Report of Foreign Private Issuer

 

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

the Securities Exchange Act of 1934

 

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(File Nos. 333-184147 and 333-184147-01) and to be a part thereof from the date which it was filed, to the extent not superseded by documents or reports subsequently filed or furnished.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

Q3 2016 Results

 

Contents

Page 

 

 

Forward-looking statements

2

Introduction

3

Presentation of information

3

Condensed consolidated income statement (unaudited) 

5

Condensed consolidated balance sheet (unaudited) 

6

Highlights

7

Segmental income statement reconciliations

13

Analysis of results

16

Segment performance

24

 

 

Statutory results

 

 

 

Selected statutory financial statements

34

Notes

38

Additional information

 

 

 

Other financial data

42

Signature page

44

 

 

 

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 plc and its subsidiaries (RBS) restructuring which includes the divestment of Williams & Glyn, litigation, government and regulatory investigations, the proposed restructuring of RBS’s CIB business, the implementation of the UK ring-fencing regime, cost-reduction targets and progress relating there to the implementation of a major development program to update RBS’s IT infrastructure and the continuation of its balance sheet reduction programme, the impact of the UK’s referendum on its membership of the European Union and impact thereof on the RBS’s markets, prospects, financial and capital position and strategy, 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; 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 and RBS’s 2016 Interim Form 6-K – and in this report under “highlights – Outlook”. 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 economic, regulatory and political uncertainty arising from the majority vote to leave in the referendum on the UK’s membership in the European Union and the revived political uncertainty regarding Scottish independence; the 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; 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 solicitation 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

 


 

 

 

Introduction

 

Presentation of information

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

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 (‘the Act’). The statutory accounts for the year ended 31 December 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.

 

As described in Note 1 on page 38, 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, therefore its financial statements are also prepared in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (‘GAAP’).

 

The unaudited condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity and related notes presented on pages 34 to 41 inclusive are presented on a statutory basis as described above.

 

 

Non GAAP financial measures

This document contains a number of adjusted or alternative performance measures, also known as non-GAAP financial measures which have not been prepared in accordance with EU IFRS. 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 are used internally by management to measure performance and management believes provide helpful supplementary information for investors. These adjusted measures, derived from the reported results are non-IFRS financial measures and are not a substitute to IFRS reported measures.

 

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 (A reconciliation of the non-GAAP and GAAP measures of segment results is included on pages 13 to 15);  

‘Return on tangible equity’, ‘adjusted return on tangible equity’ and related RWA equivalents incorporating the effect of capital deductions (RWAes) and total assets excluding derivatives (funded assets) 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). The combined presentation of the Group’s reportable segments provides investors with a summary of the Group’s business performance and is prepared on a non-IFRS basis. Segment results prepared on a statutory basis are included on pages 13 to 15; 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.

3

 


 

 

Introduction

 

Other operating Indicators

This document also includes a number of operational metrics which include certain capital, liquidity and credit measures and ratios which management believes may be helpful to investors in understanding the Group’s business and performance.

 

These measures are used internally by management to measure performance and for risk management purposes and may not yet be required to be disclosed by a government, governmental authority or self-regulatory organisation.  As a result, the basis of calculation of these measures may not be the same as that used by the Group’s peers. 

 

Recent developments

FCA’s review of the treatment of SME’s in the RBS Global Restructuring Group

On 8 November 2016, the Financial Conduct Authority (FCA) published an update on its review into the treatment of small and medium enterprise (SME) customers in RBS’s former Global Restructuring Group (GRG) between 2008 and 2013.

In response, RBS has announced steps that will impact SME customers in the UK and the Republic of Ireland that were in GRG between 2008 and 2013. Those steps are (i) an automatic refund of certain complex fees and; (ii) a new complaints process, overseen by an Independent Third Party. ­ These steps have been developed with the involvement of the FCA which agrees that they are appropriate for RBS to take.

RBS estimates the costs associated with the new complaints review process and the automatic refund of complex fees to be approximately £400 million, which will be recognised as a provision in Q4 2016. This includes operational costs together with the cost of refunded complex fees and the additional estimated redress costs arising from the new complaints process.

The FCA has announced that its review will continue. RBS continues to cooperate fully with the review and it would not be appropriate to comment further until further announcement by the FCA.

