7%, from Q1 2015 to £2,151 million.  Excluding expenses associated with Williams & Glyn (Q1 2016 - £98 million; Q1 2015 - £76 million) and the write down of intangible assets (Q1 2016 - £10 million; Q1 2015 – nil), adjusted operating expenses reduced by £189 million and remain on target to achieve an £800 million reduction for the year.

·

Staff costs of £1,202 million were down £83 million, or 6%, on Q1 2015 reflecting reduced headcount in CIB and Capital Resolution.

·

Restructuring costs of £238 million in the quarter principally related to the Williams & Glyn separation, £158 million.

·

Litigation and conduct costs of £31 million were significantly lower than recorded in previous quarters which included additional provisions for mortgage-backed securities and foreign exchange litigation in the US, additional PPI provisions and other customer redress.

 

  

Quarter ended

  

31 March

31 December

31 March

2016 

2015 

2015 

Impairment losses/(releases)

£m

£m

£m

  

  

  

  

Loan impairment losses/(releases)

  

  

  

  - individually assessed

186 

(271)

(15)

  - collectively assessed

16 

(27)

12 

  - latent

21 

(28)

(225)

  

  

  

  

Total loan impairment losses/(releases)

223 

(326)

(228)

Securities

(1)

99 

  

  

  

  

Total impairment losses/(releases)

223 

(327)

(129)

 

  

31 March 

31 December 

31 March 

Credit metrics (1) 

2016 

2015 

2015 

  

  

  

  

Gross customer loans

£325,339m

£315,111m

£413,900m

Loan impairment provisions

£6,701m

£7,139m

£13,785m

Risk elements in lending (REIL)

£11,867m

£12,157m

£22,278m

Provisions as a % of REIL

57%

59%

62%

REIL as a % of gross customer loans

3.6%

3.9%

5.4%

 

Note:

(1)

Includes disposal groups and excludes reverse repos.

 

Key points 

·

A net impairment loss of £223 million was reported in Q1 2016 compared with a release of £129 million in Q1 2015 and a release of £327 million in Q4 2015.

·

Capital Resolution reported an impairment loss of £196 million compared with a release of £145 million in Q1 2015.  The charge for the quarter included £226 million (Q4 2015 - £83 million; Q1 2015 - £59 million) in relation to exposures in the shipping portfolio reflecting difficult conditions in some parts of the sector.

·

Provision coverage decreased from 59% at 31 December 2015 to 57% at 31 March 2016.

18

 


 

 

Analysis of results

 

  

  

  

  

  

  

  

  

Selected credit risk portfolios

  

  

  

  

  

  

31 March 2016

  

31 December 2015

  

CRA (1) 

TCE (2) 

EAD (3) 

  

CRA (1) 

TCE (2) 

EAD (3) 

Natural Resources

£m

£m

£m

  

£m

£m

£m

  

  

  

  

  

  

  

  

Oil & Gas

3,518 

6,735 

5,225 

  

3,533 

6,609 

5,606 

Mining & Metals

1,050 

1,998 

1,465 

  

1,134 

2,105 

1,555 

Electricity

3,606 

8,344 

6,055 

  

2,848 

7,454 

5,205 

Water & Waste

5,125 

6,290 

6,242 

  

4,835 

5,948 

5,873 

  

  

  

  

  

  

  

  

  

13,299 

23,367 

18,987 

  

12,350 

22,116 

18,239 

  

  

  

  

  

  

  

  

Commodity Traders (4)

668 

1,187 

1,215 

  

749 

1,117 

1,350 

Of which: Natural Resources

506 

889 

796 

  

548 

772 

776 

  

  

  

  

  

  

  

  

Shipping

6,894 

7,380 

7,140 

  

7,140 

7,688 

7,509 

 

Notes:

(1)

Credit risk assets (CRA) consist of lending gross of impairment provisions and derivative exposures after netting and contingent obligations.

(2)

Total committed exposure (TCE) comprises CRA, securities financing transactions after netting, banking book debt securities and committed undrawn facilities.

(3)

Exposure at default (EAD) reflects an estimate of the extent to which a bank will be exposed under a specific facility on the default of a customer or counterparty.

Uncommitted undrawn facilities are excluded from TCE but included within EAD; therefore EAD can exceed TCE.

(4)

Commodity Traders represent customers in a number of industry sectors, predominantly Natural Resources above.

