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 August 1, 2014
 
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 a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 

 
 
 
 
 
 







Appendix 1

Capital and risk management

Appendix 1 Capital and risk management

Presentation of information
2
General overview
2

Capital management
Capital and leverage ratios
4
Capital resources
5
Leverage exposure
9
Risk-weighted assets
11

Liquidity and funding risk
Overview
14
Liquidity risk
15
Funding risk
17
Encumbrance
19

Credit risk
Financial assets
23
Loans and related credit metrics
28
Debt securities
32
Derivatives
34
Problem debt management
35
Key loan portfolios
39
Credit risk assets
51

Market risk
Trading portfolios
56
Non-trading portfolios
59

Country risk
Overview
61
Summary of country exposures
63


Appendix 1 Capital and risk management

Presentation of information
The assets of disposal groups are presented as a single line in the consolidated balance sheet as required by IFRS. The risk and balance sheet management disclosures include the balances and exposures of disposal groups.

General overview*
RBS’s main risks are described in ‘Risk and balance sheet management - Risk coverage’ in the 2013 Annual Report and Accounts. The following table presents a summary of the key developments for each risk during 2014.

Risk type
2014 developments and summary
Capital adequacy risk
 The capital position continued to improve with CET 1 ratio at 10.1 %, up from 8.6% at the year end reflecting continuing reductions in risk-weighted assets primarily in CIB and
 RCR, lower regulatory capital deductions relating to deferred tax assets and expected loss, and attributable profit.
Liquidity and funding risk
 Liquidity metrics remained strong: the liquid portfolio of £138 billion covering short-term wholesale funding more than four times, LCR improving to 104%, NSFR at 111% and the 
 stressed coverage ratio improved significantly to over 170%.
Credit risk
 Balance sheet credit exposures after credit mitigation and enhancement, decreased by 7% to £333 billion and credit risk RWAs fell by £35 billion, 10%, reflecting risk reduction. 
 Impairment provisions of £22 billion covered risk elements in lending of £34 billion by 66%. Favourable credit conditions resulted in impairment charges for the half year being 
 significantly lower than in recent periods with net recoveries in RCR and CIB.
Market risk
 Average trading VaR for the first half of 2014 was about a third of that in the first half of 2013, reflecting risk reduction and the effect of incorporating credit valuation and funding
 valuation adjustments into VaR models.
Country risk
 Net balance sheet exposure to eurozone periphery countries was reduced by £1.5 billion, 4%, to £40.3 billion in the first half of the year. Total exposure to Russia was £2.1 billion:
 limits have been cut and credit restrictions introduced.

 
 
 
*Not within the scope of Deloitte LLP’s review report

 
 
 
Appendix 1 Capital and risk management

General overview* (continued)
 
Risk type
2014 developments and summary
Conduct risk
 Business models, strategies and products continued to be reviewed to ensure better customer outcomes. Synergies with other risk disciplines were also developed to enable the
 consistent identification, assessment and mitigation of conduct risks.
Pension risk
  RBS concluded discussions with the Trustee of the RBS Group Pension Fund, agreeing the technical provisions basis and a schedule of contributions for the 2013 funding valuation. 
 Additionally, stress tests were carried out under scenarios designed to meet PRA and European Banking Authority (EBA) requirements.
Operational risk
 RBS’s operational risk framework was further enhanced. The main focus remained on supporting improvements in risk management, specifically strengthened risk assessments
 through defining and implementing an end-to-end approach for the most material operational risks.
Regulatory risk
 Regulatory risk remained a high priority and RBS continued to work through a number of legacy issues. RBS also implemented an increasing number of regulatory changes such as
 Basel III and Dodd Frank.
Reputational risk
 A Reputational Risk Forum was created to identify issues involving material reputational risk. On 1 July 2014, a new Head of Reputational Risk was appointed whose responsibilities
 include building a new framework to manage reputational risk.
Business risk
 RBS moved towards simplifying and functionalising its organisation and management structure to help reduce risk. There was also a focus on strengthening its stress testing
 capability. In particular, it is anticipated that finalisation of the stress testing programmes of the Bank of England and the EBA will enhance management and measurement of business
 risk.
Strategic risk
 RBS continued to develop its framework for the identification and management of the most material risks to its strategic plan. A new "Top Risk" approach assesses both the likelihood
 and impact of significant threats, and develops agreed mitigations. These are reviewed by the Board at least on a quarterly basis.
 
 
 
*Not within the scope of Deloitte LLP’s review report
 
 
 
Appendix 1 Capital and risk management

Capital management

Introduction
The Group aims to maintain a level of capital to meet two objectives: (i) meeting minimum regulatory capital requirements; and (ii) ensuring the Group maintains sufficient capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting the business franchise and funding capacity.

Capital and leverage ratios*
 
 
 
 
 
 
 
30 June 2014
 
31 December 2013
 
Current
CRR
 
 
Estimated
 
 
transitional
end-point
 
Transitional
CRR end-
Basel 2.5
 
PRA basis
basis (1)
 
PRA basis
point basis (1)
 basis
Capital
£bn
£bn
 
£bn
£bn
£bn
 
 
 
 
 
 
 
CET1
39.7 
39.7 
 
36.8 
36.8 
42.2 
Tier 1
47.3 
39.7 
 
44.3 
36.8 
50.6 
Total
61.2 
48.7 
 
58.2 
45.5 
63.7 
 
 
 
 
 
 
 
RWAs by risk
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit risk
 
 
 
 
 
 
  - non-counterparty
283.3 
283.3 
 
317.9 
317.9 
291.1 
  - counterparty
38.6 
38.6 
 
39.1 
39.1 
22.3 
Market risk
33.4 
33.4 
 
30.3 
30.3 
30.3 
Operational risk
36.8 
36.8 
 
41.8 
41.8 
41.8 
 
 
 
 
 
 
 
 
392.1 
392.1 
 
429.1 
429.1 
385.5 
 
 
 
 
 
 
 
Risk asset ratios
%
%
 
%
%
%
 
 
 
 
 
 
 
CET1
10.1 
10.1 
 
8.6 
8.6 
10.9 
Tier 1
12.1 
10.1 
 
10.3 
8.6 
13.1 
Total
15.6 
12.4 
 
13.6 
10.6 
16.5 

 
 
 
 
 
 
 
 
 
30 June
 
 
31 December
 
Estimated BCBS leverage ratios (2)
 
2014 
 
 
2013 
 
 
 
 
 
 
 
 
Tier 1 capital - £bn
 
39.7 
 
 
36.8 
 
Exposure - £bn
 
1,070.2 
 
 
1,082.0 
 
Leverage ratio - %
 
3.7 
 
 
3.4 
 

Notes:
(1)
CRR as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014.
(2)
Leverage ratio is calculated using:
· CRR end-point Tier 1 capital; and
· Exposure measure based on guidance in the BCBS 270 proposal issued in January 2014, supplemented by the instructions in the March 2014 Basel III Quantitative Impact Study (QIS) and the related FAQs.


 

*Not within the scope of Deloitte LLP’s review report



 
 

Appendix 1 Capital and risk management

Capital and leverage ratios* (continued)

Key points
·
 CET1 ratio improved by 150 basis points in the first half of the year, of which 70 basis points was in the second quarter reflecting attributable profit after charging the initial DAS dividend (£320 million), reduction in
 RWAs and lower regulatory deductions for deferred tax assets and expected loss.
   
·
 RWAs declined by £37 billion with £22 billion in the second quarter mainly in CIB reflecting continued risk reduction and in RCR due to run-off and disposals.
   
·
 Attributable profit as well as lower leverage exposure in CIB resulted in a 30 basis point improvement in the estimated BCBS leverage ratio in the first half of the year.

Capital resources
 
 
 
 
 
 
 
                               30 June 2014
 
31 December 2013
 
Current
CRR
 
 
Estimated
 
 
transitional
end-point
 
Transitional
CRR end-
Basel 2.5
basis
basis
 
PRA basis
point basis
 basis
 
£m 
£m 
 
£m 
£m 
£m 
 
 
 
 
 
 
 
Shareholders’ equity (excluding non-controlling interests)
 
 
 
 
 
 
 Shareholders’ equity
60,345 
60,345 
 
58,742 
58,742 
58,742 
 Preference shares - equity
(4,313)
(4,313)
 
(4,313)
(4,313)
(4,313)
 Other equity instruments
(979)
(979)
 
(979)
(979)
(979)
 
55,053 
55,053 
 
53,450 
53,450 
53,450 
 
 
 
 
 
 
 
Non-controlling interests
- 
- 
 
- 
- 
473 
 
 
 
 
 
 
 
Regulatory adjustments and deductions
 
 
 
 
 
 
 Own credit
629 
629 
 
601 
601 
726 
 Defined benefit pension fund adjustment
(196)
(196)
 
(172)
(172)
362 
 Net unrealised available-for-sale (AFS) losses
- 
- 
 
- 
- 
308 
 Cash flow hedging reserve
(94)
(94)
 
84 
84 
84 
 Deferred tax assets
(1,748)
(1,748)
 
(2,260)
(2,260)
- 
 Prudential valuation adjustments
(486)
(486)
 
(781)
(781)
- 
 Goodwill and other intangible assets
(12,173)
(12,173)
 
(12,368)
(12,368)
(12,368)
 Expected losses less impairment provisions
(1,319)
(1,319)
 
(1,731)
(1,731)
(19)
 50% of securitisation positions
- 
- 
 
- 
- 
(748)
 Other regulatory adjustments
69 
69 
 
(55)
(55)
(103)
 
(15,318)
(15,318)
 
(16,682)
(16,682)
(11,758)
 
 
 
 
 
 
 
CET 1 capital
39,735 
39,735 
 
36,768 
36,768 
42,165 

 
 
 
 

 
Appendix 1 Capital and risk management

Capital resources (continued)

 
30 June 2014
 
31 December 2013
 
Current
CRR
 
 
Estimated
 
 
transitional
end-point
 
Transitional
CRR end-
Basel 2.5
basis
basis
 
PRA basis
point basis
 basis
 
£m 
£m 
 
£m 
£m 
£m 
 
 
 
 
 
 
 
Other Tier 1 capital
 
 
 
 
 
 
 Preference shares - equity
- 
- 
 
- 
- 
4,313 
 Preference shares - debt
- 
- 
 
- 
- 
911 
 Innovative/hybrid Tier 1 securities
- 
- 
 
- 
- 
4,207 
 Qualifying Tier 1 capital and related share premium subject
 
 
 
 
 
 
   to phase out from Additional Tier 1 (AT1) capital
5,820 
- 
 
5,831 
- 
- 
 Qualifying Tier 1 capital included in consolidated AT1 capital
 
 
 
 
 
 
   issued by subsidiaries and held by third parties
1,708 
- 
 
1,749 
- 
- 
 
7,528 
- 
 
7,580 
- 
9,431 
 
 
 
 
 
 
 
Tier 1 deductions
 
 
 
 
 
 
 50% of material holdings
- 
- 
 
- 
- 
(976)
 Tax on expected losses less impairment provisions
- 
- 
 
- 
- 
6 
 
- 
- 
 
- 
- 
(970)
 
 
 
 
 
 
 
Tier 1 capital
47,263 
39,735 
 
44,348 
36,768 
50,626 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying Tier 2 capital
 
 
 
 
 
 
 Undated subordinated debt
- 
- 
 
- 
- 
2,109 
 Dated subordinated debt - net of amortisation
- 
- 
 
- 
- 
12,436 
 Qualifying items and related share premium
5,740 
5,145 
 
4,431 
3,582 
- 
 Qualifying own funds instruments issued by subsidiaries
 
 
 
 
 
 
   and held by third parties
8,222 
3,815 
 
9,374 
5,151 
- 
 Unrealised gains on AFS equity shares
- 
- 
 
- 
- 
114 
 Collectively assessed impairment provisions
- 
- 
 
- 
- 
395 
 
13,962 
8,960 
 
13,805 
8,733 
15,054 
 
 
 
 
 
 
 
Tier 2 deductions
 
 
 
 
 
 
 50% of securitisation positions
- 
- 
 
- 
- 
(748)
 Expected losses less impairment provisions
- 
- 
 
- 
- 
(25)
 50% of material holdings
- 
- 
 
- 
- 
(976)
 
- 
- 
 
- 
- 
(1,749)
 
 
 
 
 
 
 
Tier 2 capital
13,962 
8,960 
 
13,805 
8,733 
13,305 
 
 
 
 
 
 
 
Supervisory deductions
 
 
 
 
 
 
 Unconsolidated investments
- 
- 
 
- 
- 
(36)
 Other deductions
- 
- 
 
- 
- 
(236)
 
- 
- 
 
- 
- 
(272)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total regulatory capital
61,225 
48,695 
 
58,153 
45,501 
63,659 
 
 

 
 
 

Appendix 1 Capital and risk management

Capital resources (continued)
 

 
Capital flow statement*
The table below analyses the movement in CRR end-point CET1 and Tier 2 capital for the half year ended 30 June 2014.

 
CET1
Tier 2
Total
 
£m
£m
£m
 
 
 
 
At 1 January 2014
36,768 
8,733 
45,501 
Attributable profit net of movements in fair value of own credit
1,453 
- 
1,453 
Share capital and reserve movements in respect of employee share schemes
(33)
- 
(33)
Ordinary shares issued
315 
- 
315 
Foreign exchange reserve
(728)
- 
(728)
AFS reserves
446 
- 
446 
Decrease in goodwill and intangibles deduction
195 
- 
195 
Deferred tax assets (DTA)
512 
- 
512 
Prudential valuation adjustments (PVA)
295 
- 
295 
Excess of expected loss over impairment provisions (EL-P)
412 
- 
412 
Dated subordinated debt issues
- 
2,154 
2,154 
Net dated subordinated debt/grandfathered instrument
- 
(1,528)
(1,528)
Foreign exchange movement
- 
(399)
(399)
Other movements
100 
- 
100 
 
 
 
 
At 30 June 2014
39,735 
8,960 
48,695 


Key points
·
RBS issued £820 million and £1,334 million of Tier 2 subordinated debt in Q1 and Q2 respectively. Following reviews, £2.1 billion of ineligible subordinated notes were removed from Tier 2 capital.
 
 
 
 
*Not within the scope of Deloitte LLP’s review report


 

Appendix 1 Capital and risk management

Capital resources (continued)

Notes:*
General:
In accordance with the PRA’s Policy Statement PS7/2013 issued in December 2013 on the implementation of CRD IV, all regulatory adjustments and deductions to CET1 have been applied in full (without transition relief) with the exception of unrealised gains on AFS securities which will be included from 2015.
 
CRD IV and Basel III impose a minimum CET1 ratio of 4.5%. Further, CET1 requirements will be imposed through buffers in the CRD. There are three buffers that will affect the Group: the capital conservation buffer set at 2.5% of RWAs; the counter-cyclical capital buffer (up to 2.5% of RWAs), which will be calculated as the weighted average of the countercyclical capital buffer rates applied in the countries where the Group has relevant credit exposures; and the highest of Global-Systemically Important Institution (G-SII), Other-Systemically Important Institution (O-SII) or Systemic Risk Buffers set by the supervisory authorities. The Group has been provisionally allocated a G-SII buffer of 1.5%. The regulatory target capital requirements will be phased in through CRR, and are expected to apply in full from 1 January 2019. Until then, using national discretion the PRA can apply a top-up. As set out in the PRA’s Supervisory Statement SS3/13, the Group and other major UK banks and building societies are required to maintain a CET1 ratio of 7%, after taking into account certain adjustments set by the PRA.
 
From 1 January 2015, the Group must meet at least 56% of its Pillar 2A capital requirement with CET1 capital and the balance with Additional Tier 1 and/or Tier 2 capital. The Pillar 2A capital requirement is the additional capital that the Group must hold, in addition to meeting its Pillar 1 requirements in order to comply with the PRA’s overall financial adequacy rule.
 
Measures in relation to CRR end-point basis, including RWAs, are based on the current interpretation, expectations, and understanding, of the CRR requirements, as well as further regulatory clarity and implementation guidance from the UK and EU authorities. The actual CRR end-point impact may differ when the final technical standards are interpreted and adopted.
Capital base:
(1)
Own funds are based on shareholders’ equity.
(2)
Includes the nominal value of B shares (£0.5 billion) on the assumption that RBS will be privatised in the future and that they will count as permanent equity in some form by the end of 2017.
(3)
The prudential valuation adjustment (PVA), arising from the application of the prudent valuation requirements to all assets measured at fair value, has been included in full. The PVA has been included in impairment provisions in the determination of the deduction from expected losses.
(4)
Where the deductions from AT1 capital exceed AT1 capital, the excess is deducted from CET1 capital. The excess of AT1 deductions over AT1 capital in year one of transition is due to the application of the current rules to the transitional amounts.
(5)
Insignificant investments in equities of other financial entities (net): long cash equity positions are considered to have matched maturity with synthetic short positions if the long position is held for hedging purposes and sufficient liquidity exists in the relevant market. All the trades are managed and monitored together within the equities business.
(6)
Based on our current interpretations of the Commission Delegated Regulation issued in December 2013 on credit risk adjustments, the Group’s standardised latent provision has been reclassified to specific provision and is not included in Tier 2 capital.
Risk-weighted assets:
(1)
Current securitisation positions are shown as risk-weighted at 1,250%.
(2)
RWA uplifts include the impact of credit valuation adjustments (CVA) and asset valuation correlation (AVC) on banks and central counterparties.
(3)
RWAs reflect implementation of the full internal model method suite, and include methodology changes that took effect immediately on CRR implementation.
(4)
Non-financial counterparties and sovereigns that meet the eligibility criteria under CRR are exempt from the credit valuation adjustments volatility charges.
(5)
The CRR final text includes a reduction in the risk-weight relating to small and medium-sized enterprises.


 
 
 
*Not within the scope of Deloitte LLP’s review report




 
Appendix 1 Capital and risk management

Leverage exposure

Exposure summary*
The leverage exposure below is based on the BCBS 270 proposal issued in January 2014, with additional specificity deriving from the instructions in the March 2014 QIS and related FAQs. The BCBS 270 proposal is expected to be incorporated into the CRR but the final rules may result in changes to the calculation when implemented.

Exposure measure
30 June
31 December
2014 
2013 
£bn
£bn
 
 
 
Cash and balances at central banks
68.7 
82.7 
Reverse repos
81.7 
76.4 
Loans and advances
414.5 
418.4 
Debt securities
112.8 
113.6 
Equity shares
7.8 
8.8 
Derivatives
274.9 
288.0 
Goodwill and other intangible assets
12.2 
12.4 
Other assets
37.3 
24.6 
Assets of disposal groups
1.2 
3.0 
 
 
 
Total assets
1,011.1 
1,027.9 
Netting of derivatives (1)
(217.5)
(227.3)
Potential future exposure on derivatives (2)
102.5 
128.0 
SFTs (1)
77.5 
59.8 
Regulatory deductions and other adjustments (3)
(1.4)
(6.6)
Undrawn commitments (4)
98.0 
100.2 
 
 
 
Leverage exposure measure
1,070.2 
1,082.0 

Notes:
(1)
The BCBS proposal permits some limited netting for margin received against the replacement cost of derivatives, an additional gross securities financing transaction (SFT) calculation with more restrictive netting, but possible future benefit for trades against qualifying central counterparties. The notional amounts relating to sold credit protection are included in the exposure measure, offset by longer dated bought protection on the same contracts.
(2)
Potential future exposure (PFE) on derivatives: the regulatory add-on which is calculated by assigning percentages based on the type and residual maturity of the derivatives to nominal amounts or underlying values of derivative contracts. The element of PFE relating to credit derivatives sold is removed under the BCBS 270 proposal and replaced with the credit derivative notionals on protection sold per note (1).
(3)
Regulatory deductions: to ensure consistency between the leverage ratio numerator and the denominator, regulatory items that are deducted from capital are also deducted from the leverage exposure measure.
(4)
Undrawn commitments represent regulatory add-ons relating to off-balance sheet undrawn commitments based on the credit conversion factors of 10%, 20%, 50% and 100% being applied as applicable to the commitments. Refer to the following page for further analysis.


*Not within the scope of Deloitte LLP’s review report





 
Appendix 1 Capital and risk management

Leverage exposure (continued)
 

 
Derivative notionals*
The table below analyses derivative notional values by product and maturity.

 
<1 year
1-5 years
>5 years
Credit derivative 5% add on factor (1)
Credit derivative 10% add on factor (1)
Total
30 June 2014
£bn
£bn
£bn
£bn
£bn
£bn
 
 
 
 
 
 
 
Interest rate
13,522 
9,781 
5,758 
    
29,061 
Exchange rate
3,686 
628 
295 
    
4,609 
Equity
76 
2 
- 
    
78 
Commodities
1 
- 
1 
    
2 
Credit
      
209 
69 
278 
 
 
 
 
 
 
 
Total
17,285 
10,411 
6,054 
209 
69 
34,028 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
10,582 
16,212 
8,795 
 
 
35,589 
Exchange rate
3,261 
814 
480 
 
 
4,555 
Equity
43 
35 
1 
 
 
79 
Commodities
- 
1 
1 
 
 
2 
Credit
 
 
 
189 
64 
253 
 
 
 
 
 
 
 
Total
13,886 
17,062 
9,277 
189 
64 
40,478 

Note:
(1)
Credit derivatives receive a PFE of 5% where qualifying and 10% where non-qualifying.