Martinez v. Deutsche Bank AG and others

On 2 November 2016, a complaint was filed in the United States District Court for the Southern District of Illinois against RBS N.V. and certain other financial institutions (Deutsche Bank, HSBC, Barclays, Standard Chartered, Credit Suisse, Bank Saderat, and Commerzbank). The plaintiffs are a number of US military personnel (or their estates, survivors, or heirs) who were killed or injured in 21 attacks in Iraq between 2006 and 2011. The attacks were allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly funded by the Islamic Republic of Iran. According to the complaint, the defendants are liable for damages arising from the attacks because they allegedly conspired with Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells, in violation of the US Anti- Terrorism Act, by, among other things, agreeing to engage in "stripping" of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected. As previously disclosed, RBS N.V. has made a motion to dismiss the complaint in another Anti-Terrorism Act case (Freeman v. HSBC Holdings PLC and others, pending in the United States District Court for the Eastern District of New York) which asserts substantially similar allegations on behalf of other US nationals injured in Iraq.

4

 


 

 

Condensed consolidated income statement for the period ended 30 September 2016 (unaudited) 

 

  

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

  

  

  

  

  

  

  

Interest receivable

8,432 

9,070 

  

2,776 

2,827 

2,963 

Interest payable

(1,932)

(2,465)

  

(609)

(650)

(776)

  

  

  

  

  

  

  

Net interest income

6,500 

6,605 

  

2,167 

2,177 

2,187 

  

  

  

  

  

  

  

Fees and commissions receivable

2,519 

2,838 

  

843 

810 

880 

Fees and commissions payable

(592)

(558)

  

(200)

(180)

(195)

Income from trading activities

384 

1,045 

  

401 

(55)

170 

(Loss)/gain on redemption of own debt

(127)

  

(130)

Other operating income

690 

509 

  

96 

378 

141 

  

  

  

  

  

  

  

Non-interest income

2,874 

3,834 

  

1,143 

823 

996 

  

  

  

  

  

  

  

Total income

9,374 

10,439 

  

3,310 

3,000 

3,183 

  

  

  

  

  

  

  

Staff costs

(3,982)

(4,449)

  

(1,287)

(1,372)

(1,562)

Premises and equipment

(1,006)

(1,380)

  

(354)

(328)

(635)

Other administrative expenses

(3,234)

(3,096)

  

(1,095)

(1,564)

(730)

Depreciation and amortisation

(529)

(994)

  

(175)

(176)

(282)

Write down of other intangible assets

(89)

(673)

  

(69)

(67)

  

  

  

  

  

  

  

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 

Preference share and other dividends

343 

264 

  

135 

114 

97 

Dividend access share

1,193 

  

Ordinary shareholders

(2,514)

761 

  

(469)

(1,077)

940 

  

  

  

  

  

  

  

(Loss)/earnings per ordinary share (EPS) (1)

  

  

  

  

  

  

Basic EPS from continuing and discontinued operations

(21.5p)

6.6p

  

(3.9p)

(9.3p)

8.1p

Basic EPS from continuing operations

(21.5p)

(3.2p)

  

(3.9p)

(9.3p)

(1.0p)

 

* Restated - refer to page 38 for further details

 

Note:

(1)

There was no dilutive impact in any period.

 

Statutory results. For further information see pages 34 to 41.

5

 


 

 

Condensed consolidated balance sheet as at 30 September 2016 (unaudited)   

 

 

  

30 September

30 June

31 December

2016

2016

2015

  

£m 

£m 

£m 

  

  

  

  

Assets

  

  

  

Cash and balances at central banks

69,254 

65,307 

79,404 

Net loans and advances to banks

19,741 

21,763 

18,361 

Reverse repurchase agreements and stock borrowing

12,251 

14,458 

12,285 

Loans and advances to banks

31,992 

36,221 

30,646 

Net loans and advances to customers

326,736 

326,503 

306,334 

Reverse repurchase agreements and stock borrowing

33,704 

31,320 

27,558 

Loans and advances to customers

360,440 

357,823 

333,892 

Debt securities

79,784 

84,058 

82,097 

Equity shares

728 

749 

1,361 

Settlement balances

10,298 

13,405 

4,116 

Derivatives

283,049 

326,023 

262,514 

Intangible assets

6,506 

6,525 

6,537 

Property, plant and equipment

4,490 

4,589 

4,482 

Deferred tax

1,684 

2,217 

2,631 

Prepayments, accrued income and other assets

4,140 

4,311 

4,242 

Assets of disposal groups

13 

396 

3,486 

  