 

Key points

·

Oil & Gas - The portfolio remained broadly unchanged. Non-performing loans increased to £182 million (31 December 2015 - £138 million) reflecting the continued challenging market environment.

·

Mining & Metals - Exposure continued to reduce in Q1 2016 predominantly due to proactive credit management. The sector remains under stress and continues to be subject to heightened monitoring. Non-performing loans increased to £101 million (31 December 2015 - £48 million).

·

Commodity Traders - Exposure is mainly to the largest independent physical commodity traders, funding is predominantly short-dated and used for working capital.

·

Shipping - Following deterioration in market values and charter rates to historic lows in the dry bulk sector, provisions increased from £181 million to £374 million in Q1 2016. Non-performing loans increased to £827 million (31 December 2015 - £434 million).

 

 

  

31 March 2016

  

31 December 2015

  

Balance

Total

  

Balance

Total

  

sheet

exposure

  

sheet

exposure

Emerging markets (1)

£m

£m

  

£m

£m

  

  

  

  

  

  

India

1,412 

1,646 

  

1,563 

1,879 

China

1,004 

1,028 

  

1,054 

1,094 

 

Note:

(1)

Balance sheet and total exposures include banking and trading book debt securities and are net of impairment provisions in respect of lending - refer to the Capital and

Risk management section of RBS’s 2015 Annual Report on Form 20-F for detailed definitions and additional disclosures.

 

 

 

Key points

·

Exposure to most emerging markets decreased in Q1 2016 in line with the RBS strategy to focus on home markets in the UK and the Republic of Ireland.   

 

 

·

Exposure in China was stable in Q1 2016. The drop in exposure to India mainly reflected reductions in corporate lending.

 

19

 


 

 

Analysis of results

 

Capital and leverage ratios

  

  

  

  

  

 

End-point CRR basis (1) 

  

PRA transitional basis

  

31 March 

31 December 

  

31 March 

31 December 

  

2016 

2015 

  

2016 

2015 

Risk asset ratios

  

  

  

  

  

  

  

CET1

14.6 

15.5 

  

14.6 

15.5 

Tier 1

15.4 

16.3 

  

17.7 

19.1 

Total

18.8 

19.6 

  

22.9 

24.7 

  

  

  

  

  

  

Capital

£m

£m

  

£m

£m

  

  

  

  

  

  

Tangible equity

40,892 

40,943 

  

40,892 

40,943 

  

  

  

  

  

  

Expected loss less impairment provisions

(936)

(1,035)

  

(936)

(1,035)

Prudential valuation adjustment

(408)

(381)

  

(408)

(381)

Deferred tax assets

(1,075)

(1,110)

  

(1,075)

(1,110)

Own credit adjustments

(371)

(104)

  

(371)

(104)

Pension fund adjustment

(458)

(161)

  

(458)

(161)

Other deductions

(1,214)

(544)

  

(1,214)

(522)

  

  

  

  

  

  

Total deductions

(4,462)

(3,335)

  

(4,462)

(3,313)

  

  

  

  

  

  

CET1 capital

36,430 

37,608 

  

36,430 

37,630 

AT1 capital

1,997 

1,997 

  

7,756 

8,716 

Tier 1 capital

38,427 

39,605 

  

44,186 

46,346 

Tier 2 capital

8,422 

8,002 

  

13,028 

13,619 

  

  

  

  

  

  

Total regulatory capital

46,849 

47,607 

  

57,214 

59,965 

  

  

  

  

  

  

Risk-weighted assets

  

  

  

  

  

  

  

  

  

  

  

Credit risk

  

  

  

  

  

  - non-counterparty

171,600 

166,400 

  

  

  

  - counterparty

27,100 

23,400 

  

  

  

Market risk

21,200 

21,200 

  

  

  

Operational risk

29,600 

31,600 

  

  

  

  

  

  

  

  

  

Total RWAs

249,500 

242,600 

  

  

  

  

  

  

  

  

  

Leverage (2) 

  

  

  

  

  

  

  

  

  

  

  

Derivatives

312,200 

262,500 

  

  

  

Loans and advances

338,600 

327,000 

  

  

  

Reverse repos

42,500 

39,900 

  

  

  

Other assets

189,600 

186,000 

  

  

  

  

  

  

  

  

  

