FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For 28 October 2016
Commission File Number: 001-10306
 
The Royal Bank of Scotland Group plc
 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ
 
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F X
 
Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
  ___
No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
 
 
 
 
The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: 
 
 
 
 
 
 
 
The Royal Bank of Scotland Group plc
Q3 2016 Results
 
Contents
Page
 
 
Introduction
1
Forward-looking statements
2
Highlights
3
Summary consolidated results
9
Analysis of results
11
Segment performance
18
Selected statutory financial statements
27
Notes
31
Appendix 1 – Parent company information
 
Appendix 2 – Segmental income statement reconciliation
 
 
Introduction
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.
 
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 2015 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.
 
Key operating indicators
As described in Note 1 on page 31, 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 adjusted or alternative performance measures, also known as non-GAAP financial measures. These measure 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 include:
‘Adjusted’ measures of financial performance, principally operating performance before own credit adjustments; gain or loss on redemption of own debt; strategic disposals; restructuring costs and litigation and conduct costs (refer to Appendix 2 for reconciliations of the statutory to adjusted basis);
‘Return on tangible equity’, ‘adjusted 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 designated at fair value through profit or loss items (non-statutory NIM) which are internal metrics used to measure business performance;
Personal & Business Banking (PBB) franchise, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI; and Commercial & Private Banking (CPB) franchise, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI); and
Cost savings progress and 2016 target calculated using operating expenses excluding litigation and conduct costs, restructuring costs, the impairment of other intangible assets, the operating costs of Williams & Glyn and the VAT recovery.
 

 
Introduction
 
Contacts
 
For analyst enquiries:
 
 
Alexander Holcroft
Investor Relations
+44 (0) 20 7672 1758
 
 
 
For media enquiries:
 
 
RBS Press Office
 
+44 (0) 131 523 4205
 
Analysts and investors conference call
RBS will hold an audio Q&A session for analysts and investors on the results for the quarter ended 30 September 2016. Details are as follows:
 
Date:
 
 
Friday 28 October 2016
Time:
 
 
9.00 am UK time
Conference ID:
 
 
95686059
Webcast:
 
 
www.rbs.com/results
Dial in details:
 
International – +44 (0) 1452 568 172
UK Free Call – 0800 694 8082
US Toll Free – 1 866 966 8024
 
Available on www.rbs.com/results
Q3 2016 results and background slides;
Financial supplement containing income statement and balance sheet information for the five quarters ending 30 September 2016; and
Pillar 3 supplement at 30 September 2016.
 
 
Forward-looking statements
This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, including those related to RBS and its subsidiaries' regulatory capital position and requirements, financial position, future pension funding requirements, on-going litigation and regulatory investigations, profitability, impairment losses and credit exposures under certain specified scenarios. In addition, forward-looking statements may include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "plans", "believes", "risk", "estimates" and words of similar import. These statements concern or may affect future matters, such as RBS's future economic results, business plans and current strategies. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, legislative, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, exchange rate fluctuations and general economic conditions. These and other factors, risks and uncertainties that may impact any forward-looking statement or RBS's actual results are discussed in RBS's UK Annual Report and Accounts and materials filed with, or furnished to, the US Securities and Exchange Commission, including, but not limited to, RBS's Reports on Form 6-K and most recent Annual Report on Form 20-F. The forward-looking statements contained in this announcement speak only as of the date of this announcement and RBS does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this announcement, whether as a result of new information, future events or otherwise, except to the extent legally required.
 
 
Highlights
 
RBS reported an operating profit before tax of £255 million, and an attributable loss(1) of £469 million in Q3 2016 which included restructuring costs of £469 million, litigation and conduct costs of £425 million and a £300 million deferred tax asset impairment.
 
Across our Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and Corporate & Institutional Banking (CIB) franchises, RBS reported an adjusted operating profit of £1,331 million. RBS has generated over £1 billion of adjusted operating profit across PBB, CPB and CIB in each quarter this year. Adjusted return on equity across PBB, CPB and CIB was 14% for Q3 2016.
 
Common Equity Tier 1 ratio of 15.0% increased by 50 basis points in the quarter and remains ahead of our 13% target. Leverage ratio increased by 40 basis points to 5.6% principally reflecting the £2 billion Additional Tier 1 (AT1) issuance.
 
 
 
 
 
 
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
Key metrics and ratios
2016 
2015 
 
2016 
2016 
2015 
 
 
 
 
 
 
 
Attributable (loss)/profit
(£2,514m)
£761m
 
(£469m)
(£1,077m)
£940m
Operating (loss)/profit
(£19m)
£247m
 
£255m
(£695m)
(£14m)
Operating profit - adjusted (2)
£2,489m
£3,719m
 
£1,333m
£716m
£826m
Net interest margin
2.18%
2.12%
 
2.17%
2.21%
2.09%
Cost:income ratio
94%
101%
 
88%
117%
103%
Cost:income ratio - adjusted (3,4)
66%
67%
 
58%
67%
75%
(Loss)/earnings per share from continuing operations
 
 
 
 
 
 
  - basic
(21.5p)
(3.2p)
 
(3.9p)
(9.3p)
(1.0p)
  - adjusted (3,4)
(1.6p)
24.1p
 
3.9p
2.6p
5.6p
Return on tangible equity (5,6)
(8.5%)
2.4%
 
(4.8%)
(11.0%)
9.0%
Return on tangible equity - adjusted (3,4,6)
(0.6%)
12.4%
 
4.6%
3.2%
16.3%
Average tangible equity (6)
£39,516m
£42,050m
 
£38,696m
£39,283m
£41,911m
Average number of ordinary shares
 
 
 
 
 
 
  outstanding during the period (millions)
11,668 
11,503 
 
11,724 
11,673 
11,546 
 
 
 
 
 
 
 
 
PBB, CPB & CIB
 
 
 
 
 
 
Total income - adjusted (3)
£8,916m
£8,750m
 
£3,115m
£2,986m
£2,852m
Operating profit - adjusted (2)
£3,401m
£3,558m
 
£1,331m
£1,047m
£1,119m
Return on tangible equity - adjusted (3,4,6)
12.0%
13.1%
 
14.2%
11.0%
12.6%
 
 
 
 
 
30 September
30 June
31 December
Balance sheet related key metrics and ratios
2016 
2016 
2015 
 
 
 
 
Tangible net asset value (TNAV) per ordinary share (6)
338p
345p
352p
Loan:deposit ratio (7,8)
91%
92%
89%
Short-term wholesale funding (7,9)
£14bn
£15bn
£17bn
Wholesale funding (7,9)
£56bn
£55bn
£59bn
Liquidity portfolio
£149bn
£153bn
£156bn
Liquidity coverage ratio (LCR) (10)
112%
116%
136%
Net stable funding ratio (NSFR) (11)
119%
119%
121%
Common Equity Tier 1 (CET1) ratio
15.0%
14.5%
15.5%
Risk-weighted assets (RWAs)
£235.2bn
£245.2bn
£242.6bn
Leverage ratio (12)
5.6%
5.2%
5.6%
Tangible equity (6)
£39,822m
£40,541m
£40,943m
Number of ordinary shares in issue (millions) (13)
11,792 
11,755 
11,625 
 
Notes:
(1)
Attributable to ordinary shareholders.
(2)
Operating profit before tax excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.
(3)
Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(4)
Excluding restructuring costs and litigation and conduct costs.
(5)
Calculated using (loss)/profit for the period attributable to ordinary shareholders.
(6)
Tangible equity is equity attributable to ordinary shareholders less intangible assets.
(7)
Excludes repurchase agreements and stock lending.
(8)
Includes disposal groups.
(9)
Excludes derivative collateral.
(10)
On 1 October 2015 the LCR became the Prudential Regulation Authority’s (PRA) primary regulatory liquidity standard; UK banks are required to meet a minimum standard of 80% initially, rising to 100% by 1 January 2018. The published LCR excludes Pillar 2 add-ons. RBS calculates the LCR using its own interpretation of the EU LCR Delegated Act, which may change over time and may not be fully comparable with that of other institutions.
(11)
NSFR for all periods have been calculated using RBS’s current interpretations of the revised BCBS guidance on NSFR issued in late 2014. Therefore, reported NSFR will change over time with regulatory developments. Due to differences in interpretation, RBS’s ratio may not be comparable with those of other financial institutions.
(12)
Based on end-point Capital Requirements Regulation (CRR) Tier 1 capital and leverage exposure under the CRR Delegated Act.
(13)
Includes 41 million treasury shares (30 June 2016 - 41 million; 31 December 2015 - 26 million).
 