Off-balance sheet items*
 
 
 
 
 
 
 
 
 
 
 
Ulster
Commercial
Private
 
 
 
 
 
UK PBB
Bank
Banking
Banking
CIB
CFG
RCR
Centre
Total
30 June 2014
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
 
 
 
 
 
 
 
 
 
 
Unconditionally cancellable items (1)
3.1 
0.1 
0.5 
0.1 
0.7 
1.7 
- 
- 
6.2 
Items with a 20% CCF
0.4 
- 
0.7 
0.2 
2.3 
0.3 
- 
0.1 
4.0 
Items with a 50% CCF
6.0 
1.4 
12.8 
1.3 
37.3 
6.8 
0.9 
2.5 
69.0 
Items with a 100% CCF
0.1 
0.4 
1.7 
0.9 
12.7 
1.5 
0.4 
1.2 
18.9 
 
 
 
 
 
 
 
 
 
 
 
9.6 
1.9 
15.7 
2.5 
53.0 
10.3 
1.3 
3.8 
98.1 
 
 
 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconditionally cancellable items (1)
3.1 
0.2 
0.4 
0.1 
0.7 
1.7 
- 
- 
6.2 
Items with a 20% CCF
0.4 
- 
0.6 
0.6 
1.5 
0.2 
- 
- 
3.3 
Items with a 50% CCF
5.8 
1.0 
12.5 
1.0 
41.9 
7.1 
0.7 
2.7 
72.7 
Items with a 100% CCF
0.1 
0.3 
2.4 
1.4 
12.0 
1.6 
0.2 
- 
18.0 
 
 
 
 
 
 
 
 
 
 
 
9.4 
1.5 
15.9 
3.1 
56.1 
10.6 
0.9 
2.7 
100.2 

Note:
(1)
Based on a 10% credit conversion factor.

*Not within the scope of Deloitte LLP’s review report
 
 
 
 

Appendix 1 Capital and risk management
 
Risk-weighted assets*
The table below analyses the movement in credit risk RWAs by key drivers during the half year.
 
 
Credit risk
 
Non-counterparty 
Counterparty 
Total
 
£bn 
£bn 
£bn 
 
 
 
 
At 1 January 2014
317.9 
39.1 
357.0 
Foreign exchange movement
(3.8)
- 
(3.8)
Business movements
(17.2)
(8.2)
(25.4)
Risk parameter changes (1)
(2.4)
- 
(2.4)
Methodology changes (2)
(10.4)
5.1 
(5.3)
Model updates
(1.2)
- 
(1.2)
Other changes
0.4 
2.6 
3.0 
 
 
 
 
At 30 June 2014
283.3 
38.6 
321.9 
 
 
 
 
Modelled (3)
191.2 
33.2 
224.4 
Non-modelled
92.1 
5.4 
97.5 
 
 
 
 
 
283.3 
38.6 
321.9 

The table below analyses movements in market and operational risk RWAs during the half year.
 
 
 
Market
Operational
 
risk
risk 
 
£bn 
£bn 
 
 
 
At 1 January 2014
30.3 
41.8 
Business and market movements
(8.8)
(5.0)
Methodology changes
11.9 
- 
 
 
 
At 30 June 2014
33.4 
36.8 
 
 
 
Modelled (3)
15.9 
- 
Non-modelled
17.5 
36.8 
 
 
 
 
33.4 
36.8 

Notes:
(1)
Changes in credit quality metrics of customers and counterparties such as probability of default and loss given default.
(2)
Technical adjustments and calibration of models.
(3)
Modelled refers to advanced internal ratings based (AIRB) for non-counterparty credit risk, internal model method (IMM) for counterparty credit risk, value-at-risk (VaR) and related models for market risk.


Key points
·
Business movements include exposure reductions in RCR and CIB.
   
·
Methodology changes include the transfer of £11.9 billion of RWAs from non-counterparty credit risk to market risk relating to trading book securitisations.
   
·
Operational risk is calculated on a three year average of income and the business and other movement reflects the annual recalculation.
   
·
Non-modelled or standardised (STD) credit risk RWAs principally comprised CFG (£56 billion); Private Banking (£10 billion); derivative and repo transactions undertaken by RBSSI, the broker-dealer; and certain securitisation exposures.
   
·
Increase in RWA density of bank exposures reflected the impact of CVA and AVC and those on structured entities related to RWA treatment, both relating to the implementation of CRD IV.
*Not within the scope of Deloitte LLP’s review report



 

Appendix 1 Capital and risk management

Risk-weighted assets* (continued)

Credit risk: RWA density
Refer to the 2013 Pillar 3 Report for details on terminology. For the majority of credit risk, RBS used the internal ratings based (IRB) approach for calculating RWAs. The standardised approach (STD) is used for certain portfolios. RWAs at 30 June 2014 are under current rules and 31 December 2013 are on a Basel 2.5 basis.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EAD post CRM (1)
 
RWAs
 
RWA density
 
AIRB
STD
Total 
 
AIRB
STD
Total 
 
AIRB
STD
Total 
30 June 2014
£m 
£m 
£m 
 
£m 
£m 
£m 
 
%
%
%
 
 
 
 
 
 
 
 
 
 
 
 
Sector cluster
 
 
 
 
 
 
 
 
 
 
 
Sovereign
 
 
 
 
 
 
 
 
 
 
 
Central banks
41,702 
46,390 
88,092 
 
2,180 
127 
2,307 
 
5 
- 
3 
Central government
16,860 
8,522 
25,382 
 
2,435 
7 
2,442 
 
14 
- 
10 
Other sovereign
5,012 
5,749 
10,761 
 
1,267 
197 
1,464 
 
25 
3 
14 
 
 
 
 
 
 
 
 
 
 
 
 
Total sovereign
63,574 
60,661 
124,235 
 
5,882 
331 
6,213 
 
9 
1 
5 
 
 
 
 
 
 
 
 
 
 
 
 
Financial institutions (FI)
 
 
 
 
 
 
 
 
 
 
 
Banks
41,416 
2,571 
43,987 
 
20,995 
621 
21,616 
 
51 
24 
49 
Other FI (2)
48,063 
23,977 
72,040 
 
19,043 
10,085 
29,128 
 
40 
42 
40 
SEs (3)
19,320 
3,271 
22,591 
 
11,245 
5,561 
16,806 
 
58 
170 
74 
 
 
 
 
 
 
 
 
 
 
 
 
Total FI
108,799 
29,819 
138,618 
 
51,283 
16,267 
67,550 
 
47 
55 
49 
 
 
 
 
 
 
 
 
 
 
 
 
Corporates
 
 
 
 
 
 
 
 
 
 
 
Property
 
 
 
 
 
 
 
 
 
 
 
  - Western Europe
 
 
 
 
 
 
 
 
 
 
 
    - UK
49,501 
3,388 
52,889 
 
24,963 
3,154 
28,117 
 
50 
93 
53 
    - Ireland
8,907 
46 
8,953 
 
1,705 
43 
1,748 
 
19 
93 
20 
    - Other
6,385 
123 
6,508 
 
3,461 
105 
3,566 
 
54 
85 
55 
  - US
1,687 
6,643 
8,330 
 
890 
6,653 
7,543 
 
53 
100 
91 
  - RoW
3,525 
271 
3,796 
 
2,272 
223 
2,495 
 
64 
82 
66 
 
 
 
 
 
 
 
 
 
 
 
 
Total property
70,005 
10,471 
80,476 
 
33,291 
10,178 
43,469 
 
48 
97 
54 
Natural resources
36,955 
2,891 
39,846 
 
15,840 
2,564 
18,404 
 
43 
89 
46 
Transport
32,053 
3,335 
35,388 
 
18,466 
3,168 
21,634 
 
58 
95 
61 
Manufacturing
29,979 
7,787 
37,766 
 
12,909 
7,626 
20,535 
 
43 
98 
54 
Retail and leisure
26,637 
7,906 
34,543 
 
16,008 
7,894 
23,902 
 
60 
100 
69 
Services
23,991 
8,232 
32,223 
 
14,319 
8,232 
22,551 
 
60 
100 
70 
TMT (4)
14,868 
2,249 
17,117 
 
7,849 
2,230 
10,079 
 
53 
99 
59 
 
 
 
 
 
 
 
 
 
 
 
 
Total corporates
234,488 
42,871 
277,359 
 
118,682 
41,892 
160,574 
 
51 
98 
58 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
 
 
 
 
 
 
 
 
 
 
  - Western Europe
 
 
 
 
 
 
 
 
 
 
 
    - UK
113,427 
7,716 
121,143 
 
13,554 
3,031 
16,585 
 
12 
39 
14 
    - Ireland
16,279 
37 
16,316 
 
15,609 
16 
15,625 
 
96 
43 
96 
    - Other
227 
335 
562 
 
22 
128 
150 
 
10 
38 
27 
  - US
132 
18,999 
19,131 
 
13 
9,430 
9,443 
 
10 
50 
49 
  - RoW
439 
540 
979 
 
51 
206 
257 
 
12 
38 
26 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgages
130,504 
27,627 
158,131 
 
29,249 
12,811 
42,060 
 
22 
46 
27 
Other personal
32,338 
14,537 
46,875 
 
14,226 
10,715 
24,941 
 
44 
74 
53 
 
 
 
 
 
 
 
 
 
 
 
 
Total personal
162,842 
42,164 
205,006 
 
43,475 
23,526 
67,001 
 
27 
56 
33 
Other items
5,484 
16,468 
21,952 
 
4,095 
16,486 
20,581 
 
75 
100 
94 
 
 
 
 
 
 
 
 
 
 
 
 
Total
575,187 
191,983 
767,170 
 
223,417 
98,502 
321,919 
 
39 
51 
42 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
*Not within the scope of Deloitte LLP’s review report
 
 

Appendix 1 Capital and risk management
Risk-weighted assets*: Credit risk: RWA density (continued)

 
EAD post CRM (1)
 
RWAs
 
RWA density
 
AIRB
STD
Total 
 
AIRB
STD
Total 
 
AIRB
STD
Total 
31 December 2013
£m 
£m 
£m 
 
£m 
£m 
£m 
 
%
%
%
 
 
 
 
 
 
 
 
 
 
 
 
Sector cluster
 
 
 
 
 
 
 
 
 
 
 
Sovereign
 
 
 
 
 
 
 
 
 
 
 
Central banks
34,809 
59,351 
94,160 
 
1,289 
180 
1,469 
 
4 
- 
2 
Central government
17,940 
8,401 
26,341 
 
2,418 
30 
2,448 
 
13 
- 
9 
Other sovereign
5,323 
5,525 
10,848 
 
1,451 
149 
1,600 
 
27 
3 
15 
 
 
 
 
 
 
 
 
 
 
 
 
Total sovereign
58,072 
73,277 
131,349 
 
5,158 
359 
5,517 
 
9 
- 
4 
 
 
 
 
 
 
 
 
 
 
 
 
Financial institutions (FI)
 
 
 
 
 
 
 
 
 
 
 
Banks
37,718 
2,769 
40,487 
 
11,922 
689 
12,611 
 
32 
25 
31 
Other FI (2)
43,460 
14,033 
57,493 
 
16,391 
7,940 
24,331 
 
38 
57 
42 
SEs (3)
21,564 
2,523 
24,087 
 
5,827 
2,189 
8,016 
 
27 
87 
33 
 
 
 
 
 
 
 
 
 
 
 
 
Total FI
102,742 
19,325 
122,067 
 
34,140 
10,818 
44,958 
 
33 
56 
37 
 
 
 
 
 
 
 
 
 
 
 
 
Corporates
 
 
 
 
 
 
 
 
 
 
 
Property
 
 
 
 
 
 
 
 
 
 
 
  - Western Europe
 
 
 
 
 
 
 
 
 
 
 
    - UK
50,250 
2,771 
53,021 
 
27,904 
2,461 
30,365 
 
56 
89 
57 
    - Ireland
10,338 
107 
10,445 
 
3,087 
136 
3,223 
 
30 
127 
31 
    - Other
8,764 
143 
8,907 
 
4,937 
130 
5,067 
 
56 
91 
57 
  - US
1,126 
6,527 
7,653 
 
600 
6,272 
6,872 
 
53 
96 
90 
  - RoW
3,579 
317 
3,896 
 
2,817 
253 
3,070 
 
79 
80 
79 
 
 
 
 
 
 
 
 
 
 
 
 
Total property
74,057 
9,865 
83,922 
 
39,345 
9,252 
48,597 
 
53 
94 
58 
Natural resources
29,403 
2,826 
32,229 
 
15,586 
2,435 
18,021 
 
53 
86 
56 
Transport
31,677 
3,024 
34,701 
 
21,678 
2,709 
24,387 
 
68 
90 
70 
Manufacturing
24,649 
7,775 
32,424 
 
13,607 
7,599 
21,206 
 
55 
98 
65 
Retail and leisure
23,974 
7,744 
31,718 
 
18,302 
7,591 
25,893 
 
76 
98 
82 
Services
22,716 
8,757 
31,473 
 
15,972 
8,382 
24,354 
 
70 
96 
77 
TMT (4)
13,550 
2,222 
15,772 
 
8,470 
2,198 
10,668 
 
63 
99 
68 
 
 
 
 
 
 
 
 
 
 
 
 
Total corporates
220,026 
42,213 
262,239 
 
132,960 
40,166 
173,126 
 
60 
95 
66 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
 
 
 
 
 
 
 
 
 
 
Mortgages
 
 
 
 
 
 
 
 
 
 
 
  - Western Europe
 
 
 
 
 
 
 
 
 
 
 
    - UK
110,470 
7,841 
118,311 
 
14,412 
3,267 
17,679 
 
13 
42 
15 
    - Ireland
17,148 
33 
17,181 
 
16,108 
12 
16,120 
 
94 
36 
94 
    - Other
202 
507 
709 
 
25 
202 
227 
 
12 
40 
32 
  - US
121 
19,717 
19,838 
 
15 
9,756 
9,771 
 
12 
49 
49 
  - RoW
396 
242 
638 
 
50 
107 
157 
 
13 
44 
25 
 
 
 
 
 
 
 
 
 
 
 
 
Total mortgages
128,337 
28,340 
156,677 
 
30,610 
13,344 
43,954 
 
24 
47 
28 
Other personal
33,358 
14,521 
47,879 
 
15,286 
10,703 
25,989 
 
46 
74 
54 
 
 
 
 
 
 
 
 
 
 
 
 
Total personal
161,695 
42,861 
204,556 
 
45,896 
24,047 
69,943 
 
28 
56 
34 
Other items
4,756 
19,189 
23,945 
 
4,061 
15,798 
19,859 
 
85 
82 
83 
 
 
 
 
 
 
 
 
 
 
 
 
Total
547,291 
196,865 
744,156 
 
222,215 
91,188 
313,403 
 
41 
46 
42 

Notes:
(1)
Exposure at default post credit risk mitigation.
(2)
Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks.
(3)
Structured entities primarily relate to securitisation related vehicles.
(4)
Telecommunications, media and technology.

*Not within the scope of Deloitte LLP’s review report


 
 

Appendix 1 Capital and risk management

Liquidity and funding risk
Liquidity and funding risk is the risk that the Group is unable to meet its financial obligations, including financing wholesale maturities or customer deposit withdrawals, as they fall due. The risk arises through the maturity transformation role that banks play and is dependent on company specific factors such as: maturity profile, composition of sources and uses of funding, the quality and size of the liquidity portfolio as well as broader factors, such as wholesale market conditions and depositor and investor behaviour. For a description of the liquidity and funding risk framework, governance and basis of preparation refer to the Risk and balance sheet management section of the 2013 Annual Report and Accounts.

Overview
·
The liquidity position remains strong: the liquidity portfolio of £138 billion at 30 June 2014 covered short-term wholesale funding (STWF) four times.
   
·
Liquid assets decreased by £8 billion mainly driven by a targeted decrease in financial institution deposits in Q1, partly offset by additional low-cost secondary liquidity. Average liquid asset balances were down in Q2 compared with Q1 reflecting proactive management of excess liquidity whilst retaining a prudent coverage of potential outflows.
   
·
The loan:deposit ratio increased by 200 basis points to 96% from 94% at 31 December 2013 reflecting continued focus on reducing excess funding.
   
·
STWF increased marginally to £33.6 billion mainly reflecting the upcoming redemption of trust preferred securities and large term debt deals falling into the less than 1 year to maturity bucket.
 
 
 

 
Appendix 1 Capital and risk management

Liquidity risk

 
Liquidity and related metrics*
The table below sets out the key liquidity and related metrics monitored by the Group.

 
30 June
31 March
31 December
2014 
2014 
2013 
 
% 
% 
% 
 
 
 
 
Stressed outflow coverage (1)
178 
165 
145 
Liquidity coverage ratio (LCR) (2)
104 
103 
102 
Net stable funding ratio (NSFR) (3)
111 
110 
118 

Notes:
(1)
RBS’s liquidity risk appetite is based on the Individual Liquidity Adequacy Assessment (ILAA) which is measured by reference to the liquidity portfolio as a percentage of stressed liquidity outflows under the worst of three severe stress scenarios; a market-wide stress, an idiosyncratic stress and a combination of both. Liquidity risk adequacy is determined by the surplus of liquid assets over three month stressed outflows under the worst case stress. This assessment is performed in accordance with PRA guidance.
(2)
In January 2013, the BCBS published its final guidance for calculating LCR which is currently expected to come into effect from January 2015 on a phased basis. Pending the finalisation of the LCR rules within the EU, RBS monitors the LCR based on its own interpretations of current guidance available for EU LCR reporting. Therefore, the reported LCR will change over time with regulatory developments. Due to differences in interpretation of the rules RBS’s ratio may not be comparable with those of other financial institutions.
(3)
The NSFR for all periods has been calculated using RBS’s current interpretations of the existing rules relating to various BCBS guidance to date. Ratios for 31 March 2014 and 31 December 2013 have been revised accordingly. BCBS is expected to issue revised guidance on the NSFR towards the end of 2014 or early 2015.
 

 
Liquidity portfolio
The table below shows RBS’s liquidity portfolio by product, liquidity value and carrying value. Liquidity value is lower than carrying value as it is stated after discounts applied by the Bank of England and other central banks to instruments, within the secondary liquidity portfolio, eligible for discounting.

 
Liquidity value
 
Period end
 
Average 
 
UK DLG (1)
CFG 
Other 
Total 
 
Quarter
H1 2014
30 June 2014
£m 
£m 
£m 
£m 
 
£m 
£m 
 
 
 
 
 
 
 
 
Cash and balances at central banks
58,823 
2,533 
1,825 
63,181 
 
59,974 
62,723 
Central and local government bonds
 
 
 
 
 
 
 
  AAA rated governments
5,583 
2 
- 
5,585 
 
4,241 
3,527 
  AA- to AA+ rated governments and US agencies
5,622 
6,224 
- 
11,846 
 
10,701 
11,155 
 
 
 
 
 
 
 
 
 
11,205 
6,226 
- 
17,431 
 
14,942 
14,682 
 
 
 
 
 
 
 
 
Primary liquidity
70,028 
8,759 
1,825 
80,612 
 
74,916 
77,405 
Secondary liquidity (2)
54,928 
934 
1,597 
57,459 
 
53,420 
53,986 
 
 
 
 
 
 
 
 
Total liquidity value
124,956 
9,693 
3,422 
138,071 
 
128,336 
131,391 
 
 
 
 
 
 
 
 
Total carrying value
160,357 
10,236 
2,741 
173,334 
 
 
 

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

 
*Not within the scope of Deloitte LLP’s review report
 
 

 
Appendix 1 Capital and risk management

Liquidity risk (continued)
 
Liquidity portfolio (continued)
 
Liquidity value
 
Period end
 
Average 
 
UK
 
 
 
 
 
 
 
DLG (1)
CFG
Other
Total
 
Quarter
Year
31 December 2013
£m
£m
£m
£m
 
£m
£m
 
 
 
 
 
 
 
 
Cash and balances at central banks
71,121 
824 
2,417 
74,362 
 
76,242 
80,933 
Central and local government bonds
 
 
 
 
 
 
 
  AAA rated governments and US agencies
3,320 
- 
- 
3,320 
 
3,059 
5,149 
  AA- to AA+ rated governments
5,822 
6,369 
96 
12,287 
 
13,429 
12,423 
  Below AA rated governments
- 
- 
- 
- 
 
- 
151 
  Local government
- 
- 
- 
- 
 
7 
148 
 
 
 
 
 
 
 
 
 
9,142 
6,369 
96 
15,607 
 
16,495 
17,871 
Treasury bills
- 
- 
- 
- 
 
6 
395 
 
 
 
 
 
 
 
 
Primary liquidity
80,263 
7,193 
2,513 
89,969 
 
92,743 
99,199 
Secondary liquidity (2)
48,718 
4,968 
2,411 
56,097 
 
56,869 
56,589 
 
 
 
 
 
 
 
 
Total liquidity value
128,981 
12,161 
4,924 
146,066 
 
149,612 
155,788 
 
 
 
 
 
 
 
 
Total carrying value
159,743 
17,520 
6,970 
184,233 
 
 
 

 
 
 
 
 
 
The table below shows the currency split of the liquidity portfolio.
 