Total assets

882,900 

815,400 

  

  

  

Derivatives

  

  

  

  

  

  - netting

(303,500)

(258,600)

  

  

  

  - potential future exposures

75,900 

75,600 

  

  

  

Securities financing transactions gross up

7,100 

5,100 

  

  

  

Undrawn commitments

62,300 

63,500 

  

  

  

Regulatory deductions and other adjustments

3,600 

1,500 

  

  

  

  

  

  

  

  

  

Leverage exposure

728,300 

702,500 

  

  

  

  

  

  

  

  

  

Tier 1 capital

38,427 

39,605 

  

  

  

  

  

  

  

  

  

Leverage ratio %

5.3 

5.6 

  

  

  

 

20

 


 

 

Analysis of results

 

Key points

CET1 ratio of 14.6% fell by 90 basis points in the quarter reflecting lower CET1 capital as well as higher RWAs.

 

 

CET1 capital decreased by £1.2 billion due to the payment of the final DAS dividend (50 basis points impact on CET1 ratio) and the accelerated pension payment (30 basis points).

 

 

RWAs have increased by £6.9 billion in the quarter to £249.5 billion reflecting loan growth in the core franchises alongside market volatility and exchange rate movements as sterling weakened (£3.3 billion).

 

 

Increases in non-counterparty credit risk RWAs (£5.2 billion) and counterparty risk RWAs (£3.7 billion) were partly offset by a £2.0 billion reduction associated with the annual recalculation of operational risk RWAs.

The increase in credit risk RWAs was principally across Commercial Banking (£3.9 billion), UK PBB (£1.5 billion) and RBSI (£0.8 billion). Partially offsetting, Capital Resolution reduced by £1.8 billion in line with planned run-down.

 

Commercial Banking and RBSI credit risk RWAs increased as a result of asset growth and the impact of foreign exchange movements. 

 

UK PBB credit risk RWAs increased due to mortgage lending growth and a recalibration of mortgage risk parameter models.

 

 

Counterparty risk RWAs increased in the quarter in CIB and Capital Resolution driven by market volatility and the implementation of new risk parameter models.

 

 

Leverage ratio decreased in the quarter from 5.6% to 5.3% due to lower Tier 1 capital (as discussed above) and an increase in funded assets reflecting loan growth.

 

21

 


 

 

 Segment performance

  

Quarter ended 31 March 2016

  

PBB

  

CPB

  

  

  

  

Central

Non-

  

  

  

  

Ulster

  

Commercial

Private

RBS

  

  

Capital

Williams

 items &

statutory

Reconciling

Statutory

  

UK PBB

Bank RoI

  

Banking

Banking

International

  

CIB

Resolution

& Glyn

other (1)

total

 items* 

total

  

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Net interest income

1,019 

105 

  

536 

113 

75 

  

19 

86 

162 

41 

2,156  

2,156  

Other non-interest income

256 

50 

  

317 

52 

15 

  

258 

(35)

43 

(298)

658  

250  

908  

Own credit adjustments

  

  

64 

108 

81 

256  

(256)

Strategic disposals

  

  

(6)

(6)

6  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Total income

1,275 

158 

  

853 

165 

90 

  

341 

153 

205 

(176)

3,064  

3,064  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Direct expenses

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  - staff costs

(181)

(51)

  

(131)

(40)

(10)

  

(67)

(45)

(62)

(615)

(1,202)

(121)

(1,323)

  - other costs**

(63)

(11)

  

(49)

(14)

(5)

  

(14)

(33)

(15)

(745)

(949)

(148)

(1,097)

Indirect expenses

(484)

(42)

  

(256)

(83)

(20)

  

(250)

(154)

(21)

1,310 

Restructuring costs

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  - direct

(13)

(6)

  

(1)

(1)

  

(7)

(20)

(190)

(238)

238  

  - indirect

(9)

  

(15)

(1)

  

(12)

(9)

45 

Litigation and conduct costs

  

(2)

  

(18)

(10)

(1)

(31)

31  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Operating expenses

(750)

(110)

  

(438)

(153)

(36)

  

(361)

(258)

(118)

(196)

(2,420)

(2,420)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Profit/(loss) before impairment losses

525 

48 

  

415 

12 

54 

  

(20)

(105)

87 

(372)

644  

644  

Impairment releases/(losses)

(16)

13 

  

(14)