 
 
Highlights
 
Q3 2016 RBS performance summary
RBS reported an attributable loss of £469 million in Q3 2016 compared with a profit of £940 million in Q3 2015 which included a £1,147 million gain on loss of control of Citizens. Q3 2016 included a £469 million restructuring cost, £425 million of litigation and conduct costs and a £300 million deferred tax asset impairment. The attributable loss for the first nine months of the year was £2,514 million and operating loss before tax was £19 million.
Q3 2016 operating profit of £255 million compared with an operating loss of £14 million in Q3 2015. Adjusted operating profit of £1,333 million was £507 million, or 61%, higher than Q3 2015 reflecting increased income and reduced expenses.
Income across PBB and CPB was 2% higher than Q3 2015, adjusting for transfers(1), and was stable for the year to date, as increased lending volumes more than offset reduced margins. CIB adjusted income increased by 71% to £526 million, adjusting for transfers(1), the highest quarterly income for the year, driven by Rates, which benefited from sustained customer activity and favourable market conditions following the EU referendum and central bank actions.
NIM of 2.17% for Q3 2016 was 8 basis points higher than Q3 2015, as the benefit associated with the reduction in low yielding assets more than offset modest asset margin pressure and mix impacts across the core franchises. NIM fell 4 basis points compared with Q2 2016 reflecting asset and liability margin pressure.
PBB and CPB net loans and advances have increased by 13% on an annualised basis since the start of 2016, with strong growth across both residential mortgages and commercial lending.
Excluding expenses associated with Williams & Glyn(2), write down of intangible assets and the Q2 VAT recovery, adjusted operating expenses have been reduced by £695 million for the year to date. Adjusted cost:income ratio for the year to date was 66% compared with 67% in the prior year. Across PBB, CPB and CIB cost:income ratio of 60% year to date was stable compared with 2015.
Restructuring costs were £469 million in the quarter, a reduction of £378 million compared with Q3 2015. Williams & Glyn restructuring costs of £301 million include £127 million of termination costs associated with the decision to discontinue the programme to create a cloned banking platform.
Litigation and conduct costs of £425 million include an additional charge in respect of the recent settlement with the National Credit Union Administration Board to resolve two outstanding lawsuits in the United States relating to residential mortgage backed securities.
RBS has reviewed the recoverability of its deferred tax asset and, in light of the weaker economic outlook and recently enacted restrictions on carrying forward losses, an impairment of £300 million has been recognised in Q3 2016. This action has reduced TNAV per share by 3p.
TNAV per share reduced by 7p in the quarter to 338p principally reflecting the attributable loss, 4p, and a loss on redemption of preference shares, 4p, partially offset by gains recognised in foreign exchange reserves.
 
 
  
Refer to the following page for footnotes.
 
 
 
Highlights
 
PBB, CPB and CIB performance
Across our three customer facing businesses, PBB, CPB and CIB, adjusted operating profit of £1,331 million, was £212 million higher than Q3 2015.
 
UK Personal and Business Banking (UK PBB) adjusted operating profit of £591 million was £14 million higher than Q3 2015 as increased income and lower adjusted operating expenses more than offset increased impairment losses.
 
Ulster Bank RoI adjusted operating profit of £68 million compared with £108 million in Q3 2015 reflecting one-off income gains in Q3 2015 and reduced impairment releases.
 
Commercial Banking adjusted operating profit of £382 million was £7 million higher than Q3 2015, principally reflecting a 1% increase in income, adjusting for transfers(3).
 
Private Banking(4) adjusted operating profit of £53 million was £16 million higher than Q3 2015, benefiting from a £13 million VAT recovery, whilst RBS International (RBSI) was broadly stable at £53 million.
 
CIB adjusted income of £526 million was 71% higher than Q3 2015, adjusting for transfers(1), principally driven by Rates. Adjusted operating profit of £184 million compared with a loss of £30 million in Q3 2015.
 
Capital Resolution & Central items
Capital Resolution adjusted operating loss of £118 million compared with a loss of £245 million in Q3 2015. The Q3 2016 loss included a £190 million impairment loss on the shipping portfolio and a £160 million valuation adjustment gain. RWAs reduced by £3.7 billion in the quarter to £38.6 billion
Central items adjusted operating profit of £24 million compared with a loss of £163 million in Q3 2015 and included a £97 million foreign exchange (FX) reserve recycling gain and other gains partially offset by a £150 million charge in respect of IFRS volatility(5) (Q3 2015 - £125 million charge).
 
Progress on 2016 targets
 
Strategy goal
2016 target
Q3 2016 Progress
Strength and sustainability
Maintain Bank CET1 ratio of 13%
CET1 ratio of 15.0%
£2 billion AT1 issuance
£2.0 billion equivalent issued in Q3 2016
Capital Resolution RWAs around £30-35 billion
RWAs down £10.4 billion to £38.6 billion for the year to date
Customer experience
Narrow the gap to No.1 in Net Promoter Score (NPS) in every primary UK brand
Year on year Commercial Banking(6) has seen an improvement in NPS and is the highest it has ever been.
Simplifying the bank
Reduce operating expenses by £800 million
Operating expenses down £695 million(7)
Supporting growth
Net 4% growth in PBB and CPB customer loans
Net customer loans in PBB and CPB are up 13% on an annualised basis for the year to date
Employee engagement
Raise employee engagement to within two points of the GFS norm
Down 3 points to within 6 points of GFS norm
 
Notes:
(1)
CIB's results include the following financials for businesses subsequently transferred to Commercial Banking: total income of £98 million for nine months ended 2015 (Q3 2015 - £20 million).
(2)
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.
(3)
The business transfers included: total income of £42 million (Q3 2015 - nil); operating expenses of £25 million (Q3 2015 - nil) and impairments of £7 million (Q3 2015 - nil).
(4)
Private Banking serves high net worth individuals through Coutts and Adam & Co.
(5)
IFRS volatility arises from the changes to fair value of hedges of loans which do not qualify for hedge accounting under IFRS.
(6)
£2m+ combination of NatWest & Royal Bank of Scotland in GB (954) 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)
Cost saving target and progress for the nine months ended 2016 calculated using operating expenses excluding restructuring costs £1,099 million (2015 - £2,317 million), litigation and conduct costs £1,740 (2015 - £1,444), write down of other intangible assets of £48 million (2015 - nil), the operating costs of Williams and Glyn £296 million (2015 - £252 million) and the VAT recovery £227 million.
 