  

  

  

Total assets

852,378 

901,624 

815,408 

  

  

  

  

Liabilities

  

  

  

Bank deposits

32,172 

31,377 

28,030 

Repurchase agreements and stock lending

6,557 

11,611 

10,266 

Deposits by banks

38,729 

42,988 

38,296 

Customer deposits

358,844 

355,719 

343,186 

Repurchase agreements and stock lending

29,851 

29,270 

27,112 

Customer accounts

388,695 

384,989 

370,298 

Debt securities in issue

28,357 

27,148 

31,150 

Settlement balances

10,719 

11,262 

3,390 

Short positions

19,882 

21,793 

20,809 

Derivatives

275,364 

322,390 

254,705 

Provisions, accruals and other liabilities

15,954 

15,627 

15,115 

Retirement benefit liabilities

526 

511 

3,789 

Deferred tax

647 

824 

882 

Subordinated liabilities

19,162 

20,113 

19,847 

Liabilities of disposal groups

15 

252 

2,980 

  

  

  

  

Total liabilities

798,050 

847,897 

761,261 

  

  

  

  

Equity

  

  

  

Non-controlling interests

853 

820 

716 

Owners’ equity*

  

  

  

  Called up share capital

11,792 

11,756 

11,625 

  Reserves

41,683 

41,151 

41,806 

  

  

  

  

Total equity

54,328 

53,727 

54,147 

  

  

  

  

Total liabilities and equity

852,378 

901,624 

815,408 

  

  

  

  

*Owners’ equity attributable to:

  

  

  

Ordinary shareholders

46,328 

47,066 

47,480 

Other equity owners

7,147 

5,841 

5,951 

  

  

  

  

  

53,475 

52,907 

53,431 

 

Statutory results. For further information see pages 34 to 41.

6

 


 

 

Highlights

 

RBS reported an operating profit before tax of £255 million, and a loss attributable to ordinary shareholders 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 before tax(1) of £1,331 million. RBS has generated over £1 billion of adjusted operating profit (1)  across PBB, CPB and CIB in each quarter this year. Return on equity was (4.8%) for Q3 2016(2).  Adjusted return on equity(3,4) 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(5) increased by 40 basis points to 5.6% principally reflecting the £2 billion Additional Tier 1 (AT1) issuance.

 

Q3 2016 RBS performance summary

RBS reported a loss attributable to ordinary shareholders 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 loss attributable to ordinary shareholders for the first nine months of the year was £2,514 million and operating loss before tax was £19 million.

 

 

Q3 2016 operating profit before tax of £255 million compared with an operating loss before tax of £14 million in Q3 2015.  Adjusted operating profit before tax (1)  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(6),  and was stable for the year to date, as increased lending volumes more than offset reduced margins. CIB income ,which includes own credit adjustments, increased by 16% to £471 million. CIB adjusted income increased by 71% to £526 million, adjusting for transfers(6),  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.

 

 

Net interest margin (NIM) of 2.17% for Q3 2016 was 7 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.

 

 

Operating expenses of £2,911 million were £365 million, or 11%, lower than Q3 2015. Adjusted operating expenses have been reduced by £695(4,7)  million for the year to date. Cost:income ratio for the year to date was 94% compared to 101% in the prior year. Adjusted cost:income ratio(3,4)  for the year to date was 66% compared with 67% in the prior year. Across PBB, CPB and CIB cost:income ratio year to date was 70% compared with 80% in the prior year. Across PBB, CPB and CIB adjusted 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(8) 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.

Refer to page 9 for footnotes.

7

 


 

 

Highlights

 

PBB, CPB and CIB performance

Across our PBB, CPB and CIB franchises operating profit of £1,170 million was £787 million higher than in Q2 2016. Adjusted operating profit(1)   of £1,331 million, was £212 million higher than Q3 2015.

 

 

 

 

UK Personal and Business Banking (UK PBB) operating profit was £567 million compared with £549 million in Q3 2015 with 2% income growth and a 3% reduction in operating expenses partially offset by a modestly higher impairment charge. Adjusted operating profit(1)  of £591 million was £14 million higher than Q3 2015.