(2)

(2)

  

--

(196)

(6)

--

(223)

(223)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Operating profit/(loss)

509 

61 

  

401 

10 

52 

  

(20)

(301)

81 

(372)

421  

421  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (2)

26.1%

8.8%

  

11.1%

1.5%

16.0%

  

(2.6%)

nm

nm

nm

(9.6%)

(9.6%)

Cost:income ratio

59%

70%

  

51%

93%

40%

  

106%

nm

58%

nm

79%

79%

Total assets  (£bn)

146.3 

22.7 

  

139.4 

17.4 

23.7 

  

255.9 

218.8 

24.2 

34.5 

882.9 

882.9 

Funded assets (£bn)

146.3 

22.6 

  

139.4 

17.3 

23.7 

  

116.0 

50.2 

24.2 

31.0 

570.7 

570.7 

Net loans and advances to customers (£bn)

121.8 

17.9 

  

96.4 

11.6 

8.0 

  

18.6 

22.4 

20.1 

1.8 

318.6 

318.6 

Risk elements in lending (£bn)

2.4 

4.5 

  

2.2 

0.1 

0.1 

  

2.2 

0.4 

11.9 

11.9 

Impairment provisions (£bn)

(1.6)

(2.7)

  

(1.1)

  

(1.0)

(0.3)

(6.7)

(6.7)

Customer deposits (£bn)

136.9 

13.7 

  

97.1 

23.2 

21.6 

  

6.7 

24.9 

24.3 

6.6 

355.0 

355.0 

Risk-weighted assets (RWAs) (£bn)

34.7 

20.4 

  

75.7 

8.6 

9.1 

  

36.1 

47.6 

9.7 

7.6 

249.5 

249.5 

RWA equivalent (£bn)

37.5 

21.7 

  

79.7 

8.6 

9.1 

  

36.7 

48.4 

10.1 

7.8 

259.6 

259.6 

Employee numbers (FTEs - thousands)

21.4 

3.2 

  

6.0 

1.8 

0.7 

  

1.3 

1.0 

5.5 

51.5 

92.4 

92.4 

 

*Operating profit/(loss) for the segments is presented before certain reconciling items, namely own credit adjustments and strategic disposals (‘non-statutory’). The following adjustments are reallocations within segment operating profit/(loss): restructuring costs and litigation and conduct costs. These excluded or reallocated costs for the period presented reflect the following; other non-interest income - £6 million loss on strategic disposals and gain on own credit adjustment of £256 million; staff costs - reallocation of £121 million loss from restructuring costs; and other costs – reallocation of £148 million loss from restructuring costs and £31 million loss from litigation and conduct costs.

 

** Other costs include the following: premises and equipment of £324 million, other administrative expenses of £575 million, depreciation and amortisation of £178 million and write-down of goodwill and other intangible assets of £20 million.

 

For the notes to this table refer to page 24. nm = not meaningful

22

 


 

 

Segment performance

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Quarter ended 31 December 2015

  

PBB

  

CPB

  

  

  

  

Central

Non-

  

  

  

  

Ulster

  

Commercial

Private

RBS

  

  

Capital

Williams

items &

statutory

Reconciling

Statutory

  

UK PBB

Bank

  

Banking

Banking

International

  

CIB

Resolution

& Glyn

other (1)

total

items*

total

  

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Net interest income

1,030 

85 

  

512 

108 

78 

  

28 

165 

150 

2,162 

2,162 

Other non-interest income

224 

31 

  

285 

50 

17 

  

224 

(239)

43 

87 

722 

(137)

585 

Own credit adjustments

  

  

(66)

(5)

(44)

(115)

115 

Loss on redemption of own debt

  

  

(263)

(263)

(263)

Strategic disposals

  

  

(24)

(22)

22 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Total income

1,254 

116 

  

797 

158 

95 

  

186 

(262)

208 

(68)

2,484 

2,484 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Direct expenses

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  - staff costs

(199)

(40)

  

(124)

(43)

(12)

  

(63)

(54)

(61)

(476)

(1,072)

(205)

(1,277)

  - other costs**

(82)

(28)

  

(80)

(7)

(5)

  

(50)

(54)

(24)

(1,123)

(1,453)

(3,031)

(4,484)

Indirect expenses

(596)

(49)

  

(380)

(109)

(24)

  

(251)

(286)