 
 
Highlights
 
Building a stronger RBS
RBS is progressing with its plan to build a strong, simple, fair bank for customers and shareholders.
CET1 remains ahead of our 13% target at 15.0%, a 50 basis point increase compared with Q2 2016 driven by a £10.0 billion reduction in RWAs principally reflecting a £5.1 billion reduction in UK PBB, largely due to the unwind of mortgage risk parameter model uplifts taken in the first half, and £3.7 billion of disposals and run-off in Capital Resolution.
On 10 August 2016 RBS announced that it had successfully completed the pricing of US$2.65 billion 8.625% AT1 capital notes, with £4.0 billion equivalent now issued since August 2015.
In addition, on 7 September 2016 we successfully issued US$2.65 billon seven year senior debt which is eligible to meet RBS’s ‘Minimum Requirement for Own Funds and Eligible Liabilities’, with £4.2 billion equivalent issued this year.
Leverage ratio increased by 40 basis points to 5.6% largely driven by the AT1 issuance.
Risk elements in lending (REIL) of £12.6 billion were 3.8% of gross customer loans, down from 4.5% at 30 September 2015.
In June 2016, the triennial funding valuation of the Main Scheme of The Royal Bank of Scotland Group Pension Fund was agreed which showed that as at 31 December 2015 the value of liabilities exceeded the value of assets by £5.8 billion. In March 2016, to mitigate this anticipated deficit, RBS made a cash payment of £4.2 billion. The next triennial valuation is due to occur at the end of 2018 with agreement on any additional contributions by the end of March 2020. As at 30 September 2016, the Main Scheme had an unrecognised surplus reflected by a ratio of asset to liabilities of c.115% under IAS19 valuation principles. The surplus is unrecognised because the trustee’s power to enhance member benefits could consume that surplus meaning that RBS does not control its ability to realise an asset. The existence of the asset, albeit unrecognised, does limit RBS’s exposure to changes in actuarial assumptions and investment performance.
 
Building the number one bank for customer service, trust and advocacy in the UK
RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending of £7.9 billion was 12% higher than Q3 2015. Our market share of gross new mortgage lending in Q3 2016 was approximately 12% compared with a stock share of 8.7%. Commercial Banking net loans and advances have grown by an annualised 12% since the start of the year.
The Reward account continues to show positive momentum and now has over one million 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. We now have more than 4.3 million customers regularly using our mobile app, with over 20% of our customers now exclusively using digital banking for their day to day banking needs. We anticipate that this number will continue to grow as we make more of our products and services available digitally. Our new ‘Online Account Opening’ service allows start up business customers to submit an application online in just ten minutes and get a sort code and account number in under an hour.
 
 
 
 
Highlights
 
Investment in subsidiaries and distributable reserves
As part of the Q3 2016 results we have reviewed the value of the investments in subsidiaries held in the parent company, RBSG plc, and in light of the deterioration in the economic outlook we have reduced the carrying value of the investments by £6.0 billion to £44.7 billion. This has the effect of reducing distributable reserves of RBSG plc by £6.0 billion to £7.2 billion. Whilst this level of distributable reserves does not impact upon our ability to pay coupons on existing securities, it is our intention to implement a capital reorganisation in 2017 in order to increase parent company distributable reserves, providing greater flexibility for future distributions and preference share redemptions. The capital reduction will be subject to shareholder approval (to be sought at the next Annual General Meeting) and court approval. The reorganisation in carrying value of the parent company’s investment in its subsidiaries does not impact upon the Group’s consolidated regulatory capital, including CET1, or tangible net asset value.
 
Recent developments
Work has continued to explore means to achieve separation and divestment of the business previously described as Williams & Glyn. RBS has had positive discussions with a number of interested parties concerning a transaction related to substantially all of the business. These discussions are ongoing and may or may not lead to a viable transaction. However, none of the proposals under discussion can deliver full separation and divestment by 31 December 2017. RBS is therefore in discussion with HM Treasury, and expects further engagement with the European Commission, to agree a solution with regards to its State Aid obligations.
 
As we no longer intend to pursue divestment by way of an Initial Public Offering, on 21 October 2016 RBS redeemed the £600 million exchangeable bond issued to a consortium of investors, led by Centerbridge and Corsair, in 2013 in accordance with the terms of the bond.
 
 
 
 
Highlights
 
Outlook
The current low interest rate and low growth environment presents a range of uncertainties which could impact the performance of our core business. Whilst we remain committed to achieving our long term cost:income ratio and returns targets, set out in 2014, we now do not expect to achieve these by 2019 as previously indicated. We also recognise that the ongoing discussions around further tightening of regulatory capital rules could result in RWA inflation in the medium term.
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. We now anticipate that CIB will report a modest increase in income in 2016 compared with 2015.
RBS remains on track to achieve an £800 million cost reduction in 2016 after achieving a £695 million reduction in the first nine months of the year. Core franchise profitability will be adversely impacted by the annual bank levy charge in Q4 2016, around £200 million, and expense inflation associated with weaker sterling. We retain our expectation that the adjusted cost:income ratio across our combined PBB, CPB and CIB businesses will improve in 2016 compared with 2015. We plan to provide further cost guidance for 2017 as part of the 2016 year end results.
We do not anticipate a material change to the current impairment loss rate for 2016. The impairment charges taken during 2016 year to date largely relate to sector specific issues particularly in the shipping portfolio and oil and gas sector. We recognise the continuing risk of large single name/sector driven events across our portfolios given the uncertain macroeconomic environment. In the current environment there is an increased level of uncertainty; however it continues to be too early at this point to quantify the impact of potential credit losses that may result.
We now anticipate a restructuring charge of around £1.5 billion in 2016 compared with previous guidance of over £1.0 billion, as a result of additional Williams & Glyn charges in respect of the decision to discontinue the programme to create a cloned banking platform.
We now expect Capital Resolution disposal losses to total approximately £2.0 billion, up from the previous guidance of £1.5 billion. Total losses to date have been £997 million (of which 2015; £367 million and 2016 year to date; £630 million) including an impairment charge of £454 million in relation to the shipping portfolio during 2016 year to date. We anticipate that Capital Resolution RWAs will be in the range £30-£35 billion by the end of 2016. Excluding RBS’s stake in Saudi Hollandi Bank (£7.9 billion at Q3 2016), we would expect RWAs to be in the range £15-£20 billion by end 2017.
We continue to deal with a range of uncertainties in the external environment and also manage conduct-related investigations and litigation, including US RMBS. Substantial additional charges and costs may be recognised in the coming quarters which would have an impact on the Group’s level of capital.
In view of the above, the timing of returning excess capital to shareholders through dividends or buybacks remains uncertain.
 
 
 
Summary consolidated income statement for the period ended 30 September 2016
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
 
2016
2015*
 
2016
2016
2015*
 
£m
£m
 
£m
£m
£m
Net interest income
6,500 
6,605 
 
2,167 
2,177 
2,187 
 
 
 
 
 
 
 
Own credit adjustments
294 
424 
 
(156)
194 
136 
(Loss)/gain on redemption of own debt
(127)
 
(130)
Strategic disposals
164 
(135)
 
(31)
201 
Other operating income
2,543 
3,545 
 
1,327 
558 
860 
 
 
 
 
 
 
 
Non-interest income
2,874 
3,834 
 
1,143 
823 
996 
 
 
 
 
 
 
 
Total income
9,374 
10,439 
 
3,310 
3,000 
3,183 
 
 
 
 
 
 
 
Restructuring costs
(1,099)
(2,317)
 
(469)
(392)
(847)
Litigation and conduct costs
(1,740)
(1,444)
 
(425)
(1,284)
(129)
Other costs
(6,001)
(6,831)
 
(2,017)
(1,833)
(2,300)
 
 
 
 
 
 
 
Operating expenses
(8,840)
(10,592)
 
(2,911)
(3,509)
(3,276)
 
 
 
 
 
 
 
Profit/(loss) before impairment (losses)/releases
534 
(153)
 
399 
(509)
(93)
Impairment (losses)/releases
(553)
400 
 
(144)
(186)
79 
 
 
 