 
 
 
 
 
 
 
 
Total liquidity portfolio
GBP
USD
EUR
Other
Total
£m
£m
£m
£m
£m
 
 
 
 
 
 
30 June 2014
91,073 
33,028 
12,579 
1,391 
138,071 
31 December 2013
100,849 
33,365 
10,364 
1,488 
146,066 

Notes:
(1)
The PRA regulated UK Defined Liquidity Group (UK DLG) comprises the RBS’s five licensed deposit taking UK banks: The Royal Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank Limited, Coutts & Company and Adam & Company. In addition, certain of the Group's significant operating subsidiaries - RBS N.V., Citizens Financial Group Inc. and Ulster Bank Ireland Limited - hold liquidity portfolios of liquid assets that comply with local regulations that may differ from PRA rules.
(2)
Includes assets eligible for discounting at the Bank of England and other central banks.



Appendix 1 Capital and risk management

Funding risk
The composition of RBS’s balance sheet is a function of the broad array of product offerings and diverse markets served by its core divisions. The structural composition of the balance sheet is augmented as needed through active management of both asset and liability portfolios. The objective of these activities is to optimise the liquidity profile, while ensuring adequate coverage of all cash requirements under extreme stress conditions.
 
 
 
 
 
 
 
 
 
 
 
 
Short-term wholesale
 
Total wholesale
 
Net inter-bank
funding (1)
funding
funding (2)
 
Excluding
Including
 
Excluding
Including
 
Deposits
Loans (3)
Net
 derivative
 derivative
 derivative
 derivative
 inter-bank
collateral
 collateral
collateral
 collateral
 funding
 
£bn
£bn
 
£bn
£bn
 
£bn
£bn
£bn
 
 
 
 
 
 
 
 
 
 
30 June 2014
33.6 
55.1 
 
101.6 
123.1 
 
17.7 
(19.3)
(1.6)
31 March 2014
31.0 
50.8 
 
101.5 
121.3 
 
15.6 
(18.1)
(2.5)
31 December 2013
32.4 
51.5 
 
108.1 
127.2 
 
16.2 
(17.3)
(1.1)
30 September 2013
34.6 
55.1 
 
113.6 
134.1 
 
18.1 
(16.6)
1.5 
30 June 2013
36.7 
58.9 
 
129.4 
151.5 
 
23.1 
(17.1)
6.0 

Notes:
(1)
Short-term wholesale funding is funding with a residual maturity of less than one year.
  
(2)
Excludes derivative cash collateral.
  
(3)
Principally short-term balances.
  
 
 
 
 
 
 
 
 
Funding sources
 
 
 
 
 
 
 
The table below shows RBS’s principal funding sources excluding repurchase agreements (repos).
 
 
 
 
 
 
 
 
 
30 June 2014
 
31 December 2013
 
Short-term 
Long-term 
 
 
Short-term 
Long-term 
 
 
less than 
more than 
Total 
 
less than 
more than 
Total 
1 year 
1 year 
1 year 
1 year 
 
£m 
£m 
£m 
 
£m 
£m 
£m 
 
 
 
 
 
 
 
 
Deposits by banks
 
 
 
 
 
 
 
 derivative cash collateral
21,430 
- 
21,430 
 
19,086 
- 
19,086 
 other deposits
16,544 
1,205 
17,749 
 
14,553 
1,690 
16,243 
 
 
 
 
 
 
 
 
 
37,974 
1,205 
39,179 
 
33,639 
1,690 
35,329 
Debt securities in issue
 
 
 
 
 
 
 
 commercial paper
1,091 
- 
1,091 
 
1,583 
- 
1,583 
 certificates of deposit
1,751 
97 
1,848 
 
2,212 
65 
2,277 
 medium-term notes
8,083 
32,552 
40,635 
 
10,385 
36,779 
47,164 
 covered bonds
1,780 
7,039 
8,819 
 
1,853 
7,188 
9,041 
 securitisations
511 
6,183 
6,694 
 
514 
7,240 
7,754 
 
 
 
 
 
 
 
 
 
13,216 
45,871 
59,087 
 
16,547 
51,272 
67,819 
Subordinated liabilities
3,885 
20,924 
24,809 
 
1,350 
22,662 
24,012 
 
 
 
 
 
 
 
 
Notes issued
17,101 
66,795 
83,896 
 
17,897 
73,934 
91,831 
 
 
 
 
 
 
 
 
Wholesale funding
55,075 
68,000 
123,075 
 
51,536 
75,624 
127,160 
 
 
 
 
 
 
 
 
Customer deposits
 
 
 
 
 
 
 
 derivative cash collateral (1)
6,469 
- 
6,469 
 
7,082 
- 
7,082 
 financial institution deposits
47,029 
2,038 
49,067 
 
44,621 
2,265 
46,886 
 personal deposits
180,024 
6,089 
186,113 
 
183,799 
8,115 
191,914 
 corporate deposits
156,451 
3,157 
159,608 
 
167,100 
4,687 
171,787 
 
 
 
 
 
 
 
 
Total customer deposits
389,973 
11,284 
401,257 
 
402,602 
15,067 
417,669 
 
 
 
 
 
 
 
 
Total funding excluding repos
445,048 
79,284 
524,332 
 
454,138 
90,691 
544,829 


Note:
(1)
Cash collateral includes £5,720 million (31 December 2013 - £6,720 million) from financial institutions.
 
 
 

 
Appendix 1 Capital and risk management

Funding risk (continued)
 
Total funding by currency
 
 
 
 
 
 
 
 
GBP
USD
EUR
Other
Total
30 June 2014
£m
£m
£m
£m
£m
 
 
 
 
 
 
Deposits by banks
6,830 
10,808 
19,300 
2,241 
39,179 
Debt securities in issue
 
 
 
 
 
  - commercial paper
3 
573 
486 
29 
1,091 
  - certificates of deposit
494 
1,116 
237 
1 
1,848 
  - medium-term notes
5,287 
10,319 
20,285 
4,744 
40,635 
  - covered bonds
983 
- 
7,836 
- 
8,819 
  - securitisations
1,830 
2,090 
2,774 
- 
6,694 
Subordinated liabilities
1,792 
13,604 
7,202 
2,211 
24,809 
 
 
 
 
 
 
Wholesale funding
17,219 
38,510 
58,120 
9,226 
123,075 
% of wholesale funding
14%
31%
47%
8%
100%
Customer deposits
271,438 
79,877 
40,137 
9,805 
401,257 
 
 
 
 
 
 
Total funding excluding repos
288,657 
118,387 
98,257 
19,031 
524,332 
 
 
 
 
 
 
% of total funding
55%
22%
19%
4%
100%

31 December 2013
 
 
 
 
 
 
 
 
 
 
 
Deposits by banks
7,418 
8,337 
17,004 
2,570 
35,329 
Debt securities in issue
 
 
 
 
 
  - commercial paper
4 
897 
682 
- 
1,583 
  - certificates of deposit
336 
1,411 
476 
54 
2,277 
  - medium-term notes
6,353 
11,068 
23,218 
6,525 
47,164 
  - covered bonds
984 
- 
8,057 
- 
9,041 
  - securitisations
1,897 
2,748 
3,109 
- 
7,754 
Subordinated liabilities
1,857 
10,502 
8,984 
2,669 
24,012 
 
 
 
 
 
 
Wholesale funding
18,849 
34,963 
61,530 
11,818 
127,160 
% of wholesale funding
15%
28%
48%
9%
100%
Customer deposits
272,304 
86,727 
49,116 
9,522 
417,669 
 
 
 
 
 
 
Total funding excluding repos
291,153 
121,690 
110,646 
21,340 
544,829 
 
 
 
 
 
 
% of total funding
54%
22%
20%
4%
100%

Repos
 
 
The table below analyses RBS’s repos by counterparty type.
 
 
 
 
30 June
31 December
 
2014 
2013 
 
£m 
£m 
 
 
 
Financial institutions
 
 
  - central and other banks
31,722 
28,650 
  - other financial institutions
44,325 
52,945 
Corporate
7,215 
3,539 
 
 
 
 
83,262 
85,134 

 
 

 
Appendix 1 Capital and risk management

Funding risk (continued)
 
Segment loan:deposit ratios and funding surplus
The table below shows loans, deposits, loan:deposit ratios (LDR) and customer funding surplus/(gap) by reporting segment.
 
30 June 2014
 
31 December 2013
 
 
 
Funding 
 
 
 
 
Funding 
Loans (1)
Deposits (2)
LDR
surplus/(gap)
 
Loans (1)
Deposits (2)
LDR
surplus/(gap)
 
£m 
£m 
% 
£m 
 
£m 
£m 
% 
£m 
 
 
 
 
 
 
 
 
 
 
UK PBB
126,422 
145,971 
87 
19,549 
 
124,828 
144,841 
86 
20,013 
Ulster Bank
22,423 
20,688 
108 
(1,735)
 
26,068 
21,651 
120 
(4,417)
 
 
 
 
 
 
 
 
 
 
PBB
148,845 
166,659 
89 
17,814 
 
150,896 
166,492 
91 
15,596 
 
 
 
 
 
 
 
 
 
 
Commercial Banking
83,980 
87,987 
95 
4,007 
 
83,454 
90,883 
92 
7,429 
Private Banking
16,525 
35,890 
46 
19,365 
 
16,644 
37,173 
45 
20,529 
 
 
 
 
 
 
 
 
 
 
CPB
100,505 
123,877 
81 
23,372 
 
100,098 
128,056 
78 
27,958 
 
 
 
 
 
 
 
 
 
 
CIB
68,978 
55,492 
124 
(13,486)
 
68,148 
64,734 
105 
(3,414)
Central items
844 
1,002 
84 
158 
 
289 
1,081 
27 
792 
CFG
51,722 
52,923 
98 
1,201 
 
50,279 
55,118 
91 
4,839 
RCR
15,658 
1,304 
nm
(14,354)
 
n/a
n/a
n/a
n/a
Non-Core
n/a
n/a
n/a
n/a
 
22,880 
2,188 
nm
(20,692)
 
 
 
 
 
 
 
 
 
 
 
386,552 
401,257 
96 
14,705 
 
392,590 
417,669 
94 
25,079 
 
 
 
 
 
 
 
 
 
 

nm = not meaningful

Notes:
(1)
Excludes reverse repo agreements and net of impairment provisions.
(2)
Excludes repo agreements.



£154 billion (or 38%) of the customer deposits included above are insured through the UK Financial Services Compensation Scheme, US Federal Deposit Insurance Corporation scheme and other similar schemes. Of the personal and corporate deposits above, 54% relate to personal customers.

Encumbrance
RBS’s encumbrance ratios are set out below.
 
In general encumbrance ratios decreased marginally reflecting the balance sheet structure.

Encumbrance ratios
 
30 June
31 December
 
2014 
2013 
 
% 
% 
 
 
 
 
Total
 
16 
17 
Excluding balances relating to derivatives transactions
 
17 
19 
Excluding balances relating to derivative and securities financing transactions
 
11 
11 


Appendix 1 Capital and risk management

Balance sheet encumbrance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Encumbered assets relating to:
 
 
 
 
Unencumbered
 
 
 
Debt securities in issue
 
Other secured liabilities
Total
 
Encumbered
 
Readily realisable (3)
 
 
 
 
 
Securitisations
Covered
 
 
 
Secured
encumbered
 
assets as a
 
Liquidity
 
Other (4)
Cannot be (5)
 
 
 
and conduits
bonds
 
Derivatives
Repos
balances (1)
assets (2)
 
% of related
 
portfolio
Other
realisable
encumbered
 
Total
30 June 2014
£bn
£bn
 
£bn
£bn
£bn
£bn
 
assets
 
£bn
£bn
£bn
£bn
 
£bn
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and balances at central banks
- 
- 
 
- 
- 
2.1 
2.1 
 
3 
 
61.1 
5.5 
- 
- 
 
68.7 
Loans and advances to banks
4.8 
0.3 
 
9.7 
- 
0.3 
15.1 
 
52 
 
2.1 
7.9 
3.8 
- 
 
28.9 
Loans and advances to customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  - UK residential mortgages
13.2 
14.9 
 
- 
- 
- 
28.1 
 
25 
 
67.9 
7.9 
8.1 
- 
 
112.0 
  - Irish residential mortgages
8.9 
- 
 
- 
- 
1.0 
9.9 
 
69 
 
- 
4.3 
- 
0.1 
 
14.3 
  - US residential mortgages
- 
- 
 
- 
- 
10.4 
10.4 
 
55 
 
1.4 
- 
0.4 
6.8 
 
19.0 
  - UK credit cards
3.0 
- 
 
- 
- 
- 
3.0 
 
55 
 
- 
2.3 
0.2 
- 
 
5.5 
  - UK personal loans
3.4 
- 
 
- 
- 
- 
3.4 
 
37 
 
- 
3.0 
2.8 
- 
 
9.2 
  - other
7.6 
- 
 
17.1 
- 
1.0 
25.7 
 
11 
 
7.5 
13.5 
138.4 
41.5 
 
226.6 
Reverse repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   and stock borrowing
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
81.7 
 
81.7 
Debt securities
0.3 
- 
 
7.4 
44.9 
2.6 
55.2 
 
49 
 
15.8 
40.1 
1.4 
0.3 
 
112.8 
Equity shares
- 
- 
 
0.2 
5.1 
- 
5.3 
 
68 
 
- 
1.0 
0.3 
1.2 
 
7.8 
Settlement balances
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
19.7 
 
19.7 
Derivatives
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
274.9 
 
274.9 
Intangible assets
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
12.2 
 
12.2 
Property, plant and equipment
- 
- 
 
- 
- 
0.3 
0.3 
 
4 
 
- 
- 
5.5 
1.3 
 
7.1 
Deferred tax
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
3.1 
 
3.1 
Prepayments, accrued income and other assets
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
7.4 
 
7.4 
Assets of disposal groups
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
0.2 
 
0.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41.2 
15.2 
 
34.4 
50.0 
17.7 
158.5 
 
 
 
155.8 
85.5 
160.9 
450.4 
 
1,011.1 
Securities retained
 
 
 
 
 
 
 
 
 
 
17.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liquidity portfolio
 
 
 
 
 
 
 
 
 
 
173.3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities secured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intra-Group - secondary liquidity
(16.4)
- 
 
- 
- 
- 
(16.4)
 
 
 
 
 
 
 
 
 
Intra-Group - other
(14.5)
- 
 
- 
- 
- 
(14.5)
 
 
 
 
 
 
 
 
 
Third-party (6)
(6.7)
(8.8)
 
(34.4)
(83.3)
(10.4)
(143.6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(37.6)
(8.8)
 
(34.4)
(83.3)
(10.4)
(174.5)
 
 
 
 
 
 
 
 
 

For the notes to this table refer to page 22.
 

Appendix 1 Capital and risk management

Balance sheet encumbrance (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Encumbered assets relating to:
 
 
 
 
Unencumbered
 
 
 
Debt securities in issue
 
Other secured liabilities
Total
 
Encumbered
 
Readily realisable (3)
 
 
 
 
 
Securitisations
Covered
 
 
 
Secured
encumbered
 
assets as a
 
Liquidity
 
Other (4)
Cannot be (5)
 
 
 
and conduits
bonds
 
Derivatives
Repos
balances (1)
assets (2)
 
% of related
 
portfolio
Other
realisable
encumbered
 
Total
31 December 2013
£bn
£bn
 
£bn
£bn
£bn
£bn
 
assets
 
£bn
£bn
£bn
£bn
 
£bn
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and balances at central banks
- 
- 
 
- 
- 
- 
- 
 
- 
 
74.3 
8.4 
- 
- 
 
82.7 
Loans and advances to banks
5.8 
0.5 
 
10.3 
- 
- 
16.6 
 
60 
 
0.1 
10.9 
- 
- 
 
27.6 
Loans and advances to customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  - UK residential mortgages
14.6 
16.2 
 
- 
- 
- 
30.8 
 
28 
 
60.8 
18.6 
- 
- 
 
110.2 
  - Irish residential mortgages
9.3 
- 
 
- 
- 
1.2 
10.5 
 
70 
 
0.7 
3.8 
- 
0.1 
 
15.1 
  - US residential mortgages
- 
- 
 
- 
- 
3.5 
3.5 
 
18 
 
9.5 
6.7 
- 
- 
 
19.7 
  - UK credit cards
3.4 
- 
 
- 
- 
- 
3.4 
 
52 
 
- 
3.1 
- 
- 
 
6.5 
  - UK personal loans
3.4 
- 
 
- 
- 
- 
3.4 
 
38 
 
- 
5.5 
- 
- 
 
8.9 
  - other
13.5 
- 
 
18.1 
- 
0.8 
32.4 
 
14 
 
4.4 
9.6 
175.6 
10.2 
 
232.2 
Reverse repurchase agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   and stock borrowing
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
76.5 
 
76.5 
Debt securities
0.9 
- 
 
5.5 
55.6 
2.7 
64.7 
 
57 
 
17.0 
31.9 
- 
- 
 
113.6 
Equity shares
- 
- 
 
0.5 
5.3 
- 
5.8 
 
66 
 
- 
3.0 
- 
- 
 
8.8 
Settlement balances
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
5.5 
 
5.5 
Derivatives
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
288.0 
 
288.0 
Intangible assets
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
12.4 
 
12.4 
Property, plant and equipment
- 
- 
 
- 
- 
0.4 
0.4 
 
5 
 
- 
- 
7.5 
- 
 
7.9 
Deferred tax
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
3.5 
 
3.5 
Prepayments, accrued income and other assets
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
8.6 
 
8.6 
Assets of disposal groups
- 
- 
 
- 
- 
- 
- 
 
- 
 
- 
- 
- 
0.2 
 
0.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50.9 
16.7 
 
34.4 
60.9 
8.6 
171.5 
 
 
 
166.8 
101.5 
183.1 
405.0 
 
1,027.9 
Securities retained
 
 
 
 
 
 
 
 
 
 
17.4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liquidity portfolio
 
 
 
 
 
 
 
 
 
 
184.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities secured
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intra-Group - secondary liquidity
(19.1)
- 
 
- 
- 
- 
(19.1)
 
 
 
 
 
 
 
 
 
Intra-Group - other
(18.4)
- 
 
- 
- 
- 
(18.4)
 
 
 
 
 
 
 
 
 
Third-party (6)
(7.8)
(9.0)
 
(34.4)
(85.1)
(6.0)
(142.3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(45.3)
(9.0)
 
(34.4)
(85.1)
(6.0)
(179.8)
 
 
 
 
 
 
 
 
 

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

Appendix 1 Capital and risk management

Balance sheet encumbrance (continued)

Notes:
(1)
Includes cash, coin and nostro balance held with the Bank of England as collateral against notes in circulation.
(2)
Encumbered assets are those that have been pledged to provide security for the liability shown above and are therefore not available to secure funding or to meet other collateral needs.
(3)
Unencumbered readily realisable assets are those assets on the balance sheet that can be readily used to meet funding or collateral requirements and comprise:
 
(a) Liquidity portfolio: cash balances at central banks, high quality debt securities and loans that have been pre-positioned with central banks. In addition, the liquidity portfolio includes securitisations of own assets which has reduced over the years and has been replaced by loans.
 
(b) Other readily realisable assets: including assets that have been enabled for use with central banks; and unencumbered debt securities.
(4)
Unencumbered other realisable assets are those assets on the balance sheet that are available for funding and collateral purposes but are not readily realisable in their current form. These assets include loans that could be prepositioned with central banks but have not been subject to internal and external documentation review and diligence work.
(5)
Assets that cannot be encumbered include:
 
(a) derivatives, reverse repurchase agreements and trading related settlement balances.
 
(b) non-financial assets such as intangibles, prepayments and deferred tax.
 
(c) assets in disposal groups.
 
(d) loans that cannot be pre-positioned with central banks based on criteria set by the central banks, primary US, including those relating to date of origination and level of documentation.
 
(e) non-recourse invoice financing balances and certain shipping loans whose terms and structure prohibit their use as collateral.
(6)
In accordance with market practice RBS employs securities recognised on the balance sheet, and securities received under reverse repo transactions as collateral for repos. Secured derivative liabilities now reflect net positions that are collateralised by balance sheet assets.