 

 

 

 

Ulster Bank RoI operating profit of £54 million was £49 million lower than Q3 2015 primarily reflecting a lower net impairment release and income gains in Q3 2015.  Adjusted operating profit(1)  of £68 million compared with £108 million in Q3 2015.

 

 

 

 

Commercial Banking operating profit of £355 million in Q3 2016 compared with £376 million in Q3 2015. Adjusted operating profit(1)  of £382 million was £7 million higher than Q3 2015 and was £122 million higher than Q2 2016, principally reflecting a single name impairment charge taken in respect of the oil and gas portfolio in Q2 2016 and a 1% increase in income, adjusting for transfers(9).   

 

 

 

 

Private Banking(10)  operating profit of £50 million was £12 million higher than Q3 2015 and was £9 million higher than Q2 2016. Adjusted operating profit(1)  of £53 million was £16 million higher than Q3 2015, benefiting from a £13 million VAT recovery. RBS International (RBSI) operating profit of £54 million was 8% higher than Q3 2015 driven by increased income, whilst adjusted operating profit(1)   was broadly stable at £53 million.

 

 

 

 

CIB total income, which includes own credit adjustments, increased by £65 million, or 16%, to £471 million compared with £406 million in Q3 2015. Adjusted income(3)  of £526 million was 71% higher than Q3 2015, adjusting for transfers(6),  principally driven by Rates. An operating profit of £90 million compared with an operating loss of £109 million in Q3 2015. Adjusted operating profit(1)  of £184 million compared with a loss of £30 million in Q3 2015.

 

Capital Resolution & Central items

Capital Resolution operating loss of £454 million in Q3 2016 compared with a loss of £798 million in Q3 2015 and a loss of £612 million in Q2 2016.  The Q3 2016 loss included a £190 million impairment loss on the shipping portfolio and a £160 million valuation adjustment gain. Adjusted operating loss(1)  of £118 million compared with an adjusted operating loss(1)  of £245 million in Q3 2015. RWAs reduced by £3.7 billion in the quarter to £38.6 billion

 

 

Central items not allocated represented a charge of £545 million in Q3 2016, an increase of £207 million compared with Q3 2015. Treasury funding costs were a charge of £177 million (compared with a charge of £117 million in Q3 2015) driven by a £150 million IFRS volatility charge(11).  Restructuring costs in the quarter included £289 million relating to Williams & Glyn (Q3 2015 - £190 million). Partially offsetting this a gain of £97 million was recognised arising from a partial recycling of the accumulated foreign exchange reserve triggered by a capital reduction in a foreign subsidiary.   Adjusted operating profit(1)  of £24 million compared with an adjusted operating loss(1)  of £163 million in Q3 2015.

 

Refer to the following page for footnotes.

 

8

 


 

 

Highlights

 

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(12) 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)

Operating profit before tax excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals, restructuring costs and litigation and conduct costs.

(2)

Calculated using (loss)/profit for the period attributable to ordinary shareholders.

(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)

Based on end-point Capital Requirements Regulation (CRR) Tier 1 capital and leverage exposure under the CRR Delegated Act.

(6)

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).

(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.

(8)

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.

(9)

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).

(10)

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

(11)

IFRS volatility arises from the changes to fair value of hedges of loans which do not qualify for hedge accounting under IFRS.

(12)

£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. 

     

9

 


 

 

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.

 

10

 


 

 

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.

 

11

 


 

 

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.

 

12

 


 

 

Segmental income statement reconciliations

  

PBB

  

CPB

  

  

  

  

Central

  

  

  

Ulster

  

Commercial

Private

RBS

  

  

Capital

Williams

 items &

Total

  

UK PBB

Bank RoI

  

Banking

Banking

International

  

CIB

Resolution

& Glyn

other  

RBS

Nine months ended 30 September 2016

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

3,951 

439 

  

2,548 

496 

278 

  

1,289 

(69)

620 

(178)

9,374 

Own credit adjustments

(3)

  

  

(82)

(142)

(67)

(294)

Loss on redemption of own debt

  

  

127 

127 

Strategic disposals

  

  

81 

(245)

(164)

Total income  - adjusted

3,951 

436 

  

2,548 

496 

278 

  

1,207 

(130)

620 

(363)

9,043 

Operating expenses - statutory

(2,784)

(443)

  

(1,458)

(390)

(110)