 
 
 
 
Operating (loss)/profit before tax
(19)
247 
 
255 
(695)
(14)
Tax (charge)/credit
(922)
(284)
 
(582)
(260)
 
 
 
 
 
 
 
Loss from continuing operations
(941)
(37)
 
(327)
(955)
(11)
Profit from discontinued operations,
 
 
 
 
 
 
  net of tax
1,451 
 
1,093 
 
 
 
 
 
 
 
(Loss)/profit for the period
(941)
1,414 
 
(327)
(955)
1,082 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
Non-controlling interests
37 
389 
 
45 
Other owners
343 
264 
 
135 
114 
97 
Dividend access share
1,193 
 
Ordinary shareholders
(2,514)
761 
 
(469)
(1,077)
940 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Memo:
 
 
 
 
 
 
 
 
 
 
 
 
 
Total income - adjusted (1)
9,043 
10,150 
 
3,494 
2,735 
3,047 
Operating expenses - adjusted (2)
(6,001)
(6,831)
 
(2,017)
(1,833)
(2,300)
Operating profit - adjusted (1,2)
2,489 
3,719 
 
1,333 
716 
826 
 
 
 
 
 
 
 
*Restated - refer to page 31 for further details
 
 
 
 
 
 
 
Notes:
(1)
Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(2)
Excluding restructuring costs and litigation and conduct costs.
 
Details of other comprehensive income are provided on page 28.
 
 
Summary consolidated balance sheet as at 30 September 2016
 
 
30 September
30 June 
31 December 
 
2016
2016
2015
 
£m
£m
£m
 
 
 
 
Cash and balances at central banks
69,254 
65,307 
79,404 
Net loans and advances to banks (1)
19,741 
21,763 
18,361 
Net loans and advances to customers (1)
326,736 
326,503 
306,334 
Reverse repurchase agreements and stock borrowing
45,955 
45,778 
39,843 
Debt securities and equity shares
80,512 
84,807 
83,458 
Assets of disposal groups (2)
13 
396 
3,486 
Other assets
27,118 
31,047 
22,008 
 
 
 
 
Funded assets
569,329 
575,601 
552,894 
Derivatives
283,049 
326,023 
262,514 
 
 
 
 
Total assets
852,378 
901,624 
815,408 
 
 
 
 
Bank deposits (3)
32,172 
31,377 
28,030 
Customer deposits (3)
358,844 
355,719 
343,186 
Repurchase agreements and stock lending
36,408 
40,881 
37,378 
Debt securities in issue
28,357 
27,148 
31,150 
Subordinated liabilities
19,162 
20,113 
19,847 
Derivatives
275,364 
322,390 
254,705 
Liabilities of disposal groups (2)
15 
252 
2,980 
Other liabilities
47,728 
50,017 
43,985 
 
 
 
 
Total liabilities
798,050 
847,897 
761,261 
Non-controlling interests
853 
820 
716 
Owners’ equity
53,475 
52,907 
53,431 
 
 
 
 
Total liabilities and equity
852,378 
901,624 
815,408 
 
 
 
 
Contingent liabilities and commitments
151,394 
151,433 
153,752 
 
Notes:
(1)
Excludes reverse repurchase agreements and stock borrowing.
(2)
Primarily international private banking business at 31 December 2015.
(3)
Excludes repurchase agreements and stock lending.
 
 
 
 
Analysis of results
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
2016
2015
 
2016
2016
2015
Net interest income
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Net interest income (1)
 
 
 
 
 
 
RBS
6,500 
6,605 
 
2,167 
2,177 
2,187 
 
 
 
 
 
 
 
  - UK Personal & Business Banking
3,194 
3,122 
 
1,085 
1,090 
1,055 
  - Ulster Bank RoI
304 
280 
 
106 
93 
90 
  - Commercial Banking
1,601 
1,485 
 
534 
531 
504 
  - Private Banking
338 
328 
 
112 
113 
109 
  - RBS International
226 
225 
 
75 
76 
73 
  - Corporate & Institutional Banking
75 
59 
 
32 
24 
29 
  - Capital Resolution
195 
359 
 
27 
82 
78 
  - Williams & Glyn
488 
493 
 
164 
162 
167 
  - Central items & other
79 
254 
 
32 
82 
 
 
 
 
 
 
 
Average interest-earning assets (IEA)
 
 
 
 
 
 
RBS
398,943 
415,463 
 
397,345 
396,118 
413,778 
 
 
 
 
 
 
 
  - UK Personal & Business Banking
140,696 
129,359 
 
145,649 
140,591 
131,406 
  - Ulster Bank RoI
24,835 
23,244 
 
26,026 
24,288 
23,456 
  - Commercial Banking
119,496 
104,686 
 
123,817 
119,768 
105,905 
  - Private Banking
16,621 
15,770 
 
16,978 
16,622 
15,878 
  - RBS International
22,073 
20,432 
 
23,332 
21,798 
20,244 
  - Corporate & Institutional Banking
11,817 
18,696 
 
11,960 
11,923 
18,686 
  - Capital Resolution
27,407 
67,659 
 
22,352 
29,157 
51,786 
  - Williams & Glyn
24,044 
22,810 
 
24,597 
24,172 
23,020 
  - Central items & other
11,954 
12,807 
 
2,634 
7,799 
23,397 
 
 
 
 
 
 
 
Yields, spreads and margins of the banking business
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross yield on interest-earning assets
 
 
 
 
 
 
  of the banking business (2)
2.82%
2.92%
 
2.78%
2.87%
2.84%
Cost of interest-bearing liabilities of banking business
(0.98%)
(1.15%)
 
(0.92%)
(1.00%)
(1.09%)
 
 
 
 
 
 
 
Interest spread of banking business (3)
1.84%
1.77%
 
1.86%
1.87%
1.75%
Benefit from interest-free funds
0.34%
0.35%
 
0.31%
0.34%
0.34%
 
 
 
 
 
 
 
Net interest margin (1,4)
 
 
 
 
 
 
RBS
2.18%
2.12%
 
2.17%
2.21%
2.09%
 
 
 
 
 
 
 
  - UK Personal & Business Banking (5)
3.03%
3.23%
 
2.96%
3.12%
3.19%
  - Ulster Bank RoI (5)
1.64%
1.61%
 
1.62%
1.54%
1.52%
  - Commercial Banking (5)
1.79%
1.90%
 
1.72%
1.78%
1.89%
  - Private Banking (5)
2.72%
2.78%
 
2.62%
2.73%
2.72%
  - RBS International (5)
1.37%
1.47%
 
1.28%
1.40%
1.43%
  - Corporate & Institutional Banking
0.85%
0.42%
 
1.06%
0.81%
0.62%
  - Capital Resolution
0.95%
0.71%
 
0.48%
1.13%
0.60%
  - Williams & Glyn
2.71%
2.89%
 
2.65%
2.70%
2.88%
 
 
 
 
 
 
 
 
Third party customer rates (6)
 
 
 
 
 
 
 
Third party customer asset rate
 
 
 
 
 
 
 
  - UK Personal & Business Banking
3.90%
4.18%
 
3.79%
3.96%
4.15%
 
  - Ulster Bank RoI (7)
2.19%
2.29%
 
2.17%
2.07%
2.26%
 
  - Commercial Banking
2.81%
2.96%
 
2.74%
2.82%
2.93%
 
  - Private Banking
2.95%
3.18%
 
2.86%
2.97%
3.12%
 
  - RBS International
3.08%
3.10%
 
2.95%
3.02%
3.11%
 
Third party customer funding rate
 
 
 
 
 
 
 
  - UK Personal & Business Banking
(0.50%)
(0.68%)
 
(0.44%)
(0.46%)
(0.65%)
 
  - Ulster Bank RoI (7)
(0.53%)
(0.92%)
 
(0.46%)
(0.53%)
(0.82%)
 
  - Commercial Banking
(0.35%)
(0.38%)
 
(0.32%)
(0.36%)
(0.36%)
 
  - Private Banking
(0.20%)
(0.26%)
 
(0.18%)
(0.20%)
(0.25%)
 
  - RBS International
(0.15%)
(0.33%)
 
(0.10%)
(0.13%)
(0.25%)
 
 
For the notes to this table refer to the next page.
 