Appendix 1 Capital and risk management

Credit risk
Credit risk is the risk of financial loss due to the failure of a customer or counterparty to meet its obligation to settle outstanding amounts. For a description of the bank’s credit risk framework, governance, policies and methodologies refer to the Risk and balance sheet management - Credit risk section - of the 2013 Annual Report and Accounts.

Financial assets
Exposure summary
The table below analyses financial asset exposures, both gross and net of offset arrangements as well as credit mitigation and enhancement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateral
Exposure post
 
Gross 
IFRS 
Carrying 
Non-IFRS 
 
 
Real estate
Credit
 credit mitigation
exposure 
offset (1)
value (2)
offset (3)
Cash (4)
Securities (5)
 Residential (6)
 Commercial (6)
enhancement (7)
and enhancement
30 June 2014
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
 
 
 
 
 
 
 
 
 
 
 
Cash and balances at central banks
68.7 
- 
68.7 
- 
- 
- 
- 
- 
- 
68.7 
Lending
419.3 
(3.8)
415.5 
(35.5)
(1.8)
(3.2)
(146.0)
(61.2)
(4.8)
163.0 
Reverse repos
133.9 
(52.2)
81.7 
(7.2)
- 
(74.4)
- 
- 
- 
0.1 
Debt securities
112.8 
- 
112.8 
- 
- 
- 
- 
- 
(0.7)
112.1 
Equity shares
7.8 
- 
7.8 
- 
- 
- 
- 
- 
- 
7.8 
Settlement balances
24.2 
(4.5)
19.7 
- 
- 
- 
- 
- 
- 
19.7 
Derivatives
461.5 
(186.6)
274.9 
(227.6)
(26.4)
(4.9)
- 
- 
(15.1)
0.9 
 
 
 
 
 
 
 
 
 
 
 
Total
1,228.2 
(247.1)
981.1 
(270.3)
(28.2)
(82.5)
(146.0)
(61.2)
(20.6)
372.3 
Short positions
(39.0)
- 
(39.0)
- 
- 
- 
- 
- 
- 
(39.0)
 
 
 
 
 
 
 
 
 
 
 
Net of short positions
1,189.2 
(247.1)
942.1 
(270.3)
(28.2)
(82.5)
(146.0)
(61.2)
(20.6)
333.3 

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


Appendix 1 Capital and risk management

Financial assets (continued)

 
 
 
 
 
Collateral
Exposure post
 
Gross 
IFRS 
Carrying 
Non-IFRS 
 
 
Real estate
Credit
 credit mitigation
exposure 
offset (1)
value (2)
offset (3)
Cash (4)
Securities (5)
 Residential (6)
 Commercial (6)
enhancement (7)
and enhancement
31 December 2013
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
 
 
 
 
 
 
 
 
 
 
 
Cash and balances at central banks
82.7 
- 
82.7 
- 
- 
- 
- 
- 
- 
82.7 
Lending
423.6 
(3.4)
420.2 
(37.2)
(1.6)
(2.7)
(145.4)
(60.0)
(3.9)
169.4 
Reverse repos
117.2 
(40.7)
76.5 
(11.4)
- 
(65.0)
- 
- 
- 
0.1 
Debt securities
113.6 
- 
113.6 
- 
- 
- 
- 
- 
(1.3)
112.3 
Equity shares
8.8 
- 
8.8 
- 
- 
- 
- 
- 
- 
8.8 
Settlement balances
8.2 
(2.7)
5.5 
(0.3)
- 
- 
- 
- 
- 
5.2 
Derivatives
553.7 
(265.7)
288.0 
(241.3)
(24.4)
(6.0)
- 
- 
(7.3)
9.0 
 
 
 
 
 
 
 
 
 
 
 
Total
1,307.8 
(312.5)
995.3 
(290.2)
(26.0)
(73.7)
(145.4)
(60.0)
(12.5)
387.5 
Short positions
(28.0)
- 
(28.0)
- 
- 
- 
- 
- 
- 
(28.0)
 
 
 
 
 
 
 
 
 
 
 
Net of short positions
1,279.8 
(312.5)
967.3 
(290.2)
(26.0)
(73.7)
(145.4)
(60.0)
(12.5)
359.5 

Notes:
(1)
Relates to offset arrangements that comply with IFRS criteria and transactions cleared through and novated to central clearing houses, primarily London Clearing House and US Government Securities Clearing Corporation.
(2)
The carrying value on the balance sheet represents the exposure to credit risk by class of financial instrument.
(3)
Balance sheet offset reflects the amounts by which the bank’s credit risk is reduced through master netting and cash management pooling arrangements. Derivative master netting agreements include cash pledged with counterparties in respect of net derivative liability positions and are included in lending in the table above.
(4)
Includes cash collateral pledged by counterparties based on daily mark-to-market movements of net derivative positions with the counterparty.
(5)
Securities collateral represent the fair value of securities received from counterparties, mainly relating to reverse repo transactions as part of netting arrangements.
(6)
Property valuations are capped at the loan value and reflect the application of haircuts in line with regulatory rules to indexed valuations. Commercial collateral includes ships and plant and equipment collateral.
(7)
Credit enhancement comprises credit derivatives (bought protection) and guarantees and reflects notional amounts less fair value and notional amounts respectively.

Key points
●
The major components of net exposures are cash and balances at central banks, unsecured commercial, corporate and bank loans, debt securities and short-term settlement balances.
●
Of the £112 billion of debt securities, £34 billion are asset-backed but underlying collateral is not reflected above as the bank only has access to cashflows from the collateral.


Appendix 1 Capital and risk management

Financial assets (continued)

Asset quality
The table below analyses the bank’s financial assets excluding debt securities by internal asset quality (AQ) ratings. Debt securities are analysed by external ratings and are therefore excluded from the table below and are set out on page 33.
 
 
Loans and advances
 
 
 
 
 
 
 
 
Banks (1)
 
Customers
Settlement
 
 
 
 
 
 
Cash and
 
Derivative
 
 
 
 
Derivative
 
 
balances and
 
 
 
 
 
 
balances at
Reverse
cash
Bank
 
 
Reverse
cash
Customer
 
other financial
 
 
Contingent
 
 
 
central banks
repos
collateral
loans
Total
 
repos
collateral
loans
Total
assets
Derivatives
Commitments
liabilities
Total
Total
30 June 2014
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
£m
£m
£m
£m
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1
66,802 
7,614 
1,976 
4,063 
13,653 
 
34,525 
9,982 
39,075 
83,582 
7,028 
65,652 
68,390 
8,810 
313,917 
28.5 
AQ2
- 
5,097 
3,949 
1,126 
10,172 
 
69 
1,630 
18,475 
20,174 
748 
61,994 
19,148 
1,745 
113,981 
10.4 
AQ3
1,542 
2,952 
1,728 
4,492 
9,172 
 
5,182 
3,314 
28,596 
37,092 
3,476 
93,223 
26,781 
7,086 
178,372 
16.2 
AQ4
321 
9,636 
1,571 
7,567 
18,774 
 
8,483 
1,677 
114,339 
124,499 
5,358 
42,919 
39,446 
3,807 
235,124 
21.4 
AQ5
3 
1,484 
361 
1,298 
3,143 
 
4,441 
442 
67,179 
72,062 
1,314 
7,269 
35,442 
2,299 
121,532 
11.1 
AQ6
- 
815 
42 
150 
1,007 
 
189 
27 
38,141 
38,357 
244 
2,265 
11,256 
1,046 
54,175 
4.9 
AQ7
- 
565 
21 
189 
775 
 
653 
36 
29,124 
29,813 
112 
550 
9,760 
830 
41,840 
3.8 
AQ8
2 
- 
1 
54 
55 
 
- 
6 
7,059 
7,065 
- 
486 
779 
97 
8,484 
0.8 
AQ9
- 
- 
5 
316 
321 
 
- 
1 
9,544 
9,545 
31 
91 
998 
260 
11,246 
1.0 
AQ10
- 
- 
- 
- 
- 
 
- 
- 
919 
919 
9 
457 
1,027 
114 
2,526 
0.2 
Past due
- 
- 
- 
- 
- 
 
- 
- 
7,141 
7,141 
1,362 
- 
- 
- 
8,503 
0.8 
Impaired
- 
- 
- 
60 
60 
 
- 
- 
32,241 
32,241 
- 
- 
- 
- 
32,301 
2.9 
Impairment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  provision
- 
- 
- 
(50)
(50)
 
- 
- 
(22,396)
(22,396)
- 
- 
- 
- 
(22,446)
(2.0)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68,670 
28,163 
9,654 
19,265 
57,082 
 
53,542 
17,115 
369,437 
440,094 
19,682 
274,906 
213,027 
26,094 
1,099,555 
100 

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

 
Appendix 1 Capital and risk management

Financial assets: Asset quality (continued)

 
 
Loans and advances
 
 
 
 
 
 
 
 
Banks (1)
 
Customers
Settlement
 
 
 
 
 
 
Cash and
 
Derivative
 
 
 
 
Derivative
 
 
balances and
 
 
 
 
 
 
balances at
Reverse
cash
Bank
 
 
Reverse
cash
Customer
 
other financial
 
 
Contingent
 
 
 
central banks
repos
collateral
loans
Total
 
repos
collateral
loans
Total
assets
Derivatives
Commitments
liabilities
Total
Total
31 December 2013
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
£m
£m
£m
£m
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1
80,305 
5,885 
2,043 
6,039 
13,967 
 
30,233 
10,042 
34,395 
74,670 
2,707 
71,497 
64,453 
6,739 
314,338 
28.2 
AQ2
1 
4,744 
4,930 
672 
10,346 
 
996 
1,899 
17,695 
20,590 
192 
69,949 
28,717 
2,940 
132,735 
11.9 
AQ3
1,873 
2,164 
1,502 
2,347 
6,013 
 
1,857 
3,796 
29,364 
35,017 
746 
94,678 
23,126 
7,057 
168,510 
15.1 
AQ4
479 
9,864 
1,451 
7,031 
18,346 
 
10,642 
1,894 
99,258 
111,794 
470 
39,157 
40,984 
4,430 
215,660 
19.3 
AQ5
- 
1,776 
416 
662 
2,854 
 
5,403 
297 
77,045 
82,745 
717 
8,826 
33,507 
2,087 
130,736 
11.7 
AQ6
- 
1,823 
1 
157 
1,981 
 
82 
38 
39,324 
39,444 
59 
1,487 
14,138 
1,426 
58,535 
5.3 
AQ7
- 
301 
- 
237 
538 
 
684 
50 
30,279 
31,013 
22 
978 
7,437 
918 
40,906 
3.7 
AQ8
3 
- 
- 
48 
48 
 
- 
10 
8,482 
8,492 
58 
132 
1,183 
119 
10,035 
0.9 
AQ9
- 
- 
- 
34 
34 
 
- 
41 
16,944 
16,985 
- 
641 
1,020 
317 
18,997 
1.7 
AQ10
- 
- 
- 
- 
- 
 
- 
- 
730 
730 
- 
695 
1,274 
137 
2,836 
0.3 
Past due
- 
- 
- 
- 
- 
 
- 
- 
9,068 
9,068 
620 
- 
- 
- 
9,688 
0.9 
Impaired
- 
- 
- 
70 
70 
 
- 
- 
37,101 
37,101 
- 
- 
- 
- 
37,171 
3.3 
Impairment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  provision
- 
- 
- 
(63)
(63)
 
- 
- 
(25,162)
(25,162)
- 
- 
- 
- 
(25,225)
(2.3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
82,661 
26,557 
10,343 
17,234 
54,134 
 
49,897 
18,067 
374,523 
442,487 
5,591 
288,040 
215,839 
26,170 
1,114,922 
100 

Note:
(1)
Excludes items in the course of collection from other banks of £1,523 million (31 December 2013 - £1,454 million).


Appendix 1 Capital and risk management

Financial assets: Asset quality (continued)

Key points
●
Overall asset quality improved slightly with AQ1-AQ4 (investment grade of BBB- or above) increasing from 75% at 31 December 2013 to 77% at 30 June 2014 reflecting improving credit conditions and disposals and run-down in RCR.
   
●
Cash and balances at central banks decreased £14.0 billion reflecting the management of surplus liquidity.
   
●
Asset quality trends improved with loans to banks and customers rated AQ1 (equivalent to AA or above) up by £3 billion. Recalibration of retail and business banking models using updated data trends from the last three years resulted in a significant upward shift between AQ5 and below to AQ4.
   
●
Gross derivatives decreased 5% to £274.9 billion with the proportion AQ1-AQ4 stable at 96%.
   
●
Past due loans decreased £1.1 billion or 11% driven mainly by CFG (£1.0 billion) and a decrease in Ulster Bank (£0.3 billion) reflecting increased work with customers in arrears.
   
●
Loan impairment provisions decreased £2.8 billion mainly in relation to RCR disposals and run-off (£2.0 billion).
 

 
Appendix 1 Capital and risk management

Loans and related credit metrics
The tables below analyse gross loans and advances (excluding reverse repos) and the related credit metrics by business unit.
 
 
 
 
Credit metrics
 
 
 
Gross loans to
REIL
Provisions
REIL as a %
 
 
 
of gross
Provisions
Year-to-date
loans to
as a %
Impairment
Amounts
Banks
Customers
customers
of REIL
 charge
written-off
30 June 2014
£m
£m
£m
£m
%
%
£m
£m
 
 
 
 
 
 
 
 
 
UK PBB
900 
129,243 
4,278 
2,821 
3.3 
66 
148 
407 
Ulster Bank
3,036 
25,708 
4,861 
3,285 
18.9 
68 
57 
33 
 
 
 
 
 
 
 
 
 
PBB
3,936 
154,951 
9,139 
6,106 
5.9 
67 
205 
440 
 
 
 
 
 
 
 
 
 
Commercial Banking
861 
85,142 
2,860 
1,162 
3.4 
41 
31 
201 
Private Banking
1,426 
16,618 
239 
93 
1.4 
39 
- 
24 
 
 
 
 
 
 
 
 
 
CPB
2,287 
101,760 
3,099 
1,255 
3.0 
40 
31 
225 
 
 
 
 
 
 
 
 
 
CIB
19,405 
69,154 
105 
177 
0.2 
nm
(36)
- 
Centre
2,513 
848 
3 
3 
0.4 
nm
(12)
56 
CFG
277 
52,221 
1,307 
500 
2.5 
38 
102 
147 
RCR
551 
30,014 
20,428 
14,405 
68.1 
71 
(19)
1,619 
 
 
 
 
 
 
 
 
 
RBS
28,969 
408,948 
34,081 
22,446 
8.3 
66 
271 
2,487 

31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UK PBB
760 
127,781 
4,663 
2,957 
3.6 
63 
497 
967 
Ulster Bank
591 
31,446 
8,466 
5,378 
26.9 
64 
1,774 
277 
 
 
 
 
 
 
 
 
 
PBB
1,351 
159,227 
13,129 
8,335 
8.2 
63 
2,271 
1,244 
 
 
 
 
 
 
 
 
 
Commercial Banking
701 
85,071 
4,276 
1,617 
5.0 
38 
652 
587 
Private Banking
1,531 
16,764 
277 
120 
1.7 
43 
29 
15 
 
 
 
 
 
 
 
 
 
CPB
2,232 
101,835 
4,553 
1,737 
4.5 
38 
681 
602 
 
 
 
 
 
 
 
 
 
CIB
20,550 
69,080 
1,661 
976 
2.4 
59 
598 
360 
 
 
 
 
 
 
 
 
 
Centre
2,670 
341 
1 
66 
0.3 
nm
65 
- 
CFG
406 
50,551 
1,034 
272 
2.0 
26 
151 
284 
Non-Core
431 
36,718 
19,014 
13,839 
51.8 
73 
4,646 
1,856 
 
 
 
 
 
 
 
 
 
RBS
27,640 
417,752 
39,392 
25,225 
9.4 
64 
8,412 
4,346 


Appendix 1 Capital and risk management

Loans and related credit metrics (continued)

Key points
·
Gross loans and advances to customers decreased by £8.8 billion or 2% to £408.9 billion; excluding the impact of foreign exchange the movement was £6.3 billion mainly driven by disposals and run off in RCR. REIL fell by 13% to £34.1 billion. Provision coverage strengthened to 66% compared with 64% at the end of 2013 and REIL were 8.3% of gross customer loans compared with 9.4% as at 31 December 2013. Asset quality continued to improve across the board.
   
·
Impairment charge for the first half of 2014 was significantly lower at £271 million compared with the prior year including £180 million of latent provision releases primarily reflecting more favourable credit conditions.
   
·
30% of the £56.9 billion property loans were REIL, with a provision coverage of 66%. 20% of property loans carry a provision. Refer to page 41 for an analysis of commercial real estate in RCR.
   
·
Strong mortgage lending in UK PBB of £2.5 billion was offset by a fall in unsecured lending of £1.1 billion. Impairment charges and credit metrics continued to show improving trends with REIL as a percentage of gross loans falling to 3.3% from 3.6% at 31 December 2013 reflecting improved asset quality and lower default trends. Write-offs of £0.4 billion reflected the continued write-off of legacy balances.
   
·
Ulster Bank loans, excluding the impact of foreign exchange and transfers to RCR, were £0.5 billion lower than at the year end mainly as customers deleveraged. Impairment charges were significantly lower at £57 million in the first half of 2014 reflecting the transfer of underperforming assets to RCR and the ongoing reduction in mortgage arrears.
   
·
Lending in CPB remained broadly stable with REIL, excluding the impact of the transfers to RCR, decreasing by £0.7 billion with write-offs and repayments outpacing new provisions.
   
·
CFG loans showed growth of £1.2 billion excluding the impact of foreign exchange with impairment charges of £102 million, higher than the prior year due to the transfer in Q1 of serviced-by-others, home equity and other portfolios in Non-Core. Credit metrics remained broadly stable.


Appendix 1 Capital and risk management

Loans and related credit metrics: Loans, REIL, provisions and impairments
The tables below analyse gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and geography (by location of lending office).
 