  

(1,110)

(915)

(353)

(1,277)

(8,840)

Restructuring costs  - direct

50 

32 

  

13 

  

16 

35 

57 

894 

1,099 

                                  - indirect

86 

  

49 

22 

  

50 

35 

(248)

Litigation and conduct costs

420 

95 

  

16 

(1)

  

62 

257 

889 

1,740 

Operating expenses - adjusted

(2,228)

(312)

  

(1,380)

(365)

(108)

  

(982)

(588)

(296)

258 

(6,001)

Impairment (losses)/releases

(67)

66 

  

(123)

(5)

(11)

  

(383)

(31)

(553)

Operating profit/(loss) - adjusted

1,656 

190 

  

1,045 

126 

159 

  

225 

(1,101)

293 

(104)

2,489 

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

17.0%

3.1%

  

8.5%

7.0%

15.4%

  

1.6%

nm

nm

nm

(8.5%)

Return on equity  - adjusted (1,2) 

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 (2) 

56%

72%

  

54%

74%

39%

  

81%

nm

48%

71%

66%

  

  

  

  

  

  

  

  

  

  

  

  

  

Nine months ended 30 September 2015*

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

3,946 

434 

  

2,457 

486 

272 

  

1,341 

801 

625 

77 

10,439 

Own credit adjustments

  

  

(186)

(180)

(58)

(424)

Strategic disposals

  

  

14 

121 

135 

Total income  - adjusted

3,946 

434 

  

2,457 

486 

272 

  

1,155 

635 

625 

140 

10,150 

Operating expenses - statutory

(2,606)

(322)

  

(1,291)

(439)

(120)

  

(1,938)

(2,955)

(252)

(669)

(10,592)

Restructuring costs - direct

19 

  

12 

  

44 

359 

1,876 

2,317 

                                 - indirect

73 

  

78 

  

418 

844 

(1,423)

Litigation and conduct costs

365 

(9)

  

59 

  

373 

607 

47 

1,444 

Operating expenses - adjusted

(2,161)

(310)

  

(1,217)

(359)

(115)

  

(1,103)

(1,145)

(252)

(169)

(6,831)

Impairment (losses)/releases

(20)

131 

  

(42)

(1)

  

369 

(47)

400 

Operating profit/(loss) - adjusted

1,765 

255 

  

1,198 

126 

157 

  

57 

(141)

378 

(76)

3,719 

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

20.8%

13.1%

  

12.3%

2.0%

18.2%

  

(10.1%)

nm

nm

nm

2.4%

Return on equity  - adjusted (1,2) 

28.3%

13.8%

  

13.2%

7.9%

18.8%

  

(0.5%)

nm

nm

nm

12.4%

Cost income ratio

66%

74%

  

53%

90%

44%

  

145%

nm

40%

nm

101%

Cost income ratio - adjusted (2) 

55%

71%

  

50%

74%

42%

  

95%

nm

40%

nm

67%

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

 

 

*Restated - refer to page 38 for further details.

For the notes to this table refer to page 15.         

13

 


 

 

 

Segmental income statement reconciliations

  

PBB

  

CPB

  

  

  

  

Central

  

 

UK

Bank

 

Commercial

Private

RBS

 

 

Capital

Williams

Items &

  Total

 

 

PBB

RoI

 

Banking

Banking

International

CIB

 

Resolution

& Glyn

other

RBS

 

Quarter ended 30 September 2016

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

 

  

  

  

  

  

  

  

  

  

  

  

  

  

 

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

 

Total income - statutory

1,336 

146 

  

849 

165 

93 

  

471 

103 

209 

(62)

3,310 

 

Own credit adjustments

  

  

55 

42 

59 

156 

 

Gain on redemption of own debt

  

  

(3)

(3)

 

Strategic disposals

  

  

30 

31 

 

Total income - adjusted

1,336 

146 

  

849 

165 

93 

  

526 

175 

209 

(5)

3,494 

 

Operating expenses - statutory

(742)

(131)

  

(474)

(112)

(39)

  

(381)

(437)

(111)

(484)

(2,911)

 

Restructuring costs  - direct

(1)

  

12 

  

23 

12 

409 

469 

 

                                    - indirect

26 

  

  

27 

10 

(78)

 

Litigation and conduct costs

(1)

  

(1)

  

231 

181 

425 

 