 
Analysis of results
 
Notes:
(1)
For the purpose of net interest margin (NIM) calculations, no decrease for the nine months ended 2016 (nine months ended 2015 - £12 million) and no decrease for Q3 2016 (Q2 2016 - nil; Q3 2015 - £4 million) was made in respect of interest on financial assets and liabilities designated as at fair value through profit or loss. Related average interest-earning assets and average interest-bearing liabilities have also been adjusted.
(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)
PBB NIM was 2.82% (nine months ended 2015 - 2.98%; Q3 2016 - 2.76%; Q2 2016 - 2.89%; Q3 2015 - 2.93%). CPB NIM was 1.83% (nine months ended 2015 - 1.93%; Q3 2016 - 1.75%; Q2 2016 - 1.83%; Q3 2015 - 1.92%).
(6)
Net interest margin includes Treasury allocations and interest on intercompany borrowings, which are excluded from third party customer rates.
(7)
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.
 
Key points
● 
Net interest income of £2,167 million decreased by £20 million, or 1%, compared with Q3 2015 principally driven by a £51 million reduction in Capital Resolution in line with the planned shrinkage of the balance sheet. Across our PBB and CPB franchises, net interest income increased by £81 million, or 4%, reflecting increased lending.
● 
NIM was 2.17% for Q3 2016, 8 basis points higher than Q3 2015 as the benefit associated with reductions in the low yielding ‘non-core’ assets has been partially offset by modest asset margin pressure and mix impacts across PBB and CPB.
NIM decreased by 4 basis points compared with Q2 2016 reflecting asset and liability margin pressure across PBB and CPB and a release of previously suspended credit card interest in Q2 2016.
NIM across the combined PBB and CPB franchises was 2.27% in Q3 2016 compared with 2.45% in Q3 2015 and 2.37% in Q2 2016.
● 
UK PBB, NIM decreased by 23 basis points to 2.96% reflecting the change in mix of our asset base towards mortgage lending from unsecured lending, mortgage customers switching from standard variable rate (SVR) and lower returns on current account structural hedges. SVR mortgages represented 12% of the mortgage book compared with 15% a year earlier. Compared with Q2 2016, UK PBB NIM reduced by 16 basis points reflecting a £22 million reduction in suspended interest releases, 6 basis points, and asset and liability margin pressure.
● 
Commercial Banking NIM decreased by 17 basis points to 1.72%, compared with Q3 2015, principally reflecting asset margin pressure.
● 
Structural hedges of £122 billion as at 30 September 2016 generated a benefit of £0.9 billion through net interest income for the year to date. Around 72% of these hedges are part of a five year rolling hedge programme that will progressively roll-off over the coming years.
 
 
 
 
 
Analysis of results
 
 
 
 
 
 
 
 
Nine months ended
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
2016
2015*
 
2016
2016
2015*
Operating expenses
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Staff costs
3,457 
3,824 
 
1,128 
1,127 
1,281 
Premises and equipment
951 
1,061 
 
321 
315 
352 
Other administrative expenses
1,018 
1,338 
 
393 
179 
477 
Restructuring costs (see below)
1,099 
2,317 
 
469 
392 
847 
Litigation and conduct costs
1,740 
1,444 
 
425 
1,284 
129 
 
 
 
 
 
 
 
Administrative expenses
8,265 
9,984 
 
2,736 
3,297 
3,086 
Depreciation and amortisation
527 
608 
 
175 
174 
190 
Write down of intangible assets
48 
 
38 
 
 
 
 
 
 
 
Operating expenses
8,840 
10,592 
 
2,911 
3,509 
3,276 
 
 
 
 
 
 
 
Adjusted operating expenses (1)
6,001 
6,831 
 
2,017 
1,833 
2,300 
 
 
 
 
 
 
 
Restructuring costs comprise:
 
 
 
 
 
 
  - staff expenses
525 
625 
 
159 
245 
281 
  - premises, equipment, depreciation and amortisation
57 
705 
 
33 
15 
375 
  - other
517 
987 
 
277 
132 
191 
 
 
 
 
 
 
 
 
1,099 
2,317 
 
469 
392 
847 
Of which: Williams & Glyn
646 
449 
 
301 
187 
190 
 
 
 
 
 
 
 
Staff costs as a % of total income
37%
37%
 
34%
38%
40%
Cost:income ratio
94%
101%
 
88%
117%
103%
Cost:income ratio - adjusted (2)
66%
67%
 
58%
67%
75%
Employee numbers (FTE - thousands)
82.5 
92.4 
 
82.5 
89.2 
92.4 
 
*Restated - refer to page 31 for further details.
 
Notes:
(1)
Excluding restructuring costs and litigation and conduct costs.
(2)
Excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.
 
Key points
● 
Operating expenses of £2,911 million were £365 million, or 11%, lower than Q3 2015 reflecting a £378 million reduction in restructuring costs and a £283 million reduction in adjusted operating expenses, partially offset by a £296 million increase in litigation and conduct expenses.
● 
Adjusted operating expenses reduced by £283 million, or 12%, compared with Q3 2015 to £2,017 million. Excluding expenses associated with Williams & Glyn, write down of intangible assets (£48 million) and a £227 million VAT recovery, adjusted expenses reduced by £695 million for the year to date, and we remain on target to achieve an £800 million reduction for the year.
● 
Staff costs of £1,128 million were down £153 million, or 12%, compared with Q3 2015, reflecting a 9,900 reduction in FTEs.
● 
Restructuring costs of £469 million compared with £847 million in Q3 2015. Williams & Glyn restructuring costs of £301 million include £127 million of termination costs associated with the decision to discontinue the programme to create a cloned banking system.
● 
Litigation and conduct costs of £425 million include an additional charge in respect of the recent settlement with the National Credit Union Administration Board to resolve two outstanding lawsuits in the United States relating to residential mortgage backed securities.
 
 
 
 
Analysis of results
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
2016
2015
 
2016
2016
2015
Impairment losses/(releases)
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
Loan impairment losses/(releases)
 
 
 
 
 
 
  - individually assessed
575 
(135)
 
217 
172 
(15)
  - collectively assessed
219 
(8)
 
176 
27 
(13)
  - latent
(191)
(380)
 
(202)
(10)
(64)
 
 
 
 
 
 
 
Customer loans
603 
(523)
 
191 
189 
(92)
Bank loans
(4)
 
(4)
 
 
 
 
 
 
 
Total loan impairment losses/(releases)
603 
(527)
 
191 
189 
(96)
Securities
(50)
127 
 
(47)
(3)
17 
 
 
 
 
 
 
 
Total impairment losses/(releases)
553 
(400)
 
144 
186 
(79)
 
 
30 September 
30 June 
31 December 
Credit metrics (1)
2016 
2016 
2015 
 
 
 
 
Gross customer loans
£332,917m
£333,017m
£315,111m
Loan impairment provisions
£6,181m
£6,456m
£7,139m
Risk elements in lending (REIL)
£12,625m
£11,789m
£12,157m
Provisions as a % of REIL
49%
55%
59%
REIL as a % of gross customer loans
3.8%
3.5%
3.9%
 
Note:
(1)
Includes disposal groups and excludes reverse repos.
 