 
 
 
 
Credit metrics
 
 
30 June 2014
 
 
 
REIL as a
Provisions
Provisions
Year-to-date
Gross
 
 
% of gross
as a %
as a % of
Impairment
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans
charge
written-off
£m
£m
£m
%
%
%
£m
£m
 
 
 
 
 
 
 
 
 
Central and local government
8,191 
5 
4 
0.1 
80 
- 
3 
- 
Finance
34,166 
466 
318 
1.4 
68 
0.9 
43 
13 
Personal
- mortgages
148,237 
5,871 
1,731 
4.0 
29 
1.2 
110 
109 
 
- unsecured
27,482 
2,102 
1,754 
7.6 
83 
6.4 
261 
420 
Property
56,908 
17,315 
11,490 
30.4 
66 
20.2 
(113)
1,189 
Construction
6,261 
1,190 
737 
19.0 
62 
11.8 
68 
65 
Manufacturing
22,491 
651 
472 
2.9 
73 
2.1 
(38)
38 
Finance leases (1)
13,252 
195 
150 
1.5 
77 
1.1 
(1)
38 
Retail, wholesale and repairs
18,031 
1,072 
773 
5.9 
72 
4.3 
111 
97 
Transport and storage
14,415 
1,303 
631 
9.0 
48 
4.4 
32 
31 
Health, education and leisure
15,374 
855 
478 
5.6 
56 
3.1 
(13)
212 
Hotels and restaurants
8,055 
1,341 
770 
16.6 
57 
9.6 
(4)
33 
Utilities
5,432 
120 
76 
2.2 
63 
1.4 
3 
1 
Other
30,653 
1,534 
1,223 
5.0 
80 
4.0 
(1)
241 
Latent
- 
- 
1,789 
- 
- 
- 
(180)
- 
 
 
 
 
 
 
 
 
 
 
408,948 
34,020 
22,396 
8.3 
66 
5.5 
281 
2,487 
 
 
 
 
 
 
 
 
 
of which:
 
 
 
 
 
 
 
 
UK
 
 
 
 
 
 
 
 
  - residential mortgages
112,252 
1,713 
292 
1.5 
17 
0.3 
14 
23 
  - personal lending
16,279 
1,786 
1,578 
11.0 
88 
9.7 
210 
348 
  - property
40,585 
7,943 
4,366 
19.6 
55 
10.8 
(33)
828 
  - construction
4,616 
873 
491 
18.9 
56 
10.6 
26 
44 
  - other
109,618 
3,489 
2,515 
3.2 
72 
2.3 
(71)
514 
Europe
 
 
 
 
 
 
 
 
  - residential mortgages
16,482 
3,213 
1,288 
19.5 
40 
7.8 
59 
11 
  - personal lending
1,104 
120 
120 
10.9 
100 
10.9 
5 
8 
  - property
10,978 
9,279 
7,081 
84.5 
76 
64.5 
(81)
355 
  - construction
1,240 
308 
237 
24.8 
77 
19.1 
42 
21 
  - other
21,695 
3,558 
3,382 
16.4 
95 
15.6 
24 
179 
US
 
 
 
 
 
 
 
 
  - residential mortgages
19,115 
927 
147 
4.8 
16 
0.8 
37 
75 
  - personal lending
9,056 
179 
39 
2.0 
22 
0.4 
46 
64 
  - property
4,476 
69 
19 
1.5 
28 
0.4 
1 
2 
  - construction
371 
1 
1 
0.3 
100 
0.3 
- 
- 
  - other
27,838 
260 
609 
0.9 
234 
2.2 
12 
8 
RoW
 
 
 
 
 
 
 
 
  - residential mortgages
388 
18 
4 
4.6 
22 
1.0 
- 
- 
  - personal lending
1,043 
17 
17 
1.6 
100 
1.6 
- 
- 
  - property
869 
24 
24 
2.8 
100 
2.8 
- 
4 
  - construction
34 
8 
8 
23.5 
100 
23.5 
- 
- 
  - other
10,909 
235 
178 
2.2 
76 
1.6 
(10)
3 
 
 
 
 
 
 
 
 
 
 
408,948 
34,020 
22,396 
8.3 
66 
5.5 
281 
2,487 
 
 
 
 
 
 
 
 
 
Banks
28,969 
61 
50 
0.2 
82 
0.2 
(10)
- 

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

Appendix 1 Capital and risk management

Loans and related credit metrics: Loans, REIL, provisions and impairments (continued)

 
 
 
 
Credit metrics
 
 
31 December 2013
 
 
 
REIL as a
Provisions
Provisions
Year-to-date
Gross
 
 
% of gross
as a %
as a % of
Impairment
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans
charge
written-off
£m
£m
£m
%
%
%
£m
£m
 
 
 
 
 
 
 
 
 
Central and local government
8,643 
2 
2 
- 
100 
- 
2 
- 
Finance
35,948 
593 
292 
1.6 
49 
0.8 
4 
72 
Personal
- mortgages
148,533 
6,025 
1,799 
4.1 
30 
1.2 
392 
441 
 
- unsecured
28,160 
2,417 
1,909 
8.6 
79 
6.8 
415 
861 
Property
62,292 
20,283 
13,189 
32.6 
65 
21.2 
5,130 
1,642 
Construction
6,331 
1,334 
774 
21.1 
58 
12.2 
291 
160 
Manufacturing
21,377 
742 
559 
3.5 
75 
2.6 
195 
104 
Finance leases (1)
13,587 
263 
190 
1.9 
72 
1.4 
16 
121 
Retail, wholesale and repairs
19,574 
1,187 
783 
6.1 
66 
4.0 
268 
128 
Transport and storage
16,697 
1,491 
635 
8.9 
43 
3.8 
487 
229 
Health, education and leisure
16,084 
1,324 
756 
8.2 
57 
4.7 
359 
119 
Hotels and restaurants
6,942 
1,427 
812 
20.6 
57 
11.7 
281 
194 
Utilities
4,960 
131 
80 
2.6 
61 
1.6 
54 
23 
Other
28,624 
2,103 
1,370 
7.3 
65 
4.8 
489 
212 
Latent
- 
- 
2,012 
- 
- 
- 
44 
- 
 
 
 
 
 
 
 
 
 
 
417,752 
39,322 
25,162 
9.4 
64 
6.0 
8,427 
4,306 
 
 
 
 
 
 
 
 
 
of which:
 
 
 
 
 
 
 
 
UK
 
 
 
 
 
 
 
 
  - residential mortgages
110,515 
1,900 
319 
1.7 
17 
0.3 
39 
180 
  - personal lending
17,098 
2,052 
1,718 
12.0 
84 
10.0 
264 
681 
  - property
44,252 
9,797 
5,190 
22.1 
53 
11.7 
2,014 
950 
  - construction
4,691 
941 
515 
20.1 
55 
11.0 
194 
159 
  - other
110,466 
4,684 
3,202 
4.2 
68 
2.9 
1,091 
537 
Europe
 
 
 
 
 
 
 
 
  - residential mortgages
17,540 
3,155 
1,303 
18.0 
41 
7.4 
195 
26 
  - personal lending
1,267 
141 
129 
11.1 
91 
10.2 
19 
26 
  - property
13,177 
10,372 
7,951 
78.7 
77 
60.3 
3,131 
659 
  - construction
979 
351 
227 
35.9 
65 
23.2 
72 
- 
  - other
22,620 
4,057 
3,498 
17.9 
86 
15.5 
1,012 
465 
US
 
 
 
 
 
 
 
 
  - residential mortgages
19,901 
951 
173 
4.8 
18 
0.9 
161 
233 
  - personal lending
8,722 
207 
45 
2.4 
22 
0.5 
114 
151 
  - property
4,279 
85 
19 
2.0 
22 
0.4 
(11)
25 
  - construction
313 
34 
24 
10.9 
71 
7.7 
25 
1 
  - other
27,887 
198 
589 
0.7 
297 
2.1 
65 
131 
RoW
 
 
 
 
 
 
 
 
  - residential mortgages
577 
19 
4 
3.3 
21 
0.7 
(3)
2 
  - personal lending
1,073 
17 
17 
1.6 
100 
1.6 
18 
3 
  - property
584 
29 
29 
5.0 
100 
5.0 
(4)
8 
  - construction
348 
8 
8 
2.3 
100 
2.3 
- 
- 
  - other
11,463 
324 
202 
2.8 
62 
1.8 
31 
69 
 
 
 
 
 
 
 
 
 
 
417,752 
39,322 
25,162 
9.4 
64 
6.0 
8,427 
4,306 
 
 
 
 
 
 
 
 
 
Banks
27,640 
70 
63 
0.3 
90 
0.2 
(15)
40 

Note:
(1)
Includes instalment credit.


Appendix 1 Capital and risk management

Debt securities
The table below analyses debt securities by issuer and IFRS measurement classifications. US central and local government includes US federal agencies. The financial institutions category includes US government sponsored agencies and securitisation entities, the latter principally relating to asset-backed securities (ABS).
 
 
 
 
 
 
 
 
 
 
 
Central and local government
Banks
Other
Corporate
Total
 
 
financial
 
Of which
UK
US
Other
institutions
 
ABS
30 June 2014
£m
£m
£m
£m
£m
£m
£m
 
£m
 
 
 
 
 
 
 
 
 
 
Held-for-trading (HFT)
5,978 
7,805 
28,908 
1,821 
9,089 
2,292 
55,893 
 
6,940 
Designated as at fair value
- 
- 
104 
- 
17 
- 
121 
 
14 
Available-for-sale (AFS)
3,905 
11,613 
10,052 
5,521 
17,436 
171 
48,698 
 
24,104 
Loans and receivables
- 
- 
- 
160 
3,224 
142 
3,526 
 
3,139 
Held-to-maturity (HTM)
4,556 
- 
- 
- 
- 
- 
4,556 
 
- 
 
 
 
 
 
 
 
 
 
 
Long positions
14,439 
19,418 
39,064 
7,502 
29,766 
2,605 
112,794 
 
34,197 
 
 
 
 
 
 
 
 
 
 
Of which US agencies
- 
5,620 
- 
- 
12,758 
- 
18,378 
 
17,243 
 
 
 
 
 
 
 
 
 
 
Short positions (HFT)
(4,546)
(10,257)
(20,949)
(821)
(1,245)
(1,042)
(38,860)
 
(34)
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
Gross unrealised gains
154 
358 
570 
92 
502 
12 
1,688 
 
599 
Gross unrealised losses
(15)
(90)
(3)
(103)
(265)
(3)
(479)
 
(449)
 
 
 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Held-for-trading
6,764 
10,951 
22,818 
1,720 
12,406 
1,947 
56,606 
 
10,674 
Designated as at fair value
- 
- 
104 
- 
17 
1 
122 
 
15 
Available-for-sale
6,436 
12,880 
10,303 
5,974 
17,330 
184 
53,107 
 
24,174 
Loans and receivables
10 
1 
- 
175 
3,466 
136 
3,788 
 
3,423 
 
 
 
 
 
 
 
 
 
 
Long positions
13,210 
23,832 
33,225 
7,869 
33,219 
2,268 
113,623 
 
38,286 
 
 
 
 
 
 
 
 
 
 
Of which US agencies
- 
5,599 
- 
- 
13,132 
- 
18,731 
 
18,048 
 
 
 
 
 
 
 
 
 
 
Short positions (HFT)
(1,784)
(6,790)
(16,087)
(889)
(1,387)
(826)
(27,763)
 
(36)
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
Gross unrealised gains
201 
428 
445 
70 
386 
11 
1,541 
 
458 
Gross unrealised losses
(69)
(86)
(32)
(205)
(493)
(2)
(887)
 
(753)

Key points
·
HFT: Holdings of UK and US government bonds, and ABS decreased, reflecting sales and continued focus on balance sheet reduction and capital management in CIB. The increase in other government bonds primarily reflected higher seasonal market activity in bond auctions compared with the year end, partially offset by disposals. The increase in short positions in UK and US government bonds was driven by market conditions and customer demand, while that in other government reflected hedging of higher long positions and customer demand.
·
AFS: Government securities decreased by £4.0 billion. The decreases in UK, US and other government bonds reflected net disposals as gains were realised, as well as transfers of UK government bonds to HTM in Treasury. Holdings in bank issuances fell by £0.5 billion due to maturities and disposals.
·
AFS gross unrealised gains and losses: The UK and US government decreases in unrealised gains reflect exposure reductions. The increases in other government reflect market movements, and increases in banks and other financial institutions reflect maturities, disposals and market movements.


Appendix 1 Capital and risk management

Debt securities (continued)

Ratings
The table below analyses debt securities by issuer and external ratings. Ratings are based on the lowest of Standard and Poor’s, Moody’s and Fitch.

 
Central and local government
Banks 
Other 
Corporate 
Total 
 
 
financial 
 
Of which 
UK 
US 
Other 
institutions 
Total 
ABS 
30 June 2014
£m 
£m 
£m 
£m 
£m 
£m 
£m 
% 
£m 
 
 
 
 
 
 
 
 
 
 
AAA
- 
6 
15,694 
1,677 
7,572 
18 
24,967 
22 
6,379 
AA to AA+
14,439 
19,412 
8,666 
262 
15,237 
187 
58,203 
52 
19,200 
A to AA-
- 
- 
7,185 
2,886 
980 
430 
11,481 
10 
1,855 
BBB- to A-
- 
- 
7,146 
2,134 
1,939 
1,142 
12,361 
11 
2,902 
Non-investment grade
- 
- 
373 
358 
2,588 
562 
3,881 
3 
2,591 
Unrated
- 
- 
- 
185 
1,450 
266 
1,901 
2 
1,270 
 
 
 
 
 
 
 
 
 
 
 
14,439 
19,418 
39,064 
7,502 
29,766 
2,605 
112,794 
100 
34,197 
 
 
 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AAA
- 
18 
13,106 
1,434 
8,155 
162 
22,875 
20 
6,796 
AA to AA+
13,210 
23,812 
7,847 
446 
16,825 
138 
62,278 
55 
21,054 
A to AA-
- 
- 
4,200 
1,657 
1,521 
290 
7,668 
7 
1,470 
BBB- to A-
- 
- 
7,572 
3,761 
2,627 
854 
14,814 
13 
4,941 
Non-investment grade
- 
- 
494 
341 
2,444 
427 
3,706 
3 
2,571 
Unrated
- 
2 
6 
230 
1,647 
397 
2,282 
2 
1,454 
 
 
 
 
 
 
 
 
 
 
 
13,210 
23,832 
33,225 
7,869 
33,219 
2,268 
113,623 
100 
38,286 

Appendix 1 Capital and risk management

Derivatives
The table below analyses the bank’s derivatives by type of contract. The master netting arrangements and collateral shown below do not result in a net presentation on the balance sheet under IFRS.

 
30 June 2014
 
31 December 2013
 
 
Notional (1)
Assets
Liabilities
 
Notional (1)
Assets
Liabilities
 
 
£bn
£m
£m
 
£bn
£m
£m
 
 
 
 
 
 
 
 
 
 
Interest rate (2)
29,061 
223,476 
212,861 
 
35,589 
218,041 
208,698 
 
Exchange rate
4,609 
44,151 
47,761 
 
4,555 
61,923 
65,749 
 
Credit
278 
4,362 
4,589 
 
253 
5,306 
5,388 
 
Equity and commodity
80 
2,917 
4,876 
 
81 
2,770 
5,692 
 
 
 
 
 
 
 
 
 
 
 
 
274,906 
270,087 
 
 
288,040 
285,527 
 
Counterparty mtm netting
 
(227,622)
(227,622)
 
 
(241,265)
(241,265)
*
Cash collateral
 
(26,405)
(23,067)
 
 
(24,423)
(25,302)
*
Securities collateral
 
(4,894)
(10,242)
 
 
(5,990)
(8,257)
*
 
 
 
 
 
 
 
 
 
Net exposure
 
15,985 
9,156 
 
 
16,362 
10,703 
*
 
 
 
 
 
 
 
 
 

 
*Revised

 
Notes:
(1)
Includes exchange traded contracts of £2,749 billion, (31 December 2013 - £2,298 billion) principally interest rate. Trades are margined daily hence carrying values were insignificant: assets - £72 million (31 December 2013 - £69 million) and liabilities - £265 million (31 December 2013 - £299 million).
(2)
Interest rate notional includes £17,606 billion (31 December 2013 - £22,563 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.

Key points
·
Interest rate contracts: notionals balances were £6.5 trillion lower due to increased participation in trade compression cycles during the first half of 2014, following subdued activity by Tri Optima in 2013. This also resulted in reduced amounts of trades cleared through central clearing counterparties (£5 trillion reduction). The fair value increased due to downward shifts in major yield curves due to volatility in emerging markets at the beginning of the year followed by the European Central Bank’s decision to introduce measures to aid economic recovery in June 2014. This was partially offset by decrease due to the strengthening of GBP against the US Dollar and Euro and participation in tear ups.
   
·
Foreign exchange contracts: decrease in fair value reflects the strengthening of GBP against the US dollar and euro, and the strengthening of Japanese yen against the US dollar, as the portfolio is materially positioned long US dollar and short Japanese yen at 30 June 2014.
   
·
Credit derivatives fair values decreased reflecting tightening credit spreads and compression cycles.
   
·
Uncollateralised derivatives predominantly represent those with large corporates with whom RBS may have netting arrangements in place, but whose business models do not support collateral posting capacity and sovereigns and supranational entities with one way collateral agreements in their favour. In addition there are some uncollateralised derivative positions with banks in certain jurisdictions for example Russia, China, Malaysia which are either uncollateralised or the collateral agreements are not deemed legally enforceable and have therefore been reported as uncollateralised.


Appendix 1 Capital and risk management (continued)

Problem debt management
For a description of early problem identification and problem debt management processes, refer to pages 242 to 251 of the 2013 Annual Report and Accounts.
 
Wholesale forbearance
The table below shows the loans (excluding loans where the bank has initiated recovery procedures) for which forbearance was completed during H1 2014, by sector and between performing and non-performing.

 
Half year ended
 
Year ended
 
30 June 2014
 
31 December 2013
 
 
Non-
Provision
 
 
Non-
Provision
 
Performing
performing
coverage (2)
 
Performing
performing
coverage (2)
Sector
£m
£m
%
 
£m
£m
%
 
 
 
 
 
 
 
 
Property
704 
3,298 
59 
 
1,759 
4,802 
60 
Transport
192 
218 
36 
 
1,016 
229 
34 
Retail and leisure
296 
195 
50 
 
455 
390 
37 
Services
342 
115 
42 
 
405 
234 
77 
Other
461 
162 
61 
 
670 
510 
27 
 
 
 
 
 
 
 
 
 
1,995 
3,988 
57 
 
4,305 
6,165 
55 

The table below analyses the incidence of the main types of wholesale forbearance arrangements by loan value.
 
Half year ended
Year ended
 
30 June
31 December
 
2014 
2013 
Arrangement type (3)
%
%
 
 
 
Payment concessions and loan rescheduling
84 
78 
Other (4)
5 
31 
Covenant-only concessions
28 
16 
Forgiveness of all or part of the outstanding debt
4 
9 
Variation in margin
4 
2 

Notes:
(1)
The data reflected changes in methodology highlighted in the 2013 Report and Accounts, and also the removal in April of the reporting threshold for forbearance data capture.
(2)
Provision coverage reflects impairment provision as a percentage of non performing loan.
(3)
The total exceeds 100% as an individual case can involve more than one type of arrangement.
(4)
Principally formal standstill agreements and release of security.

Key points
·
Forbearance completed on loans decreased during the first half of 2014 compared with the second half of 2013. This was in line both with improving market conditions and the RCR disposal strategy.
   
·
Forbearance continued to be granted in sectors that have experienced financial stress in recent years. The property sector remained the greatest contributor to the forborne portfolio, while there was a marked fall in the transport sector during the period. Some 70% of completed forbearance in the half year related to RCR loans, of which 60% were originated by Ulster Bank. Of the forbearance granted on non-performing loans, 65% related to loans originated by Ulster Bank.
 
 
 

 
Appendix 1 Capital and risk management (continued)

Problem debt management (continued)

Key points (continued)
·
Provisions for the non-performing loans disclosed above are individually assessed and therefore not directly comparable across periods. Provision coverage remained stable in H1.
   
·
At 30 June 2014 loans totalling £5.9 billion (31 December 2013 - £9.4 billion) had been granted credit approval for forbearance but had not yet been formally documented and were not being managed in accordance with the approved forbearance strategy. These loans are referred to as “in process” and are not included in the tables above, but 86% were non-performing (31 December 2013 - 84%) with an associated provision coverage of 54% (31 December 2013 - 44%). The principal types of forbearance offered were consistent with the completed forbearance population. The amount of in-process forbearance fell materially in line with the completion of forbearance during H1 and with disposals in RCR, which were not offset by new in-process cases.

Retail forbearance
The table below shows the loans for which forbearance was agreed during H1 2014 split between performing and non-performing by segment.

 
 
Ulster
Private
 
 
 
UK PBB
Bank
Banking
CFG
Total
Half year ended 30 June 2014
£m
£m
£m
£m
£m
 
 
 
 
 
 
Performing forbearance in the half year
675 
1,487 
106 
- 
2,268 
Non-performing forbearance in the half year
53 
824 
44 
42 
963 
 
 
 
 
 
 
Total forbearance in the half year
728 
2,311 
150 
42 
3,231 
 
 
 
 
 
 
Year ended 31 December 2013
 
 
 
 
 
 
 
 
 
 
 
Performing forbearance in the year
1,332 
2,223 
41 
- 
3,596 
Non-performing forbearance in the year
186 
1,213 
22 
101 
1,522 
 
 
 
 
 
 
Total forbearance in the year
1,518 
3,436 
63 
101 
5,118 

 
 
 
Appendix 1 Capital and risk management (continued)

Problem debt management: Retail forbearance (continued)
The mortgage arrears information for retail accounts in forbearance and related provision at the end of the period are shown in the tables below.
 
No missed
 
1-3 months
 
>3 months
 
 
 
 
 
payments
 
in arrears
 
in arrears
 
Total
 
Balance
Provision
 
Balance
Provision
 
Balance
Provision
 
Balance
Provision
Forborne balances (1)
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
%
 
 
 
 
 
 
 
 
 
 
 
 
 
30 June 2014
 
 
 
 
 
 
 
 
 
 
 
 
UK PBB (2,3)
4,556 
19 
 
401 
20 
 
385 
42 
 
5,342 
81 
5.2 
Ulster Bank (2,3)
1,930 
190 
 
697 
159 
 
879 
265 
 
3,506 
614 
19.3 
Private Banking
105 
2 
 
3 
- 
 
6 
- 
 
114 
2 
1.3 
CFG
302 
29 
 
21 
1 
 
51 
- 
 
374 
30 
2.0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6,893 
240 
 
1,122 
180 
 
1,321 
307 
 
9,336 
727 
6.3 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UK PBB (2,3)
4,596 
17 
 
426 
23 
 
424 
51 
 
5,446 
91 
5.5 
Ulster Bank (2,3)
1,362 
166 
 
631 
76 
 
789 
323 
 
2,782 
565 
14.6 
Private Banking
112 
3 
 
6 
- 
 
9 
- 
 
127 
3 
1.5 
CFG
287 
26 
 
33 
3 
 
53 
- 
 
373 
29 
1.9 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6,357 
212 
 
1,096 
102 
 
1,275 
374 
 
8,728 
688 
6.0 

Notes:
(1)
As a percentage of mortgage loans.
(2)
Forbearance in UK PBB and Ulster Bank includes all changes to the contractual payment terms, including those where the customer is up-to-date on payments and there is no evidence of financial difficulty.
(3)
Includes the current stock position of forbearance deals agreed since early 2008 for UK PBB and early 2009 for Ulster Bank.

The incidence of the main types of retail forbearance on the balance sheet are analysed below.
 