Operating expenses - adjusted

(718)

(117)

  

(447)

(109)

(40)

  

(342)

(173)

(99)

28 

(2,017)

 

Impairment (losses)/releases

(27)

39 

  

(20)

(3)

  

(120)

(14)

(144)

 

Operating profit/(loss) - adjusted

591 

68 

  

382 

53 

53 

  

184 

(118)

96 

24 

1,333 

 

  

  

  

  

  

  

  

  

  

  

  

  

  

 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

 

Return on equity (1) 

27.1%

7.8%

  

9.5%

11.1%

15.4%

  

3.1%

nm

nm

nm

(4.8%)

 

Return on equity     - adjusted (1,2) 

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 (2) 

54%

80%

  

53%

66%

43%

  

65%

99%

47%

nm

58%

 

  

  

  

  

  

  

  

  

  

  

  

  

  

 

Quarter ended 30 June 2016

  

  

  

  

  

  

  

  

  

  

  

  

 

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

 

Total income - statutory

1,340 

135 

  

846 

166 

95 

  

477 

(325)

206 

60 

3,000 

 

Own credit adjustments

  

  

(73)

(76)

(45)

(194)

 

Loss on redemption of own debt

  

  

130 

130 

 

Strategic disposals

  

  

45 

(246)

(201)

 

Total income - adjusted

1,340 

135 

  

846 

166 

95 

  

404 

(356)

206 

(101)

2,735 

 

Operating expenses - statutory

(1,292)

(202)

  

(546)

(125)

(35)

  

(368)

(220)

(124)

(597)

(3,509)

 

Restructuring costs  - direct

38 

18 

  

  

10 

25 

295 

392 

 

                                    - indirect

51 

  

41 

  

11 

16 

(125)

 

Litigation and conduct costs

421 

92 

  

  

38 

16 

707 

1,284 

 

Operating expenses - adjusted

(782)

(91)

  

(497)

(119)

(33)

  

(309)

(183)

(99)

280 

(1,833)

 

Impairment (loss)/releases

(24)

14 

  

(89)

(9)

  

(67)

(11)

(186)

 

Operating profit/(loss) - adjusted

534 

58 

  

260 

47 

53 

  

95 

(606)

96 

179 

716 

 

  

  

  

  

  

  

  

  

  

  

  

  

  

 

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

 

Return on equity (1) 

(0.4%)

(8.2%)

  

4.9%

8.6%

15.0%

  

4.3%

nm

nm

nm

(11.0%)

 

Return on equity  - adjusted (1,2) 

24.2%

9.0%

  

6.6%

9.9%

15.7%

  

3.5%

nm

nm

nm

3.2%

 

Cost income ratio

96%

150%

  

65%

75%

37%

  

77%

nm

60%

nm

117%

 

Cost income ratio - adjusted (2) 

58%

67%

  

59%

72%

35%

  

76%

nm

48%

nm

67%

 

  

  

  

  

  

  

  

  

  

  

  

  

  

 

                                                                                                     

For the notes to this table refer to page 15.

14

 


 

 

 

Segmental income statement reconciliations

  

PBB

  

CPB

  

  

  

  

Central

  

 

  

  

Ulster

  

Commercial

Private

RBS

  

  

Capital

Williams

 items &

Total

  

UK PBB

Bank RoI

  

Banking

Banking

International

  

CIB

Resolution

& Glyn

other

RBS

Quarter ended 30 September 2015*

£m

£m

  

£m

£m

£m

  

£m

£m

£m

£m

£m

  

  

  

  

  

  

  

  

  

  

  

  

  

Income statement

  

  

  

  

  

  

  

  

  

  

  

  

Total income - statutory

1,313 

164 

  

800 

160 

87 

  

406 

89 

211 

(47)

3,183 

Own credit adjustments

  

  

(78)

(38)

(20)

(136)

Total income  - adjusted

1,313 

164 

  

800 

160 

87 

  

328 

51 

211 

(67)

3,047 

Operating expenses - statutory

(762)

(115)

  

(408)

(118)

(38)

  

(515)

(937)

(91)

(292)

(3,276)

Restructuring costs - direct

  

(2)

  

190 

647 

847 

                                 - indirect

23 

  

(2)

  

148 

300 

(474)

Litigation and conduct costs

  

  

101 

22 

129 

Operating expenses - adjusted

(734)