Key points
● 
A net impairment loss of £144 million was reported in Q3 2016 compared with a release of £79 million in Q3 2015 and a loss of £186 million in Q2 2016.
● 
Capital Resolution reported a net impairment loss of £120 million in Q3 2016 compared with a release of £50 million in Q3 2015. The loss for the quarter included a £190 million charge (year to date - £454 million) in respect of the shipping portfolio reflecting difficult conditions in some parts of the sector.
Commercial Banking reported an impairment loss of £20 million for Q3 2016 compared with £16 million in Q3 2015 and £89 million in Q2 2016. Q2 2016 included a single name charge taken in respect of the oil and gas portfolio.
Ulster Bank RoI reported a net impairment release of €48 million in Q3 2016 compared with €75 million in Q3 2015. The Q3 2016 impairment release included a write back associated with the sale of a portfolio of loans partially offset by additional provisions in respect of mortgages. On completion in Q4 2016, the portfolio sale is expected to reduce gross customer loans in Ulster Bank RoI by €1.8 billion and reduce REIL as a percentage of gross customer loans by around 6 percentage points.
REIL increased by £836 million in the quarter to £12,625 million, principally relating to the shipping portfolio along with the implementation of a revised mortgage methodology in Ulster Bank RoI and foreign exchange movements. REIL represented 3.8% of gross customer loans compared with 3.5% at 30 June 2016 and 3.9% at 31 December 2015. Provision coverage was 49% compared with 55% at 30 June 2016 and 59% at 31 December 2015.
 
 
 
Analysis of results
 
 
 
 
 
 
 
 
 
 
 
 
 
Selected credit risk portfolios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30 September 2016
 
30 June 2016
 
31 December 2015
 
 CE (1)
PE (1)
EAD (2)
 
 CE (1)
PE (1)
EAD (2)
 
 CE (1)
PE (1)
EAD (2)
Natural resources
£m
£m
£m
 
£m
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
 
 
Oil and gas
2,989 
6,000 
4,739 
 
3,298 
6,356 
5,039 
 
3,544 
6,798 
5,606 
Mining and metals
652 
1,782 
1,375 
 
816 
1,941 
1,608 
 
729 
1,823 
1,555 
Electricity
3,256 
8,466 
5,782 
 
3,374 
8,583 
5,940 
 
2,851 
7,683 
5,205 
Water and waste
5,875 
8,772 
7,381 
 
5,347 
8,665 
6,679 
 
4,657 
8,261 
5,873 
 
 
 
 
 
 
 
 
 
 
 
 
 
12,772 
25,020 
19,277 
 
12,835 
25,545 
19,266 
 
11,781 
24,565 
18,239 
 
 
 
 
 
 
 
 
 
 
 
 
Shipping
5,514 
6,043 
6,154 
 
6,765 
7,246 
7,496 
 
6,776 
7,301 
7,509 
 
Notes:
(1)
Current exposure (CE) and potential exposure (PE) are both net of impairment provisions and credit valuation adjustments and after the effect of risk transfer. For a full description of what is included and excluded from current and potential exposure refer to page 16 of Appendix 1 of the Interim Results 2016.
(2)
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 current exposure but included within EAD; therefore EAD can exceed current exposure.
 
Key points
● 
Oil and gas - Exposure to the sector remained stable and there was no material change in the credit quality of the portfolio during the quarter. Provisions increased by £10 million to £167 million. AQ10 potential exposure, net of provisions, was £178 million (30 June 2016 - £207 million). Exposures classified as risk of credit loss were minimal.
● 
Mining and metals - The sector continued to be affected by a slowdown in demand and the oversupply of key metal commodities. RBS’s strategic focus in this sector is on investment grade customers and there was no material change in the credit quality during the quarter. Provisions also remained stable. AQ10 potential exposure, net of provisions was £56 million (30 June 2016 - £82 million). Exposures classified as risk of credit loss were minimal.
● 
Shipping - The reduction in exposure was due to disposals and loan amortisation. Challenging market conditions continued to affect vessel values in the bulk and container sectors, where values remain severely depressed and close to historic lows, and also in the tanker sector, where values have reduced from recent highs. Portfolio credit quality deteriorated during the quarter as a result of the difficult market conditions. Impairment charges of £190 million partially offset by write offs of £58 million in Q3 2016 increased provisions by £126 million to £571 million (30 June 2016 - £445 million; 31 December 2015 - £181 million). AQ10 current exposure, net of provisions, was £1,031 million (30 June 2016 - £579 million). In addition £775 million of current exposure was classified as at risk of credit loss (30 June 2016 - £78 million).
 
 
 
 
 
Analysis of results
 
Capital and leverage ratios
 
 
 
 
 
 
 
 
End-point CRR basis (1)
 
PRA transitional basis
 
30 September 
30 June 
31 December 
 
30 September 
30 June 
31 December 
 
2016 
2016 
2015 
 
2016 
2016 
2015 
Risk asset ratios
 
 
 
 
 
 
 
 
 
CET1
15.0 
14.5 
15.5 
 
15.0 
14.5 
15.5 
Tier 1
16.7 
15.4 
16.3 
 
19.1 
17.7 
19.1 
Total
20.6 
19.0 
19.6 
 
24.1 
23.0 
24.7 
 
 
 
 
 
 
 
 
Capital
£m
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
 
Tangible equity
39,822 
40,541 
40,943 
 
39,822 
40,541 
40,943 
 
 
 
 
 
 
 
 
Expected loss less impairment provisions
(862)
(831)
(1,035)
 
(862)
(831)
(1,035)
Prudential valuation adjustment
(734)
(603)
(381)
 
(734)
(603)
(381)
Deferred tax assets
(838)
(1,040)
(1,110)
 
(838)
(1,040)
(1,110)
Own credit adjustments
(435)
(587)
(104)
 
(435)
(587)
(104)
Pension fund assets
(209)
(209)
(161)
 
(209)
(209)
(161)
Cash flow hedging reserve
(1,565)
(1,603)
(458)
 
(1,565)
(1,603)
(458)
Other deductions
(9)
(14)
(86)
 
(9)
(14)
(64)
 
 
 
 
 
 
 
 
Total deductions
(4,652)
(4,887)
(3,335)
 
(4,652)
(4,887)
(3,313)
 
 
 
 
 
 
 
 
CET1 capital
35,170 
35,654 
37,608 
 
35,170 
35,654 
37,630 
AT1 capital
4,041 
1,997 
1,997 
 
9,662 
7,756 
8,716 
Tier 1 capital
39,211 
37,651 
39,605 
 
44,832 
43,410 
46,346 
Tier 2 capital
9,181 
9,028 
8,002 
 
11,773 
13,043 
13,619 
 
 
 
 
 
 
 
 
Total regulatory capital
48,392 
46,679 
47,607 
 
56,605 
56,453 
59,965 
 
 
 
 
 
 
 
 
Risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit risk
 
 
 
 
 
 
 
  - non-counterparty
166,600 
172,500 
166,400 
 
 
 
 
  - counterparty
25,100 
26,100 
23,400 
 
 
 
 
Market risk
17,800 
20,900 
21,200 
 
 
 
 
Operational risk
25,700 
25,700 
31,600 
 
 
 
 
 
 
 
 
 
 
 
 
Total RWAs
235,200 
245,200 
242,600 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
283,000 
326,000 
262,500 
 
 
 
 
Loans and advances
346,500 
348,500 
327,000 
 
 
 
 
Reverse repos
46,000 
45,800 
39,900 
 
 
 
 
Other assets
176,900 
181,300 
186,000 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
852,400 
901,600 
815,400 
 