 
 
Ulster
Private
 
 
 
UK PBB
Bank
Banking
CFG
Total (1)
30 June 2014
£m
£m
£m
£m
£m
 
 
 
 
 
 
Interest only conversions - temporary and permanent
1,705 
448 
1 
- 
2,154 
Term extensions - capital repayment and interest only
2,529 
447 
33 
51 
3,060 
Payment concessions
255 
1,934 
11 
237 
2,437 
Capitalisation of arrears
907 
1,089 
- 
- 
1,996 
Other
307 
- 
69 
86 
462 
 
 
 
 
 
 
 
5,703 
3,918 
114 
374 
10,109 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
Interest only conversions - temporary and permanent
1,784 
512 
- 
- 
2,296 
Term extensions - capital repayment and interest only
2,478 
325 
29 
35 
2,867 
Payment concessions
241 
1,567 
12 
246 
2,066 
Capitalisation of arrears
907 
494 
- 
- 
1,401 
Other
366 
- 
86 
92 
544 
 
 
 
 
 
 
 
5,776 
2,898 
127 
373 
9,174 

Note:
(1)
As an individual case can include more than one type of arrangement. The analysis in the forbearance arrangements table exceeds the total value of cases subject to forbearance.
 

 
Appendix 1 Capital and risk management

Problem debt management: Retail forbearance (continued)

Key points

UK PBB
·
The flow of new forbearance, £341 million in the second quarter of 2014, continued on a downward trend compared with the average of £409 million per quarter in the preceding four quarters. The flow for H1 2014 was £728 million.
   
·
The 24 month rolling stock of forbearance (where it was provided in the previous 24 months) fell by 13% to £1.7 billion at 30 June 2014 from £2.0 billion at 31 December 2013.
   
·
5.2% of total mortgage assets (£5.3 billion) were subject to a forbearance arrangement from January 2008. This represented a decrease of 1.9% from 31 December 2013 (£5.4 billion).
   
·
Approximately 85% of forbearance loans (31 December 2013 - 84%) were up-to-date with payments compared with approximately 98% of assets not subject to forbearance activity.
   
·
The majority (96%) of UK PBB forbearance was permanent in nature (term extensions, capitalisation of arrears, historical conversions to interest only). Temporary forbearance comprises payment concessions, such as reduced or deferred payments, with arrangements typically agreed for a period between three and six months.
   
·
The most frequently occurring forbearance types were term extensions (44% of forbearance loans at 30 June 2014), interest only conversions (30%) and capitalisations of arrears (16%). Conversions to interest only have only been permitted on a very exceptional basis since the fourth quarter of 2012 and have not been permitted for customers in financial difficulty since 2009.
   
·
The impairment provision cover on forbearance mortgages remained significantly higher than that on assets not subject to forbearance.

Ulster Bank
·
At 30 June 2014, 19.3% (£3.5 billion) of Ulster Bank's mortgage loans were subject to forbearance arrangements, an increase from 14.6% (£2.8 billion) at 31 December 2013. This reflected Ulster Bank's strategy of seeking to help customers facing financial difficulties.
·
The increase in forbearance stock from 31 December 2013 to 30 June 2014 is attributable to customers entering forbearance for the first time (48%), customers re-entering forbearance (33%) and methodology refinements primarily relating to exit criteria (19%). The number of customers approaching Ulster Bank for assistance for the first time fell in Q2 2014 compared with Q4 2013.
·
There was continued increase in the proportion of longer-term forbearance solutions granted by Ulster Bank. As a percentage of the total, 55% of forbearance loans were subject to a longer term arrangement at 30 June 2014 (31 December 2013 - 41%). Capitalisations represented 28% (December 2013 - 17%), term extensions 11% (31 December 2013 - 11%) and interest rate discounts 16% (31 December 2013 - 13%) of the total forbearance portfolio at 30 June 2014. Interest rate discounts are offered for periods of up to eight years and incorporate a payment concession based on the customer’s ability to pay.
·
The remaining forbearance loans were temporary concessions accounting for 45% of the total forborne population, (31 December 2013 - 59%). Interest only arrangements decreased during 2014 to 11% of forbearance loans at 30 June 2014 (31 December 2013 - 18%). Payment concessions (excluding interest rate discounts) represented the remaining 34% (31 December 2013 - 41%). 
·
The proportion of forbearance arrangements that were less than 90 days in arrears increased from 72% (31 December 2013) to 75% (30 June 2014).
 
 

 

Appendix 1 Capital and risk management

Key loan portfolios

Commercial real estate*
The commercial real estate sector comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders). The analysis of lending utilisations below is gross of impairment provisions and excludes rate risk management and contingent obligations.
 
30 June 2014
 
31 December 2013
 
Investment 
Development 
Total 
 
Investment 
Development 
Total 
By franchise (1)
£m 
£m 
£m 
 
£m 
£m 
£m 
 
 
 
 
 
 
 
 
PBB
4,904 
886 
5,790 
 
7,350 
1,228 
8,578 
CPB
16,639 
2,844 
19,483 
 
16,616 
2,957 
19,573 
CIB
1,158 
227 
1,385 
 
898 
183 
1,081 
 
 
 
 
 
 
 
 
 
22,701 
3,957 
26,658 
 
24,864 
4,368 
29,232 
CFG
4,270 
- 
4,270 
 
4,018 
- 
4,018 
RCR/Non-Core
10,700 
7,564 
18,264 
 
11,624 
7,704 
19,328 
 
 
 
 
 
 
 
 
Total
37,671 
11,521 
49,192 
 
40,506 
12,072 
52,578 

 
Investment
 
Development
 
 
Commercial
Residential
Total 
 
Commercial
Residential
Total 
Total
By geography (1)
£m
£m
£m
 
£m
£m
£m
£m
 
 
 
 
 
 
 
 
 
30 June 2014
 
 
 
 
 
 
 
 
UK (excluding NI (2))
20,384 
5,199 
25,583 
 
614 
3,700 
4,314 
29,897 
Ireland (ROI and NI (2))
3,431 
936 
4,367 
 
1,814 
4,925 
6,739 
11,106 
Western Europe (other)
2,296 
120 
2,416 
 
220 
28 
248 
2,664 
US
3,796 
1,140 
4,936 
 
- 
13 
13 
4,949 
RoW (2)
365 
4 
369 
 
- 
207 
207 
576 
 
 
 
 
 
 
 
 
 
 
30,272 
7,399 
37,671 
 
2,648 
8,873 
11,521 
49,192 
 
 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UK (excluding NI (2))
20,861 
5,008 
25,869 
 
678 
3,733 
4,411 
30,280 
Ireland (ROI and NI (2))
4,405 
1,028 
5,433 
 
1,919 
5,532 
7,451 
12,884 
Western Europe (other)
4,068 
183 
4,251 
 
22 
17 
39 
4,290 
US
3,563 
1,076 
4,639 
 
- 
8 
8 
4,647 
RoW (2)
314 
- 
314 
 
30 
133 
163 
477 
 
 
 
 
 
 
 
 
 
 
33,211 
7,295 
40,506 
 
2,649 
9,423 
12,072 
52,578 
 
 
 
 
 
 
 
 
 
For the notes to these tables refer to the following page.
 
 
 
 
 


*Not within the scope of Deloitte LLP’s review report

 
 
 
Appendix 1 Capital and risk management

Key loan portfolios: Commercial real estate* (continued)

By sub-sector (1)
 
Ireland 
Western 
 
 
 
UK 
(ROI and 
Europe 
 
 
 
(excl NI (2))
 NI (2))
(other)
US 
RoW (2)
Total 
£m 
£m 
£m 
£m 
£m 
£m 
 
 
 
 
 
 
 
30 June 2014
 
 
 
 
 
 
Residential
8,899 
5,860 
149 
1,153 
211 
16,272 
Office
3,972 
727 
1,009 
57 
89 
5,854 
Retail
6,699 
918 
367 
215 
78 
8,277 
Industrial
2,892 
423 
22 
1 
14 
3,352 
Mixed/other
7,435 
3,178 
1,117 
3,523 
184 
15,437 
 
 
 
 
 
 
 
 
29,897 
11,106 
2,664 
4,949 
576 
49,192 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
Residential
8,740 
6,560 
200 
1,085 
133 
16,718 
Office
4,557 
813 
1,439 
32 
121 
6,962 
Retail
6,979 
1,501 
967 
84 
73 
9,604 
Industrial
3,078 
454 
43 
30 
13 
3,618 
Mixed/other
6,926 
3,556 
1,641 
3,416 
137 
15,676 
 
 
 
 
 
 
 
 
30,280 
12,884 
4,290 
4,647 
477 
52,578 

Notes:
(1)
Data at 30 June 2014 includes commercial real estate lending from Private Banking in CPB of £1.3 billion that was excluded from the tables showing 31 December 2013 data.
(2)
ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.

Key points
·
In line with the bank’s strategy, overall gross lending exposure to commercial real estate fell by £3.4 billion, or 6% during the first half of 2014. Most of the decrease occurred in RCR exposure originated by Ulster Bank and CIB and was due to repayments, asset sales and write-offs.
   
·
The RCR portfolio totalled £18.3 billion, representing 37% of the bank’s portfolio at 30 June 2014. Geographically, 54% of the portfolio was held in Ireland, 31% in the UK, and 14% in Western Europe.
   
·
Following disposals in the RCR portfolio which were concentrated in Ireland and western Europe (mainly in Germany), the commercial real estate portfolio was more focused on the UK market which represented 61% of the CRE portfolio (31 December 2013 - 58%). Approximately 45% of the UK portfolio was held in London and the south east of England at 30 June 2014 (31 December 2013 - 47%). The overall mix of sub-sector and investments and development remained broadly unchanged. A significant increase in new business in UK residential development during the first half of 2014 to support new housing construction was offset by repayments of maturing loans, in addition to timing issues with recently agreed loans expected to be drawn as construction progressed.


*Not within the scope of Deloitte LLP’s review report
 
 
 

Appendix 1 Capital and risk management

Key loan portfolios: Commercial real estate* (continued)
 
RCR
 
Rest of the Bank
 
Bank
Loan-to-value ratio
 
Non-
 
 
 
Non-
 
 
 
Non-
 
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
£m
 £m
£m
£m
 £m
£m
£m
 £m
£m
 
 
 
 
 
 
 
 
 
 
 
 
30 June 2014
 
 
 
 
 
 
 
 
 
 
 
<= 50%
435 
67 
502 
 
8,675 
179 
8,854 
 
9,110 
246 
9,356 
> 50% and <= 70%
861 
302 
1,163 
 
9,657 
335 
9,992 
 
10,518 
637 
11,155 
> 70% and <= 90%
836 
673 
1,509 
 
2,297 
420 
2,717 
 
3,133 
1,093 
4,226 
> 90% and <= 100%
137 
214 
351 
 
490 
165 
655 
 
627 
379 
1,006 
> 100% and <= 110%
88 
761 
849 
 
248 
127 
375 
 
336 
888 
1,224 
> 110% and <= 130%
142 
842 
984 
 
327 
215 
542 
 
469 
1,057 
1,526 
> 130% and <= 150%
20 
875 
895 
 
166 
215 
381 
 
186 
1,090 
1,276 
> 150%
88 
6,685 
6,773 
 
244 
565 
809 
 
332 
7,250 
7,582 
 
 
 
 
 
 
 
 
 
 
 
 
Total with LTVs
2,607 
10,419 
13,026 
 
22,104 
2,221 
24,325 
 
24,711 
12,640 
37,351 
Minimal security (1)
7 
3,394 
3,401 
 
9 
31 
40 
 
16 
3,425 
3,441 
Other (2)
233 
1,604 
1,837 
 
5,928 
635 
6,563 
 
6,161 
2,239 
8,400 
 
 
 
 
 
 
 
 
 
 
 
 
Total
2,847 
15,417 
18,264 
 
28,041 
2,887 
30,928 
 
30,888 
18,304 
49,192 
 
 
 
 
 
 
 
 
 
 
 
 
Total portfolio
 
 
 
 
 
 
 
 
 
 
 
  average LTV (3)
77%
300%
255%
 
58%
141%
65%
 
60%
273%
132%

 
Non-Core
 
Rest of the Bank
 
Bank
 
 
Non- 
 
 
 
Non- 
 
 
 
Non- 
 
 
Performing 
performing 
Total 
 
Performing 
performing 
Total 
 
Performing 
performing 
Total 
31 December 2013
£m
£m
£m
 
£m
£m
£m
 
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
 
 
<= 50%
419 
142 
561 
 
7,589 
143 
7,732 
 
8,008 
285 
8,293 
> 50% and <= 70%
867 
299 
1,166 
 
9,366 
338 
9,704 
 
10,233 
637 
10,870 
> 70% and <= 90%
1,349 
956 
2,305 
 
2,632 
405 
3,037 
 
3,981 
1,361 
5,342 
> 90% and <= 100%
155 
227 
382 
 
796 
295 
1,091 
 
951 
522 
1,473 
> 100% and <= 110%
168 
512 
680 
 
643 
327 
970 
 
811 
839 
1,650 
> 110% and <= 130%
127 
1,195 
1,322 
 
444 
505 
949 
 
571 
1,700 
2,271 
> 130% and <= 150%
13 
703 
716 
 
356 
896 
1,252 
 
369 
1,599 
1,968 
> 150%
69 
7,503 
7,572 
 
400 
1,864 
2,264 
 
469 
9,367 
9,836 
 
 
 
 
 
 
 
 
 
 
 
 
Total with LTVs
3,167 
11,537 
14,704 
 
22,226 
4,773 
26,999 
 
25,393 
16,310 
41,703 
Minimal security (1)
51 
3,069 
3,120 
 
9 
88 
97 
 
60 
3,157 
3,217 
Other (2)
108 
1,396 
1,504 
 
5,266 
888 
6,154 
 
5,374 
2,284 
7,658 
 
 
 
 
 
 
 
 
 
 
 
 
Total
3,326 
16,002 
19,328 
 
27,501 
5,749 
33,250 
 
30,827 
21,751 
52,578 
 
 
 
 
 
 
 
 
 
 
 
 
Total portfolio
 
 
 
 
 
 
 
 
 
 
 
  average LTV (3)
75%
292%
245%
 
64%
187%
85%
 
65%
261%
142%

Notes:
(1)
Total portfolio average LTV is quoted net of loans with minimal security given that the anticipated recovery rate is less than 10%. Provisions are marked against these loans where required to reflect the relevant asset quality and recovery profile.
(2)
Other non-performing loans of £2.2 billion (31 December 2013 - £2.3 billion) were subject to standard provisioning policies. Other performing loans of £6.2 billion (31 December 2013 - £5.4 billion) included general corporate loans, typically unsecured, to commercial real estate companies, and major UK house builders in addition to facilities supported by guarantees. The credit quality of these exposures was consistent with that of the performing portfolio overall.
(3)
Weighted average by exposure.

*Not within the scope of Deloitte LLP’s review report


 
 
 

 
Appendix 1 Capital and risk management

Key loan portfolios: Commercial real estate* (continued)

Key points
·
The average LTV for the performing book improved from 65% to 60% during the last six months. The performing book in the UK had a slightly better LTV at 56%. The reductions in the higher LTV buckets occurred mainly in the RCR book originated by Ulster Bank and CIB, reflecting reductions through repayments, asset sales and write-offs. The reductions were also reflected in the greater than 150% LTV bucket, occurring mainly in Ireland and Western Europe. RCR-Ulster Bank accounted for the growth in minimal security which was at the final stage of a reduction strategy - these are fully provided for.
   
·
Interest payable on outstanding performing investment property secured loans was covered 1.4x and 2.9x within RCR and RBS excluding RCR, respectively.
   
·
The proportion of the portfolio managed within the bank’s standard credit processes increased from 47% at 31 December 2013 to 54% at 30 June 2014, while the proportion of the portfolio in AQ10 decreased from 22% to 18% during the period.

 

*Not within the scope of Deloitte LLP’s review report



 




Appendix 1 Capital and risk management

Key loan portfolios

Residential mortgages
Total gross mortgage lending of £148.2 billion (31 December 2013 - £148.5 billion) comprised 36% of gross lending of £408.9 billion (31 December 2013 - £417.8 billion). The table below shows LTVs for the bank’s major residential mortgage portfolio totalling £147.7 billion (31 December 2013 - £146.7 billion) split between performing (AQ1-AQ9) and non-performing (AQ10), with the average LTV calculated on a weighted value basis. Loan balances are shown at the end of the period whereas property values are calculated using property index movements since the last formal valuation.

 
UK PBB
 
Ulster Bank
 
Private Banking
 
CFG
Loan-to-value ratio by value
 
Non-
 
 
 
Non-
 
 
 
Non-
 
 
 
Non-
 
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
£m
 £m
£m
£m
 £m
£m
£m
 £m
£m
£m
 £m
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30 June 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
<= 50%
28,641 
321 
28,962 
 
2,078 
163 
2,241 
 
3,486 
8 
3,494 
 
4,532 
91 
4,623 
> 50% and <= 70%
36,288 
661 
36,949 
 
1,885 
175 
2,060 
 
3,546 
15 
3,561 
 
5,489 
81 
5,570 
> 70% and <= 90%
27,961 
814 
28,775 
 
2,416 
257 
2,673 
 
1,344 
39 
1,383 
 
5,559 
103 
5,662 
> 90% and <= 100%
4,352 
269 
4,621 
 
1,248 
142 
1,390 
 
86 
9 
95 
 
1,212 
36 
1,248 
> 100% and <= 110%
1,344 
149 
1,493 
 
1,313 
174 
1,487 
 
70 
10 
80 
 
680 
23 
703 
> 110% and <= 130%
399 
72 
471 
 
2,397 
428 
2,825 
 
24 
6 
30 
 
530 
14 
544 
> 130% and <= 150%
29 
5 
34 
 
2,139 
525 
2,664 
 
12 
4 
16 
 
127 
3 
130 
> 150%
- 
- 
- 
 
1,777 
1,020 
2,797 
 
39 
7 
46 
 
60 
3 
63 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total with LTVs
99,014 
2,291 
101,305 
 
15,253 
2,884 
18,137 
 
8,607 
98 
8,705 
 
18,189 
354 
18,543 
Other (2)
506 
27 
533 
 
- 
- 
- 
 
46 
1 
47 
 
382 
3 
385 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
99,520 
2,318 
101,838 
 
15,253 
2,884 
18,137 
 
8,653 
99 
8,752 
 
18,571 
357 
18,928 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total portfolio average LTV (3)
61%
73%
61%
 
99%
128%
104%
 
52%
80%
53%
 
66%
69%
66%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average LTV on new originations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  during the half year (3)
 
 
71%
 
 
 
70%
 
 
 
59%
 
 
 
68%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
 
 
 
 
 
 


Appendix 1 Capital and risk management

Key loan portfolios: Residential mortgages (continued)

 
UK PBB
 
Ulster Bank
 
Private Banking
 
CFG
Loan-to-value ratio by value
 
Non-
 
 
 
Non-
 
 
 
Non-
 
 
 
Non-
 
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
Performing
performing
Total
£m
 £m
£m
£m
 £m
£m
£m
 £m
£m
£m
 £m
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
<= 50%
26,392 
313 
26,705 
 
2,025 
170 
2,195 
 
3,400 
16 
3,416 
 
4,669 
98 
4,767 
> 50% and <= 70%
34,699 
591 
35,290 
 
1,837 
195 
2,032 
 
3,397 
20 
3,417 
 
5,529 
89 
5,618 
> 70% and <= 90%
28,920 
854 
29,774 
 
2,326 
288 
2,614 
 
1,337 
44 
1,381 
 
5,553 
110 
5,663 
> 90% and <= 100%
4,057 
315 
4,372 
 
1,214 
162 
1,376 
 
87 
7 
94 
 
1,309 
39 
1,348 
> 100% and <= 110%
1,790 
182 
1,972 
 
1,302 
182 
1,484 
 
87 
15 
102 
 
752 
22 
774 
> 110% and <= 130%
552 
100 
652 
 
2,509 
461 
2,970 
 
27 
6 
33 
 
637 
17 
654 
> 130% and <= 150%
37 
5 
42 
 
2,202 
549 
2,751 
 
4 
4 
8 
 
183 
5 
188 
> 150%
- 
- 
- 
 
2,385 
1,227 
3,612 
 
24 
6 
30 
 
102 
4 
106 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total with LTVs
96,447 
2,360 
98,807 
 
15,800 
3,234 
19,034 
 
8,363 
118 
8,481 
 
18,734 
384 
19,118 
Other (2)
511 
20 
531 
 
- 
- 
- 
 
215 
5 
220 
 
463 
3 
466 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
96,958 
2,380 
99,338 
 
15,800 
3,234 
19,034 
 
8,578 
123 
8,701 
 
19,197 
387 
19,584 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total portfolio average LTV (3)
62%
75%
62%
 
103%
130%
108%
 
51%
77%
51%
 
67%
69%
67%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average LTV on new originations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  during the year (3)
 
 
67%
 
 
 
73%
 
 
 
52%
 
 
 
68%

Notes:
(1)
Includes residential mortgages and home equity loans and lines (refer to page 46 for a breakdown of balances).
(2)
Where no indexed LTV is held.
(3)
Average LTV weighted by value is calculated using the LTV on each individual mortgage and applying a weighting based on the value of each mortgage.