(22)

1,717 

Restructuring costs

  

  

  

  

  

  

  

  

  

  

  

  

  

  - direct

(31)

  

(40)

(7)

  

(21)

(28)

(494)

(614)

614 

  - indirect

(56)

(1)

  

(14)

12 

  

(62)

(83)

203 

Litigation and conduct costs

(607)

  

(10)

  

(5)

(1,498)

(16)

(2,124)

2,124 

Write-down of goodwill

  

(498)

  

(498)

498 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Operating expenses

(1,571)

(107)

  

(630)

(662)

(40)

  

(431)

(1,996)

(135)

(189)

(5,761)

(5,761)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

(Loss)/profit before impairment losses

(317)

  

167 

(504)

55 

  

(245)

(2,258)

73 

(257)

(3,277)

(3,277)

Impairment (losses)/releases

27 

10 

  

(27)

(12)

  

356 

(20)

(7)

327 

327 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Operating (loss)/profit

(290)

19 

  

140 

(516)

55 

  

(245)

(1,902)

53 

(264)

(2,950)

(2,950)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (2)

(16.8%)

3.0%

  

3.1%

(118.9%)

19.1%

  

(15.1%)

nm

nm

nm

(26.5%)

(26.5%)

Cost:income ratio

125%

92%

  

79%

419%

42%

  

232%

nm

65%

nm

232%

231.8%

Total assets  (£bn)

143.9 

21.3 

  

133.5 

17.0 

23.1 

  

215.3 

201.5 

24.1 

35.7 

815.4 

815.4 

Funded assets (£bn)

143.9 

21.2 

  

133.5 

17.0 

23.1 

  

103.3 

53.4 

24.1 

33.4 

552.9 

552.9 

Net loans and advances to customers

119.8 

16.7 

  

91.3 

11.2 

7.3 

  

16.1 

23.6 

20.0 

2.0 

308.0 

308.0 

Risk elements in lending

2.7 

3.5 

  

1.9 

0.1 

0.1 

  

3.4 

0.5 

12.2 

12.2 

Impairment provisions

(1.8)

(1.9)

  

(0.7)

(0.1)

  

(2.3)

(0.3)

(7.1)

(7.1)

Customer deposits

137.8 

13.1 

  

88.9 

23.1 

21.3 

  

5.7 

26.0 

24.1 

6.0 

346.0 

346.0 

Risk-weighted assets (£bn)

33.3 

19.4 

  

72.3 

8.7 

8.3 

  

33.1 

49.0 

9.9 

8.6 

242.6 

242.6 

RWA equivalent (£bn)

35.5 

20.4 

  

77.6 

8.7 

8.3 

  

33.4 

50.3 

10.4 

8.8 

253.4 

253.4 

Employee numbers (FTEs - thousands)

22.4 

2.5 

  

5.8 

1.9 

0.7 

  

1.3 

1.4 

5.1 

50.4 

91.5 

91.5 

 

 

*Operating profit/(loss) for the segments is presented before certain reconciling items, namely loss on own credit adjustments, gain on redemption of own debt, write-down of goodwill and strategic disposals (‘non-statutory’). The following adjustments are reallocations within segment operating profit/(loss): restructuring costs and litigation and conduct costs and write-down of goodwill. These excluded or reallocated costs for the period presented reflect the following; non-interest income – gain on own credit adjustment of £115 million and loss on strategic disposals of £22 million; staff costs - reallocation of £205 million loss from restructuring costs; and other costs – reallocation of £323 million loss from restructuring costs, £2,124 million loss from litigation and conduct costs and £498 million loss from write-downs of goodwill and other intangible assets.

 

** Other costs include the following: premises and equipment of £447 million, other administrative expenses of £3,192 million, depreciation and amortisation of £186 million and write-down of goodwill and other intangible assets of £659 million.

 

For the notes to this table refer to page 24. nm = not meaningful

23

 


 

 

 

Segment performance

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Quarter ended 31 March 2015

  

PBB

  

CPB

  

  

  

  

  

  

Non-

  

  

  

  

Ulster

  

Commercial

Private

RBS

  

  

Capital

Williams

Central

statutory

Reconciling

Statutory

  

UK PBB

Bank

  

Banking

Banking

International

  

CIB

Resolution

& Glyn

 items (1)

total

items*

total

  

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

£m

£m