 
 
 
Derivatives
 
 
 
 
 
 
 
  - netting and variation margin
(281,700)
(328,400)
(258,600)
 
 
 
 
  - potential future exposures
64,100 
75,500 
75,600 
 
 
 
 
Securities financing transactions gross up
2,200 
3,200 
5,100 
 
 
 
 
Undrawn commitments
62,100 
63,200 
63,500 
 
 
 
 
Regulatory deductions and other
 
 
 
 
 
 
 
  adjustments
4,100 
5,600 
1,500 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage exposure
703,200 
720,700 
702,500 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital
39,211 
37,651 
39,605 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage ratio %
5.6 
5.2 
5.6 
 
 
 
 
 
 
 
 
 
 
 
 
Average leverage exposure (3)
717,056 
717,167 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Tier 1 capital (3)
38,919 
38,561 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average leverage ratio % (3)
5.4 
5.4 
 
 
 
 
 
 
Notes:
(1)
CRR as implemented by the PRA in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for both bases with the exception of unrealised gains on available-for-sale securities which have been included from 2015 under the PRA transitional basis.
(2)
Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.
(3)
Based on averages of the last four quarter end positions.
 
 
 
Analysis of results
 
Key points
CET1 ratio decreased by 50 basis points in the nine months to 30 September 2016 to 15.0% primarily reflecting management actions to normalise the ownership structure and improve the long-term resilience of RBS. These actions included the final Dividend Access Share payment of £1.2 billion and the accelerated payment of £4.2 billion relating to the deficit on the Main Scheme of The Royal Bank of Scotland Group Pension Fund, both in March 2016. Litigation and conduct charges contributed to a £2.0 billion reduction in CET1 capital.
Tier 1 capital benefitted from the successful issuance of £2 billion of AT1 capital notes in August 2016. Total end-point CRR compliant AT1 capital now stands at £4.0 billion.
RWAs decreased by £7.4 billion to £235.2 billion during the nine months to 30 September 2016.
 
Credit risk RWAs have remained relatively flat as lending growth in UK PBB and Commercial Banking and the adverse impact of foreign exchange movements following the EU referendum were offset by reductions due to disposals and run-off in Capital Resolution.
 
The impact of market volatility throughout 2016 and implementation of new risk metric models in CIB and Capital Resolution led to an increase of £1.7 billion in counterparty credit risk RWAs.
 
Market risk RWAs reduced by £3.4 billion driven by disposals of securitisations and lower US dollar position in Treasury.
 
Operational risk RWAs decreased by £5.9 billion as a result of the annual recalculation and the removal of the element relating to Citizens following regulatory approval.
There was a 50 basis points increase in the CET1 ratio in Q3 2016 driven primarily by a £10.0 billion reduction in RWAs. RWA reduction reflected disposals and run-off in Capital Resolution, the unwind of mortgage model recalibrations booked by UK PBB in H1 2016 and lower non-modelled market risk.
Leverage ratio increased by 40 basis points in the period to 5.6% driven by the issuance of AT1 instruments in August 2016.
The proforma leverage ratio reflecting the post EU referendum measures announced by the Bank of England in Q3 2016 was estimated at 6.1%.
RBS’s PRA minimum leverage ratio requirement of 3% has been supplemented with an additional GSII leverage ratio buffer of 0.13125%, equivalent to £923 million of CET1 capital at 30 September 2016.
 
 
 
Segment performance
 
Nine months ended 30 September 2016
 
PBB
 
CPB
 
 
 
 
Central
 
 
 
Ulster
 
Commercial
Private
RBS
 
 
Capital
Williams
 items &
Total
 
UK PBB
BankRoI
 
Banking
Banking
International
 
CIB
Resolution
& Glyn (1)
other (2)
RBS
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
3,194 
304 
 
1,601 
338 
226 
 
75 
195 
488 
79 
6,500 
Other non-interest income
757 
132 
 
947 
158 
52 
 
1,132 
(325)
132 
(442)
2,543 
Total income - adjusted (3)
3,951 
436 
 
2,548 
496 
278 
 
1,207 
(130)
620 
(363)
9,043 
Own credit adjustments
 
 
82 
142 
67 
294 
Loss on redemption of own debt
 
 
(127)
(127)
Strategic disposals
 
 
(81)
245 
164 
Total income
3,951 
439 
 
2,548 
496 
278 
 
1,289 
(69)
620 
(178)
9,374 
Direct expenses - staff costs
(529)
(150)
 
(392)
(115)
(33)
 
(192)
(79)
(190)
(1,777)
(3,457)
                           - other costs
(221)
(32)
 
(166)
(32)
(13)
 
(28)
(81)
(46)
(1,925)
(2,544)
Indirect expenses
(1,478)
(130)
 
(822)
(218)
(62)
 
(762)
(428)
(60)
3,960 
Operating expenses - adjusted (4)
(2,228)
(312)
 
(1,380)
(365)
(108)
 
(982)
(588)
(296)
258 
(6,001)
Restructuring costs - direct
(50)
(32)
 
(13)
(1)
(1)
 
(16)
(35)
(57)
(894)
(1,099)
                                  - indirect
(86)
(4)
 
(49)
(22)
(2)
 
(50)
(35)
248 
Litigation and conduct costs
(420)
(95)
 
(16)
(2)
 
(62)
(257)
(889)
(1,740)
Operating expenses
(2,784)
(443)
 
(1,458)
(390)
(110)
 
(1,110)
(915)
(353)
(1,277)
(8,840)
Profit/(loss) before impairment (losses)/releases
1,167 
(4)
 
1,090 
106 
168 
 
179 
(984)
267 
(1,455)
534 
Impairment (losses)/releases
(67)
66 
 
(123)
(5)
(11)
 
(383)
(31)
(553)
Operating profit/(loss)
1,100 
62 
 
967 
101 
157 
 
179 
(1,367)
236 
(1,454)
(19)
Operating profit/(loss) - adjusted (3,4)
1,656 
190 
 
1,045 
126 
159 
 
225 
(1,101)
293 
(104)
2,489 
Additional information
 
 
 
 
 
 
 
 
 
 
 
 
Return on equity (5)
17.0%
3.1%
 
8.5%
7.0%
15.4%
 
1.6%
nm
nm
nm
(8.5%)
Return on equity - adjusted (3,4,5)
26.4%
9.5%
 
9.4%
8.9%
15.6%
 
2.4%
nm
nm
nm
(0.6%)
Cost:income ratio
70%
101%
 
57%
79%
40%
 
86%
nm
57%
nm
94%
Cost:income ratio - adjusted (3,4)
56%
72%
 
54%
74%
39%
 
81%
nm
48%
71%
66%
Total assets (£bn)
155.4 
25.3 
 
152.6 
18.2 
26.9 
 
249.7 
176.7 
25.7 
21.9 
852.4 
Funded assets (£bn) (6)
155.4 
25.2 
 
152.6 
18.1 
26.9 
 
112.5 
34.9 
25.7 
18.0 
569.3 
Net loans and advances to customers (£bn)
129.6 
19.5 
 
99.8 
11.8 
8.7 
 
19.9 
16.7 
20.6 
0.1 
326.7 
Risk elements in lending (£bn)
2.1 
4.8 
 
2.1 
0.1 
0.1 
 
-  
2.9 
0.4 
0.1 
12.6 
Impairment provisions (£bn)
(1.4)
(2.3)
 