Appendix 1 Capital and risk management

Key loan portfolios: Residential mortgages* (continued)

Key points

UK PBB
·
The UK PBB mortgage portfolio was £101.8 billion at 30 June 2014. This showed an increase of 2.5% from 31 December 2013. The portfolio included £10.0 billion (31 December 2013 - £9.1 billion) of residential buy-to-let lending.
   
·
At 30 June 2014, approximately 51% of the portfolio consisted of fixed rate mortgages. Mortgages featuring a combination of fixed and variable rates made up 4% of the portfolio. The remainder were variable rate mortgages (including those on managed rates). The interest only proportion of the total portfolio was 24%. A further 7% of mortgages were on a combination of interest only plus capital and interest repayments.
   
·
Based on the Halifax Price Index at March 2014, the portfolio average indexed LTV by volume was 53.4% (31 December 2013 - 54.1%) and 61.0% by weighted value of debt outstanding (31 December 2013 - 62.0%). The ratio of total outstanding balances to total indexed property valuations was 44.5% (31 December 2013 - 45.1%).
   
·
Gross new mortgage lending amounted to £9.8 billion in H1 2014 and included £873 million of lending with an LTV of greater than 90% under the government-guaranteed Help To Buy scheme. The new mortgage business average LTV by volume was 68.2% compared to 62.7% at 31 December 2013, including the effect of the Help-to-Buy scheme. The average LTV calculated by weighted value was 70.8% (31 December 2013 - 66.6%).
   
·
All new mortgage business was subject to a comprehensive assessment. This included: i) an affordability test which featured a stressed interest rate that is higher than the customer pay rate; ii) loan to income ratio caps; iii) credit scoring; iv) a maximum loan-to-value of 90% with the exception of the government-backed Help-To-Buy mortgages (from the fourth quarter of 2013), New Buy and My New Home products where lending of up to 95% is provided; and v) a range of policy rules that restricted the availability of credit to borrowers with higher risk characteristics, for example those exhibiting a high level of indebtedness or adverse payment behaviour on previous borrowings.
   
·
The arrears rate (defined as more than three payments in arrears, excluding repossessions and shortfalls post property sale), fell to 1.1% (31 December 2013 - 1.3%). The number of properties repossessed in H1 2014 was 657 compared with 796 in H2 2013. Arrears rates remained sensitive to economic developments and the interest rate environment.
   
·
The impairment charge for mortgage loans was £5 million in H1 2014 compared with £26 million in H1 2013 and £5 million in H2 2013. The decline reflected stable default rates and one-off reductions in loss rates as valuations improved on properties held as security on defaulted debt.

Ulster Bank
·
Ulster Bank’s residential mortgage portfolio was £18.1 billion at 30 June 2014, with 88% held in the Republic of Ireland and 12% in Northern Ireland. At constant exchange rates, the portfolio decreased 1.4 % from 31 December 2013 (£19.0 billion) as a result of amortisations exceeding the value of new business in the period. The portfolio included £2.1 billion (12%) of residential buy-to-let loans.
   
·
Approximately 66% of the portfolio consisted of tracker rate loans, 23% variable rate loans and 11% fixed rate loans. Interest only represented the remaining 8% of the portfolio.
   


*Not within the scope of Deloitte LLP’s review report
 
 
 

Appendix 1 Capital and risk management

Key loan portfolios: Residential mortgages* (continued)

Key points (continued)
 
Ulster Bank (continued)
·
The portfolio average indexed LTV fell 4% during H1 2014 to 104% (31 December 2013 - 108%) reflecting positive house price index trends over the previous 12 months.
   
·
The average individual LTV on new originations was 70% in 2014 (31 December 2013 - 73%).
   
·
The arrears rate (defined as more than three payments in arrears, excluding repossessions and shortfalls after property sale), fell to 15.9% (31 December 2013 - 17.0%). The number of properties repossessed in H1 2014 was 169 compared with 262 for the full year of 2013. Arrears rates remained sensitive to economic developments.
   
·
The impairment charge for mortgage loans for H1 was £36 million for H1 2014, compared with £91 million at H1 2013.

CFG
·
CFG’s real estate portfolio consisted of £6.4 billion (31 December 2013 - £5.9 billion) of residential mortgages (1% in second lien position) and £12.5 billion (31 December 2013 - £13.5 billion) of home equity loans and lines (first and second liens). Home equity loans and lines included 44% in first lien position. CFG continued to focus on its ‘footprint states’ of New England, Mid Atlantic and Mid West regions. At 30 June 2014, 82% of the portfolio was within footprint (31 December 2013 - 84%).
   
·
The serviced-by-others (SBO) book decreased from £1.4 billion at 31 December 2013 to £1.3 billion at 30 June 2014. The arrears rate of the SBO portfolio remained stable at 1.5% during the period. The reduction in the charge-off rate from 4.4% annualised during the fourth quarter of 2013 to 2.3% during the second quarter of 2014 was driven by better than expected recoveries.
   
·
The weighted average LTV of the portfolio was broadly stable during the period. The weighted average LTV of the portfolio, excluding the SBO portfolio, was 59% (31 December 2013 - 64%).



*Not within the scope of Deloitte LLP’s review report






Appendix 1 Capital and risk management

Key loan portfolios (continued)
 
Interest only retail loans*
The bank’s interest only retail loan portfolios include interest only mortgage lending in PBB, CPB and CFG portfolios of home equity lines of credit (HELOC) and interest only mortgage portfolios.

 
30 June 2014
 
31 December 2013
 
Mortgages 
Other loans 
 
Mortgages 
Other loans 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
Variable rate
32.2 
1.9 
 
34.8 
1.3 
Fixed rate
9.3 
0.1 
 
8.0 
0.1 
 
 
 
 
 
 
Interest only loans
41.5 
2.0 
 
42.8 
1.4 
Mixed repayment (1)
8.5 
- 
 
8.3 
- 
 
 
 
 
 
 
Total
50.0 
2.0 
 
51.1 
1.4 

Note:
(1)
Mortgages with partial interest only and partial capital repayments.

Key points
·
The bank continued to reduce its exposure to interest only mortgages in H1. UK PBB ceased offering interest only mortgages to residential owner occupied customers with effect from 1 December 2012. Interest only repayment terms remain an option for buy-to-let mortgages.
   
·
Ulster Bank withdrew interest only as a standard mortgage offering for new lending in the Republic of Ireland in 2010 and in Northern Ireland in 2012. Interest only mortgages are now granted on a very limited basis to high net worth customers or those granted forbearance.
   
·
CFG offers its customers interest only mortgages and conventional HELOC which enter an amortising repayment period after the interest only period.
   
·
CPB offers interest only mortgages to its high net worth customers.

Based on its historical analyses of customers’ behaviour, the bank recognises impairment provisions in respect of loans in its interest only portfolios (PBB - two years; CFG - one year) that are approaching their contractual maturity. These impairment provisions are reassessed as new trends and data become available.


*Not within the scope of Deloitte LLP’s review report
 

Appendix 1 Capital and risk management

Key loan portfolios: Interest only retail loans* (continued)
The tables below analyse the bank’s interest only mortgage and HELOC portfolios (excluding mixed repayment mortgages) by originating business, by type, and by contractual year of maturity.

 
Bullet 
 
Total 
Proportion of
principal 
Conversion 
 mortgage 
 repayment 
 to amortising 
 lending 
30 June 2014
£bn 
£bn 
£bn 
% 
 
 
 
 
 
UK PBB
24.6 
- 
24.6 
24.2 
Ulster Bank
0.7 
0.9 
1.6 
8.8 
Private Banking
6.0 
- 
6.0 
68.6 
CFG
0.2 
9.1 
9.3 
49.1 
 
 
 
 
 
Total
31.5 
10.0 
41.5 
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
UK PBB
25.4 
- 
25.4 
25.6 
Ulster Bank
0.7 
1.4 
2.1 
11.0 
Private Banking
6.0 
- 
6.0 
69.0 
CFG
0.4 
8.9 
9.3 
47.5 
 
 
 
 
 
Total
32.5 
10.3 
42.8 
 

 
 2014 (1)
2015-16 
2017-21 
2022-26 
2027-31 
2032-41 
After 
Total 
2041
30 June 2014
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
 
 
 
Bullet principal repayment (2)
1.0 
2.7 
6.7 
5.7 
7.6 
7.4 
0.4 
31.5 
Conversion to amortising (2,3)
0.5 
2.3 
5.0 
2.2 
- 
- 
- 
10.0 
 
 
 
 
 
 
 
 
 
Total
1.5 
5.0 
11.7 
7.9 
7.6 
7.4 
0.4 
41.5 
 
 
 
 
 
 
 
 
 
 
 2014 (1)
2015-16 
2017-21 
2022-26 
2027-31 
2032-41 
After 
Total 
 
 2041 
31 December 2013
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
 
 
 
 
Bullet principal repayment (2)
0.9 
2.1 
6.0 
7.6 
7.9 
7.5 
0.5 
32.5 
Conversion to amortising (2,3)
1.9 
6.0 
2.2 
0.1 
- 
0.1 
- 
10.3 
 
 
 
 
 
 
 
 
 
Total
2.8 
8.1 
8.2 
7.7 
7.9 
7.6 
0.5 
42.8 

Notes:
(1)
2014 includes pre-2014 maturity exposure.
(2)
Includes £2.2 billion (31 December 2013 - £2.3 billion) of repayment mortgages that have been granted interest only concessions (forbearance).
(3)
Maturity date relates to the expiry of the interest only period.



*Not within the scope of Deloitte LLP’s review report


 
 

 

Appendix 1 Capital and risk management

Key loan portfolios: Interest only retail loans* (continued)
 
UK PBB
·
UK PBB’s interest only mortgages require full principal repayment (a ‘bullet’ payment) at the time of maturity. Typically such loans have remaining terms of between 14 and 19 years. Customers are reminded of the need to have an adequate repayment vehicle in place during the mortgage term.
   
·
Of the bullet loans that matured in the six months to 31 December 2013, 63% had been fully repaid by 30 June 2014. The unpaid balance totalled £48 million, of which 96% of loans continued to meet agreed payment arrangements (including balances with a term extension agreed on either a capital and interest or interest only basis). Of the £48 million unpaid balance, 66% of the loans had an indexed LTV of 70% or less with 10% above 90%. Customers may be offered an extension to the term of an interest only mortgage or a conversion of such a mortgage to a capital and interest mortgage, subject to affordability and characteristics such as their income and ultimate repayment vehicle. The majority of term extensions in UK PBB are classified as forbearance and subject to the associated higher provision cover.

Ulster Bank
·
Ulster Bank’s interest only mortgages require full principal repayment (a ‘bullet’ payment) at the time of maturity; or payment of both capital and interest from the end of the interest only period - typically seven years - so that customers meet their contractual repayment obligations. Contact strategies are in place for appropriate customers to remind them of the need to repay the principal at the end of the mortgage term.
   
·
Of the bullet mortgages that matured in the six months to 31 December 2013 (£2.3 million), 36% had fully repaid by 30 June 2014 leaving residual balances of £1.5 million, 80% of which were meeting the terms of a revised repayment schedule. Of the amortising loans that matured in the six months to 31 December 2013 (£109 million), 64% were either fully repaid or meeting the terms of a revised repayment schedule.

CFG
·
CFG had a closed book of interest only HELOC loans at 30 June 2014 of £0.3 billion at 30 June 2014, for which repayment of principal is due at maturity. It also had an interest only portfolio comprising loans that convert to amortising after an interest only period that is typically 10 years (£10.0 billion at 30 June 2014 of which £9.1 billion were HELOCs). The majority of the bullet loans are due to mature between 2014 and 2015.
   
·
Of the bullet loans that matured in the six months to 31 December 2013, 74% had fully been refinanced or repaid by 30 June 2014 with residual balances of £22 million. 65% (of £22 million) of which were up-to-date with their payments. For those loans that convert to amortising, the typical uplift in payments was 169% (average uplift calculated at £139 per month).

*Not within the scope of Deloitte LLP’s review report







Appendix 1 Capital and risk management

Key loan portfolios: Interest only retail loans* (continued)
The tables below analyse the bank’s retail mortgage and HELOC portfolios split between interest only mortgages (excluding mixed repayment mortgages) and other mortgage loans.
 
 
 
 
 
 
Interest only
 
 
30 June 2014
Bullet principal
Conversion
 
 
repayment
to amortising
Other
Total
£bn 
£bn 
£bn 
£bn 
 
 
 
 
 
Arrears status
 
 
 
 
Current
30.4 
9.4 
99.5 
139.3 
1 to 90 days in arrears
0.6 
0.4 
2.9 
3.9 
90+ days in arrears
0.5 
0.2 
3.8 
4.5 
 
 
 
 
 
Total
31.5 
10.0 
106.2 
147.7 

31 December 2013
 
 
 
 
 
 
 
 
 
Arrears status
 
 
 
 
Current
31.2 
9.6 
97.0 
137.8 
1 to 90 days in arrears
0.7 
0.4 
2.8 
3.9 
90+ days in arrears
0.6 
0.3 
4.1 
5.0 
 
 
 
 
 
Total
32.5 
10.3 
103.9 
146.7 

30 June 2014
Interest 
 
 
 only 
Other 
Total
£bn 
£bn 
£bn 
 
 
 
 
Current LTV
 
 
 
<= 50%
12.1 
27.2 
39.3 
> 50% and <= 70%
14.7 
33.4 
48.1 
> 70% and <= 90%
9.5 
29.0 
38.5 
> 90% and <= 100%
2.3 
5.1 
7.4 
> 100% and <= 110%
1.3 
2.5 
3.8 
> 110% and <= 130%
0.8 
3.1 
3.9 
> 130% and <= 150%
0.4 
2.4 
2.8 
> 150%
0.4 
2.5 
2.9 
 
 
 
 
Total with LTVs
41.5 
105.2 
146.7 
Other
- 
1.0 
1.0 
 
 
 
 
Total
41.5 
106.2 
147.7 

31 December 2013
 
 
 
 
 
 
 
Current LTV
 
 
 
<= 50%
10.8 
26.3 
37.1 
> 50% and <= 70%
14.6 
31.8 
46.4 
> 70% and <= 90%
10.8 
28.6 
39.4 
> 90% and <= 100%
2.6 
4.6 
7.2 
> 100% and <= 110%
1.5 
2.8 
4.3 
> 110% and <= 130%
0.9 
3.4 
4.3 
> 130% and <= 150%
0.5 
2.5 
3.0 
> 150%
0.7 
3.1 
3.8 
 
 
 
 
Total with LTVs
42.4 
103.1 
145.5 
Other
0.4 
0.8 
1.2 
 
 
 
 
Total
42.8 
103.9 
146.7 
 
 
 
 
 
 
 
 
*Not within the scope of Deloitte LLP’s review report
 
 
 
 
 

 
Appendix 1 Capital and risk management

Credit risk assets*
RBS uses a range of measures for credit risk exposures. The internal measure used is credit risk assets. The balance sheet related credit risk analyses on pages 23 to 50 supplement this material. Credit risk assets (CRA) consist of lending, counterparty exposure and contingent obligations. Refer to page 230 of the 2013 Annual Report and Accounts for a full description.
 
 
 
 
30 June
31 December
 
2014 
2013 
Analysis by business unit
£m
£m
 
 
 
UK PBB
129,027 
127,586 
Ulster Bank
29,647 
33,129 
 
 
 
PBB
158,674 
160,715 
 
 
 
Commercial Banking
79,483 
81,142 
Private Banking
19,297 
19,819 
 
 
 
CPB
98,780 
100,961 
 
 
 
CIB
141,984 
147,784 
Central items
56,297 
66,745 
CFG
56,756 
53,411 
RCR
39,150 
n/a
Non-Core
n/a
43,340 
 
 
 
 
551,641 
572,956 

Key points
●
There was an overall reduction of 4% in CRA. This was driven by falls in exposure to sovereigns (£11.6 billion), property (£5.2 billion) and other FIs (£4 billion).
   
●
CIB CRAs fell 4%, driven by a reduction in exposure to the sovereigns and other FI sectors.
   
●
UK PBB CRA increased by £1.4 billion reflecting a £2.5 billion increase in mortgages offset by decreasing unsecured lending.
   
●
CFG CRAs increased by 6%. This was driven by the transfer of personal exposure previously managed by the Non-Core division and an increase in exposure to the sovereign sector.
   
●
The RCR portfolio included £21.4 billion of property-related CRAs, £4.3 billion in the transport sector, £2.6 billion to retail & leisure and £2.7 billion to other FIs. Geographically, 43% of the portfolio was located  in Western Europe (excluding the UK), 40% in the UK, 10% in Central and Eastern Europe and the Middle East and Africa, and 7% in the rest of the world. Refer to the RCR section for further information.


*Not within the scope of Deloitte LLP’s review report
 
 
 

 
Appendix 1 Capital and risk management

Credit risk assets* (continued)
 
Sector and geographical regional analyses
 
 
 
 
 
 
 
 
 
 
 
 
Western
 
 
 
 
 
RBS
 
 
 
 Europe
North
Asia
Latin
 
 
excl.
 
 
UK
(excl. UK)
America
Pacific
America
Other (1)
Total
RCR
RCR
30 June 2014
£m
£m
£m
£m
£m
£m
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
Personal
128,592 
17,619 
28,265 
1,553 
67 
797 
176,893 
176,647 
246 
Banks
2,523 
26,415 
4,220 
8,310 
1,220 
1,956 
44,644 
42,699 
1,945 
Other financial institutions
21,626 
8,954 
8,358 
2,383 
1,359 
958 
43,638 
40,977 
2,661 
Sovereign (2)
39,640 
7,371 
23,922 
2,859 
24 
674 
74,490 
73,872 
618 
Property
47,502 
15,491 
6,543 
1,118 
221 
479 
71,354 
49,915 
21,439 
Natural resources
7,536 
4,558 
5,927 
3,647 
406 
2,258 
24,332 
21,974 
2,358 
Manufacturing
9,213 
4,716 
6,348 
2,580 
95 
1,176 
24,128 
23,396 
732 
Transport (3)
10,211 
3,989 
3,860 
1,597 
97 
8,619 
28,373 
24,030 
4,343 
Retail and leisure
16,904 
3,484 
5,036 
896 
52 
514 
26,886 
24,265 
2,621 
Telecommunications, media
 
 
 
 
 
 
 
 
 
  and technology
2,833 
2,470 
3,258 
1,338 
9 
420 
10,328 
9,760 
568 
Business services
16,245 
2,539 
5,545 
728 
1,230 
288 
26,575 
24,956 
1,619 
 
 
 
 
 
 
 
 
 
 
 
302,825 
97,606 
101,282 
27,009 
4,780 
18,139 
551,641 
512,491 
39,150 
 
 
Western
 
 
 
 
 
 
 
 
 
 Europe
North
Asia
Latin
 
 
RBS excl.
Non-
 
UK
(excl. UK)
America
Pacific
America
Other (1)
Total
Non-Core
Core
31 December 2013
£m
£m
£m
£m
£m
£m
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
Personal
127,620 
18,751 
28,616 
1,418 
61 
656 
177,122 
174,798 
2,324 
Banks
2,506 
25,085 
3,133 
9,670 
1,192 
1,771 
43,357 
43,010 
347 
Other financial institutions
23,080 
10,363 
9,164 
2,633 
1,320 
1,100 
47,660 
43,849 
3,811 
Sovereign (2)
55,041 
8,685 
18,203 
3,394 
37 
687 
86,047 
84,726 
1,321 
Property
49,639 
18,673 
6,206 
929 
286 
795 
76,528 
53,569 
22,959 
Natural resources
6,698 
4,587 
6,189 
3,669 
214 
2,087 
23,444 
21,412 
2,032 
Manufacturing
8,843 
4,962 
6,208 
2,278 
120 
1,397 
23,808 
23,276 
532 
Transport (3)
10,332 
3,936 
3,959 
1,800 
163 
9,435 
29,625 
24,086 
5,539 
Retail and leisure
16,338 
3,924 
4,977 
738 
91 
517 
26,585 
24,562 
2,023 
Telecommunications, media
 
 
 
 
 
 
 
 
 
  and technology
3,356 
2,591 
3,401 
1,403 
29 
491 
11,271 
9,810 
1,461 
Business services
16,527 
2,733 
6,053 
757 
1,233 
206 
27,509 
26,518 
991 
 
 
 
 
 
 
 
 
 
 
 
319,980 
104,290 
96,109 
28,689 
4,746 
19,142 
572,956 
529,616 
43,340 

Notes:
(1)
Comprises Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.
(2)
Includes central bank exposures.
(3)
Excludes net investment in operating leases in shipping and aviation portfolios as they are accounted for as property, plant and equipment. However, operating leases are included in the monitoring and management of these portfolios.