(110)

  

(409)

(119)

(36)

  

(358)

(346)

(91)

(97)

(2,300)

Impairment (losses)/releases

(2)

54 

  

(16)

(4)

  

50 

(5)

79 

Operating profit/(loss) - adjusted

577 

108 

  

375 

37 

52 

  

(30)

(245)

115 

(163)

826 

  

  

  

  

  

  

  

  

  

  

  

  

  

Additional information

  

  

  

  

  

  

  

  

  

  

  

  

Return on equity (1) 

27.2%

16.7%

  

12.3%

7.4%

18.0%

  

(6.4%)

nm

nm

nm

9.0%

Return on equity  - adjusted (1,2) 

28.7%

17.5%

  

12.3%

7.1%

18.8%

  

(2.7%)

nm

nm

nm

16.3%

Cost income ratio

58%

70%

  

51%

74%

44%

  

127%

nm

43%

nm

103%

Cost income ratio - adjusted (2) 

56%

67%

  

51%

74%

41%

  

109%

nm

43%

nm

75%

  

  

  

  

  

  

  

  

  

  

  

  

  

*Restated - refer to page 38 for further details.

  

  

  

  

  

  

  

  

  

  

  

  

 

                                       

 

Notes:

(1)

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.

(2)

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

 

15

 


 

 

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

  

  

  

  

  

  

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

398,833 

415,352 

  

397,345 

396,008 

413,670 

  

  

  

  

  

  

  

  - 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

11,844 

12,696 

  

2,634 

7,689 

23,289 

  

  

  

  

  

  

  

Yields, spreads and margins of the banking business

  

  

  

  

  

  

  

  

  

  

  

  

  

Gross yield on interest-earning assets

  

  

  

  

  

  

  of the banking business (1) 

2.82%

2.92%

  

2.78%

2.87%

2.84%

Cost of interest-bearing liabilities of banking business

(1.01%)

(1.18%)

  

(0.94%)

(1.02%)

(1.11%)

  

  

  

  

  

  

  

Interest spread of banking business (2) 

1.81%

1.74%

  

1.84%

1.85%

1.73%

Benefit from interest-free funds

0.37%

0.39%

  

0.33%

0.36%

0.37%

  

  

  

  

  

  

  

Net interest margin (3) 

  

  

  

  

  

  

RBS

2.18%

2.13%

  

2.17%

2.21%

2.10%

  

  

  

  

  

  

  

  - UK Personal & Business Banking (4) 

3.03%

3.23%

  

2.96%

3.12%

3.19%

  - Ulster Bank RoI (4) 

1.64%

1.61%

  

1.62%

1.54%

1.52%

  - Commercial Banking (4) 

1.79%

1.90%

  

1.72%

1.78%

1.89%

  - Private Banking (4) 

2.72%

2.78%

  

2.62%

2.73%

2.72%

  - RBS International (4) 

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 (5)

  

  

  

  

  

  

Third party customer asset rate

  

  

  

  

  

  

  - UK Personal & Business Banking

3.90%

4.18%

  

3.79%

3.96%

4.15%

  - Ulster Bank RoI (6)

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 (6)

(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%)

 

 

Refer to the following page for footnotes.

16

 


 

 

 

Analysis of results

 

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 2.82% (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%).

(5)

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

(6)

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

 

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, 7 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.

 

 

 

 

 

 

17

 


 

 

 

Analysis of results

 

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

 

  

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

  

  

  

  

  

  

  - adjusted basis (1)

(3,457)

(3,824)

  

(1,128)

(1,127)

(1,281)

  - restructuring costs

(525)

(625)

  

(159)

(245)

(281)

  

  

  

  

  

  

  

Statutory basis

(3,982)

(4,449)

  

(1,287)

(1,372)

(1,562)

  

  

  

  

  

  

  

Premises and equipment

  

  

  

  

  

  

  - adjusted basis (1)

(951)

(1,061)

  

(321)

(315)

(352)

  - restructuring costs

(55)

(319)

  

(33)

(13)

(283)

  

  

  

  

  

  

  

Statutory basis

(1,006)

(1,380)

  

(354)

(328)

(635)

  

  

  

  

  

  

  

Other administrative expenses

  

  

  

  

  

  

  - adjusted basis (1)

(1,018)

(1,338)

  

(393)

(179)