(1.0)
-  
-  
 
-  
(1.2)
(0.2)
-  
(6.1)
Customer deposits (£bn)
143.7 
15.1 
 
98.1 
25.3 
25.5 
 
9.7 
16.8 
24.0 
0.6  
358.8 
Risk-weighted assets (RWAs) (£bn)
31.9 
21.4 
 
77.6 
8.2 
9.6 
 
36.6 
38.6 
9.7 
1.6  
235.2 
RWA equivalent (£bn) (5)
35.4 
22.8 
 
82.3 
8.2 
9.6 
 
37.2 
39.8 
10.2 
1.9  
247.4 
Employee numbers (FTEs - thousands)
18.7 
3.2 
 
5.8 
1.8 
0.8 
 
1.3 
0.7 
5.0 
45.2  
82.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to page 19. nm = not meaningful
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment performance
 
Quarter ended 30 September 2016
 
PBB
 
CPB
 
 
 
 
Central
 
 
 
Ulster
 
Commercial
Private
RBS
 
 
Capital
Williams
 items &
Total
 
UK PBB
BankRoI
 
Banking
Banking
International
 
CIB
Resolution
& Glyn (1)
other (2)
RBS
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
1,085 
106 
 
534 
112 
75 
 
32 
27 
164 
32 
2,167 
Other non-interest income
251 
40 
 
315 
53 
18 
 
494 
148 
45 
(37)
1,327 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total income adjusted (3)
1,336 
146 
 
849 
165 
93 
 
526 
175 
209 
(5)
3,494 
Own credit adjustments
 
 
(55)
(42)
(59)
(156)
Gain on redemption of own debt
 
 
Strategic disposals
 
 
(30)
(1)
(31)
Total income
1,336 
146 
 
849 
165 
93 
 
471 
103 
209 
(62)
3,310 
Direct expenses - staff costs
(168)
(53)
 
(127)
(38)
(11)
 
(61)
(17)
(65)
(588)
(1,128)
                           - other costs
(59)
(19)
 
(55)
(9)
(5)
 
(7)
(17)
(13)
(705)
(889)
Indirect expenses
(491)
(45)
 
(265)
(62)
(24)
 
(274)
(139)
(21)
1,321 
Operating expenses - adjusted (4)
(718)
(117)
 
(447)
(109)
(40)
 
(342)
(173)
(99)
28 
(2,017)
Restructuring costs - direct
(8)
 
(12)
 
(6)
(23)
(12)
(409)
(469)
                                  - indirect
(26)
(3)
 
(9)
(3)
 
(27)
(10)
78 
Litigation and conduct costs
(3)
 
(6)
 
(6)
(231)
(181)
(425)
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
(742)
(131)
 
(474)
(112)
(39)
 
(381)
(437)
(111)
(484)
(2,911)
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit/(loss) before impairment (losses)/releases
594 
15 
 
375 
53 
54 
 
90 
(334)
98 
(546)
399 
Impairment (losses)/releases
(27)
39 
 
(20)
(3)
 
(120)
(14)
(144)
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit/(loss)
567 
54 
 
355 
50 
54 
 
90 
(454)
84 
(545)
255 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit/(loss) - adjusted (3,4)
591 
68 
 
382 
53 
53 
 
184 
(118)
96 
24 
1,333 
Additional information
 
 
 
 
 
 
 
 
 
 
 
 
Return on equity (5)
27.1%
7.8%
 
9.5%
11.1%
15.4%
 
3.1%
nm
nm
nm
(4.8%)
Return on equity - adjusted (3,4,5)
28.3%
9.9%
 
10.4%
11.8%
15.1%
 
8.0%
nm
nm
nm
4.6%
Cost:income ratio
56%
90%
 
56%
68%
42%
 
81%
nm
53%
nm
88%
Cost:income ratio - adjusted (3,4)
54%
80%
 
53%
66%
43%
 
65%
99%
47%
nm
58%
Total assets (£bn)
155.4 
25.3 
 
152.6 
18.2 
26.9 
 
249.7 
176.7 
25.7 
21.9 
852.4 
Funded assets (£bn) (6)
155.4 
25.2 
 
152.6 
18.1 
26.9 
 
112.5 
34.9 
25.7 
18.0 
569.3 
Net loans and advances to customers (£bn)
129.6 
19.5 
 
99.8 
11.8 
8.7 
 
19.9 
16.7 
20.6 
0.1 
326.7 
Risk elements in lending (£bn)
2.1 
4.8 
 
2.1 
0.1 
0.1 
 
2.9 
0.4 
0.1 
12.6 
Impairment provisions (£bn)
(1.4)
(2.3)
 
(1.0)
 
(1.2)
(0.2)
(6.1)
Customer deposits (£bn)
143.7 
15.1 
 
98.1 
25.3 
25.5 
 
9.7 
16.8 
24.0 
0.6 
358.8 
Risk-weighted assets (RWAs) (£bn)
31.9 
21.4 
 
77.6 
8.2 
9.6 
 
36.6 
38.6 
9.7 
1.6 
235.2 
RWA equivalent (£bn) (5)
35.4 
22.8 
 
82.3 
8.2 
9.6 
 
37.2 
39.8 
10.2 
1.9 
247.4 
Employee numbers (FTEs - thousands)
18.7 
3.2 
 
5.8 
1.8 
0.8 
 
1.3 
0.7 
5.0 
45.2 
82.5 
Notes:
(1)
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses, along with certain small and medium enterprises and corporate activities across the UK.
(2)
Central items include unallocated transactions which principally comprise volatile items under IFRS.
(3)
Excluding own credit adjustments, (loss)/gain on redemption of own debt and strategic disposals.
(4)
Excluding restructuring costs and litigation and conduct costs.
(5)
RBS’s CET 1 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 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect capital deductions (RWAes). RBS Return on equity is calculated using profit for the period attributable to ordinary shareholders.
(6)
Funded assets exclude derivative assets.
 
 
 
 
Segment performance
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
 
2016
2015
 
2016
2016
2015
Total income by segment
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
UK PBB
 
 
 
 
 
 
Personal advances
630 
570 
 
216 
210 
185 
Personal deposits
547 
566 
 
186 
195 
186 
Mortgages
1,733 
1,736 
 
596 
573 
591 
Cards
464 
481 
 
148 
174 
159 
Business banking
544 
546 
 
188 
181 
182 
Other
33 
47 
 
10 
Total
3,951 
3,946 
 
1,336 
1,340 
1,313 
 
 
 
 
 
 
 
Ulster Bank RoI
 
 
 
 
 
 
Corporate
142 
109 
 
43 
43 
38 
Retail
291 
246 
 
96 
95 
91 
Other
79 
 
(3)
35 
 
 
 
 
 
 
 
Total income
439 
434 
 
146 
135 
164 
 
 
 
 
 
 
 
Commercial Banking
 
 
 
 
 
 
Commercial lending
1,372 
1,223 
 
472 
464 
380 
Deposits
365 
352 
 
116 
124 
123 
Asset and invoice finance
537 
542 
 
181 
179 
184 
Other
274 
340 
 
80 
79 
113 
Total
2,548 
2,457 
 
849 
846 
800 
 
 
 
 
 
 
 
Private Banking
 
 
 
 
 
 
Investments
74 
65 
 
24 
22 
20 
Banking
422 
421 
 
141 
144 
140 
Total
496 
486 
 
165 
166 
160 
 
 
 
 
 
 
 
RBS International
278 
272 
 
93 
95 
87 
 
 
 
 
 
 
 
CIB
 
 
 
 
 
 
Rates
719 
557 
 
348 
258 
160 
Currencies
394 
295 
 
128 
122 
96 
Financing
183 
260 
 
78 
55 
32 
Other
(89)
(55)
 
(28)
(31)
20 
Total excluding own credit adjustments
1,207 
1,057 
 
526 
404 
308 
Own credit adjustments
82 
186 
 
(55)
73 
78 
Businesses transferred to Commercial Banking
98 
 
20&