*Not within the scope of Deloitte LLP’s review report

 
 
 

 
Appendix 1 Capital and risk management
 
Credit risk assets*: Sector and geographical regional analyses (continued)

Key points
●
Market conditions and the development of the bank’s strategy had a significant impact on the composition of its portfolios during H1 2014, there was:
 
○
An £11.6 billion  decrease in exposures to sovereign counterparties, driven by a decrease in RBS’s deposits with central banks;
 
○
A £5.2 billion fall in exposures to the property sector; and
 
○
A £4.0 billion decline in exposures to other financial institutions.
●
The sovereign portfolio comprised exposures to central governments, central banks and sub-sovereigns such as local authorities, primarily in the bank’s key markets in the UK, Western Europe and the US. Exposure predominantly comprised cash balances placed with central banks such as the Bank of England, the Federal Reserve and the European Central Bank. Consequently, the asset quality of this portfolio remained high with 92% assigned an internal rating in the AQ1 asset quality band. Exposure to sovereigns fluctuates according to the bank’s liquidity requirements and cash positions, which determine the level of cash placed with central banks.
   
●
Exposure to the property sector totalled £71.4 billion at 30 June 2014, the majority of which related to commercial real estate. The remainder comprised lending to housing associations (12%), construction companies (10%), and building material groups (3%), which remained stable during the period. See the commercial real estate section for further details.
   
●
The banking sector was one of the largest in the RBS portfolio with exposure totalling £44.6 billion. Exposures were well diversified geographically, largely collateralised, and tightly controlled through the combination of a single name concentration framework and a suite of credit policies specifically tailored to ensure compliance with sector and country limits. The increase in exposure during H1 2014 was primarily due to increased activity with counterparties located in Western Europe. This was offset by falls in exposure to counterparties in the Asia & Pacific region.
●
Exposure to other financial institutions was made up of exposures to a range of financial companies, the largest of which were funds (24%) securitisation vehicles (22%) and financial intermediaries (13%) including broker dealers and central counterparties (CCPs). The fall in exposure took place across a number of areas, and was caused by idiosyncratic factors and market developments.
   
●
Exposure to the transport sector included asset-backed exposure to ocean-going vessels. A £1.3 billion fall in exposure was achieved during the period due to disposals, run-off and foreign exchange movements. Defaulted assets (AQ10) in the shipping sector represented 9% of the total exposure to this sector (31 December 2013 - 9%).



Appendix 1 Capital and risk management

Credit risk assets* (continued)
 
Asset quality
 
 
 
 
 
 
 
 
 
 
 
 
 
30 June 2014
 
31 December 2013
 
 
RBS excl.
 
 
 
 
RBS excl.
 
 
 
 
Probability of
RCR
RCR
Total
Total
 
Non-Core
Non-Core
Total
Total
AQ band
default range
£m
£m
£m
%
 
£m
£m
£m
%
 
 
 
 
 
 
 
 
 
 
 
AQ1
0% - 0.034%
117,853 
2,542 
120,395 
21.8 
 
129,197 
3,319 
132,516 
23.1 
AQ2
0.034% - 0.048%
22,913 
766 
23,679 
4.3 
 
22,942 
1,485 
24,427 
4.3 
AQ3
0.048% - 0.095%
40,632 
568 
41,200 
7.5 
 
41,325 
700 
42,025 
7.3 
AQ4
0.095% - 0.381%
127,618 
1,751 
129,369 
23.5 
 
114,258 
5,737 
119,995 
20.9 
AQ5
0.381% - 1.076%
79,575 
1,837 
81,412 
14.8 
 
77,676 
2,585 
80,261 
14.0 
AQ6
1.076% - 2.153%
35,610 
2,514 
38,124 
6.9 
 
44,476 
3,138 
47,614 
8.3 
AQ7
2.153% - 6.089%
28,608 
3,164 
31,772 
5.8 
 
31,504 
2,060 
33,564 
5.9 
AQ8
6.089% - 17.222%
7,983 
1,575 
9,558 
1.7 
 
9,492 
899 
10,391 
1.8 
AQ9
17.222% - 100%
4,753 
987 
5,740 
1.0 
 
6,741 
771 
7,512 
1.3 
AQ10
100%
14,396 
22,891 
37,287 
6.8 
 
21,814 
20,743 
42,557 
7.4 
Other (1)
 
32,550 
555 
33,105 
6.0 
 
30,191 
1,903 
32,094 
5.6 
 
 
 
 
 
 
 
 
 
 
 
 
 
512,491 
39,150 
551,641 
100 
 
529,616 
43,340 
572,956 
100 

Note:
(1)
Largely comprises assets covered by the standardised approach, for which a probability of default equivalent to those assigned to assets covered by the internal ratings based approach is not available.

 
 
 
 
 
 
 
 
 
 
RCR
 
RBS excl. RCR
 
Total
 
 
% of
 
 
% of
 
 
% of
 
 
sector
 
 
sector
 
 
sector
 
 
 credit risk
 
 
 credit risk
 
 
 credit risk
 
AQ10
 assets
 
AQ10
 assets
 
AQ10
 assets
AQ10 credit risk assets by sector
£m
%
 
£m
%
 
£m
%
 
 
 
 
 
 
 
 
 
30 June 2014
 
 
 
 
 
 
 
 
Property
17,459 
81.4 
 
3,268 
6.5 
 
20,727 
29.0 
Personal
223 
90.6 
 
8,140 
4.6 
 
8,363 
4.7 
Retail & Leisure
1,658 
63.3 
 
1,086 
4.5 
 
2,744 
10.2 
Transport
1,384 
31.9 
 
295 
1.2 
 
1,679 
5.9 
Business Services
857 
52.9 
 
792 
3.2 
 
1,649 
6.2 
Other
1,310 
14.7 
 
815 
0.4 
 
2,125 
1.0 
 
 
 
 
 
 
 
 
 
Total
22,891 
58.5 
 
14,396 
2.8 
 
37,287 
6.8 
 
 
 
 
 
 
 
 
 
 
Non-Core
 
RBS excl. Non-Core
 
Total
 
 
% of
 
 
% of
 
 
% of
 
 
sector
 
 
sector
 
 
sector
 
 
 credit risk
 
 
 credit risk
 
 
 credit risk
 
AQ10
 assets
 
AQ10
 assets
 
AQ10
 assets
31 December 2013
£m
%
 
£m
%
 
£m
%
 
 
 
 
 
 
 
 
 
Property
17,437 
75.9 
 
6,907 
12.9 
 
24,344 
31.8 
Personal
230 
9.9 
 
8,736 
5.0 
 
8,966 
5.1 
Retail & Leisure
1,166 
57.6 
 
1,820 
7.4 
 
2,986 
11.2 
Transport
553 
10.0 
 
1,262 
5.2 
 
1,815 
6.1 
Business Services
298 
30.1 
 
1,421 
5.4 
 
1,719 
6.2 
Other
1,059 
11.1 
 
1,668 
0.7 
 
2,727 
1.2 
 
 
 
 
 
 
 
 
 
Total
20,743 
47.9 
 
21,814 
4.1 
 
42,557 
7.4 

*Not within the scope of Deloitte LLP’s review report
 
 

 
Appendix 1 Capital and risk management

Credit risk assets*: Asset quality (continued)

Key points
●
Changes in asset quality of credit risk exposures in H1 2014 reflected the changes in composition of the portfolio, market conditions and the run-off of RCR assets.
   
●
The decrease in the AQ1 band reflected the decrease in exposure to sovereigns. The increase in the AQ4 band was caused by the recalibration of models for UK personal mortgages to reflect continued improvements in observed default rates.
   
●
The proportion of exposure in the AQ10 band fell to 6.8% of the total portfolio. This was driven by RCR’s accelerated disposal strategy and the economic climate. The proportion of exposure in AQ10 fell in all sectors that have experienced difficult market conditions in the past few years, including the shipping portfolio.

 
*Not within the scope of Deloitte LLP’s review report
 
 
 

Appendix 1 Capital and risk management

Market risk
Market risk is the risk of losses arising from fluctuations in interest rates, credit spreads, foreign currency rates, equity prices, commodity prices and other factors, such as market volatilities, that may lead to a reduction in earnings, economic value or both. For a description of market risk framework, governance, policies and methodologies, refer to the Risk and balance sheet management - Market risk section in the 2013 Annual Report and Accounts. There were no material changes to market risk methodologies or models during H1 2014.

Trading portfolios
 
Value-at-risk
The tables below analyse the internal value-at-risk (VaR) for RBS trading portfolios segregated by type of market risk exposure, and between CIB and RCR or Non-Core.
 
Half year ended
 
Year ended
 
30 June 2014
 
30 June 2013
 
31 December 2013
 
Average 
Period end 
Maximum 
Minimum 
 
Average 
Period end 
Maximum 
Minimum 
 
Average 
Period end 
Maximum 
Minimum 
Trading VaR (1-day 99%)
£m 
£m 
£m 
£m 
 
£m 
£m 
£m 
£m 
 
£m 
£m 
£m 
£m 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
16.7 
14.9 
39.8 
10.9 
 
40.3 
30.3 
78.2 
24.6 
 
37.2 
44.1 
78.2 
19.1 
Credit spread
28.3 
24.4 
42.8 
20.9 
 
72.9 
57.9 
86.8 
55.8 
 
60.0 
37.3 
86.8 
33.3 
Currency
5.4 
3.0 
8.5 
2.0 
 
11.2 
9.3 
20.6 
4.6 
 
8.6 
6.5 
20.6 
3.6 
Equity
3.5 
2.5 
6.0 
2.1 
 
6.8 
4.8 
12.8 
4.2 
 
5.8 
4.1 
12.8 
3.2 
Commodity
0.6 
0.7 
1.4 
0.3 
 
1.3 
0.9 
3.7 
0.5 
 
0.9 
0.5 
3.7 
0.3 
Diversification (1)
 
(24.8)
 
 
 
 
(23.4)
 
 
 
 
(23.7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
30.6 
20.7 
58.2 
20.7 
 
96.4 
79.8 
118.8 
69.5 
 
79.3 
68.8 
118.8 
42.1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CIB
28.2 
21.3 
48.8 
20.5 
 
80.1 
64.1 
104.6 
57.6 
 
64.2 
52.4 
104.6 
35.6 
RCR (2)
6.0 
3.5 
16.2 
3.3 
 
n/a
n/a
n/a
n/a
 
n/a
n/a
n/a
n/a
Non-Core
n/a
n/a
n/a
n/a
 
21.1 
19.2 
24.9 
18.1 
 
19.3 
15.2 
24.9 
14.9 


Appendix 1 Capital and risk management

Market risk: Trading portfolios:Value-at-risk (continued)
 
Quarter ended
 
30 June 2014
 
31 March 2014
 
31 December 2013
 
Average 
Period end 
Maximum 
Minimum 
 
Average 
Period end 
Maximum 
Minimum 
 
Average 
Period end 
Maximum 
Minimum 
Trading VaR
£m 
£m 
£m 
£m 
 
£m 
£m 
£m 
£m 
 
£m 
£m 
£m 
£m 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate
14.3 
14.9 
17.0 
12.0 
 
19.1 
14.0 
39.8 
10.9 
 
32.3 
44.1 
44.1 
19.1 
Credit spread
25.0 
24.4 
31.8 
20.9 
 
31.4 
25.6 
42.8 
24.1 
 
40.5 
37.3 
48.4 
33.3 
Currency
4.4 
3.0 
8.3 
2.0 
 
6.4 
3.7 
8.5 
3.7 
 
5.9 
6.5 
9.6 
3.6 
Equity
3.2 
2.5 
4.9 
2.1 
 
3.8 
4.5 
6.0 
2.7 
 
4.3 
4.1 
12.6 
3.2 
Commodity
0.6 
0.7 
1.4 
0.4 
 
0.5 
0.4 
0.8 
0.3 
 
0.7 
0.5 
2.5 
0.4 
Diversification (1)
 
(24.8)
 
 
 
 
(21.1)
 
 
 
 
(23.7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
24.8 
20.7 
28.5 
20.7 
 
36.3 
27.1 
58.2 
25.8 
 
58.6 
68.8 
69.7 
42.1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CIB
23.8 
21.3 
28.7 
20.5 
 
32.4 
23.6 
48.8 
22.6 
 
44.1 
52.4 
54.4 
35.6 
RCR (2)
4.0 
3.5 
6.8 
3.3 
 
8.0 
7.5 
16.2 
3.5 
 
n/a
n/a
n/a
n/a
Non-Core
n/a
n/a
n/a
n/a
 
n/a
n/a
n/a
n/a
 
15.7 
15.2 
17.7 
14.9 

Notes:
(1)
The Group benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
(2)
The detailed RCR perimeter was not finalised at the start of the year. As average, maximum and minimum VaR are measures that require daily data, they have been prepared on a best efforts basis.

Key points
·
The period end and average total VaR were lower in H1 2014 than in H2 2013, driven by continued reductions in credit spread and interest rate VaR, notably during Q1 2014.
   
·
The reduction in credit spread VaR was primarily driven by credit valuation adjustments (CVA) and funding valuation adjustments being included in the internal VaR measure in February 2014. Previously, only associated hedges were included. This approach reflects a more comprehensive economic view of the risk. Continued risk reduction also contributed to the decline in VaR.
   
·
The reduction in interest rate VaR was driven by de-risking and repositioning in CIB, primarily in the Rates business.


Appendix 1 Capital and risk management

Market risk: Trading portfolios (continued)
 
Capital charges*
The total market risk minimum capital requirement calculated in accordance with CRD IV, £2,669 million at 30 June 2014, represents 8% of the corresponding RWA amount, £33.4 billion. It comprises a number of regulatory capital requirements split into two categories: (i) the Pillar 1 model-based position risk requirement (PRR) of £1,717 million, which in turn comprises several modelled charges and (ii) the standardised PRR of £952 million, which also has several components.
 
The contributors to the Pillar 1 model-based PRR are presented in the table below.
 
Following the implementation of CRD IV on 1 January 2014, credit hedges eligible for CVA are no longer included in the modelled market risk capital charges, namely VaR, stressed VaR and the incremental risk charge. Such hedges are now included in the CVA capital charge, which forms part of the capital calculation for counterparty credit risk.
 
 
 
 
 
 
CRD IV
Basel 2.5
 
 
 
 
 
31 March
31 December
 
CRD IV
2014 
2013 
 
Average
Maximum
Minimum
Period end
Period end
Period end
Half year ended 30 June 2014
£m
£m
£m
£m
£m
£m
 
 
 
 
 
 
 
Value-at-risk
372 
527 
264 
264 
367 
576 
Stressed VaR
791 
856 
650 
650 
856 
841 
Incremental risk charge
429 
530 
360 
360 
420 
443 
All price risk
4 
6 
- 
- 
5 
8 
Risk not in VaR (RNIV)
435 
472 
406 
443 
456 
218 
 
 
 
 
 
 
 
Total
 
 
 
1,717 
2,104 
2,086 

Key points
·
Overall, the Pillar 1 model-based PRR declined 18% to £1.7 billion in H1 2014, driven by reductions in the VaR and Stressed VaR charges, offset somewhat by an increase in the RNIV charge.
   
·
The decrease in the VaR charge in H1 was primarily driven by the removal of the CVA eligible hedges (as noted above) and ongoing risk reduction.
   
·
The decreases in the VaR and Stressed VaR charges in Q2 were driven primarily by a reduction of the asset backed product portfolio in line with risk reduction strategy.
   
·
Given the reduction in the size of the correlation trading portfolio, RBS ceased using an internal model for all price risk during Q2. With the PRA’s approval, all remaining open risk is now capitalised under standardised rules.
   
·
The RNIV charge increased in H1 as, following an agreement with the PRA, the materiality threshold previously in place was removed and all RNIVs are now capitalised.

 

*Not within the scope of Deloitte LLP’s review report
 
 

 
Appendix 1 Capital and risk management

Market risk: Non-trading portfolios (continued)
 
Non-trading portfolios
 
Non-trading VaR
The average VaR for the Group’s non-trading book, predominantly comprising available-for-sale portfolios, was £4.8 million during H1 2014 compared with £7.8 million during H2 2013. This was largely driven by a decline in the credit spread VaR in Q1, which partly reflected a decision to switch some of the securities that RBS holds as collateral from floating-rate notes issued by financial institutions to government bonds during March as part of efforts to reduce RWAs. The period end VaR decreased from £5.0 million at 31 December 2013 to £3.3 million at 31 March 2014, for the reason explained above. It increased to £5.8 million at 30 June 2014, largely due to data quality improvements that expanded the scope of positions captured in RBS's non-traded VaR metrics.

Structured credit portfolio
The structured credit portfolio is measured on a notional and fair value basis because of its illiquid nature. Notional and fair value decreased to £0.5 billion and £0.4 billion respectively (31 December 2013 - £0.7 billion and £0.5 billion), reflecting the sale of underlying assets, primarily consumer ABS (student loans), RMBS and a small amount of CLOs, in line with RCR strategy.
 
Non-trading interest rate risk
Non-traded interest rate risk impacts earnings arising from the Group’s banking activities. This excludes positions in financial instruments which are classified as held-for-trading.
 
The methodology relating to interest rate risk is detailed in the 2013 Annual Report and Accounts.
 
Non-traded interest rate risk VaR metrics are based on interest rate repricing gap reports as at the reporting date. These incorporate customer products and associated funding and hedging transactions as well as non-financial assets and liabilities such as property, plant and equipment, capital and reserves. Behavioural assumptions are applied as appropriate.
 
VaR does not provide a dynamic measurement of interest rate risk since static underlying repricing gap positions are assumed. Changes in customer behaviour under varying interest rate scenarios are captured by way of earnings at risk measures. VaR relating to non-traded interest rate risk for RBS’s retail and commercial banking activities at a 99% confidence level and a currency analysis at the period end were as follows:
 
 
 
 
 
 
Average 
Period end 
Maximum 
Minimum 
 
£m 
£m 
£m 
£m 
 
 
 
 
 
30 June 2014
64 
68 
79 
45 
31 December 2013
45 
51 
57 
30 
 
 
 
 
 
 
 
 
30 June
31 December
 
 
2014 
2013 
 
 
£m 
£m 
 
 
 
 
 
Euro
 
 
3 
4 
Sterling
 
 
8 
19 
US dollar
 
 
73 
44 
Other
 
 
3 
2 


Appendix 1 Capital and risk management

Market risk: Non-trading portfolios (continued)
 
Key points
·
The increase in period end VaR mainly reflects an increase in the duration of the Group's balance sheet, largely due to action taken by CFG to reduce earnings sensitivity to movements in short-term dollar interest rates.
   
·
The decline in sterling VaR over the period did not reflect a reduction in RBS's underlying exposure to sterling fixed rate assets, which was broadly unchanged. Instead, it reflected reduced volatility in sterling interest rates over the period and a smoother maturity profile of the underlying exposures.
   
·
These movements remained well within the Group's approved market risk appetite.


Sensitivity of net interest income*
Earnings sensitivity to rate movements is derived from a central forecast over a twelve month period. Market implied forward rates and new business volume, mix and pricing consistent with business assumptions are used to generate a base case earnings forecast.
 
The following table shows the sensitivity of net interest income, over the next twelve months, to an immediate upward or downward change of 100 basis points to all interest rates. In addition, the table includes the impact of a gradual 400 basis point steepening (bear steepener) and a gradual 300 basis point flattening (bull flattener) of the yield curve at tenors greater than a year.
 
The scenarios represent annualised interest rate stresses of a scale deemed sufficient to trigger a modification in customer behaviour. The asymmetry in the steepening and flattening scenarios reflects the difference in the expected behaviour of interest rates as they approach zero.

 
Euro 
Sterling 
US dollar 
Other 
Total 
30 June 2014
£m 
£m 
£m 
£m 
£m 
 
 
 
 
 
 
+ 100 basis point shift in yield curves
27 
413 
140 
23 
603 
– 100 basis point shift in yield curves
(66)
(280)
(53)
(28)
(427)
Bear steepener
 
 
 
 
387 
Bull flattener
 
 
 
 
(229)
 
 
 
 
 
 
31 December 2013
 
 
 
 
 
 
 
 
 
 
 
+ 100 basis point shift in yield curves
59 
416 
175 
31 
681 
– 100 basis point shift in yield curves
(29)
(333)
(82)
(15)
(459)
Bear steepener
 
 
 
 
403 
Bull flattener
 
 
 
 
(273)

Key points
·
The Group's interest rate exposure remains asset sensitive, such that rising rates will have a positive impact on its net interest income.
   
·
The reduction in interest income sensitivity over the period largely reflects action taken by CFG to reduce earnings sensitivity to movements in short-term dollar interest rates.




*Not within the scope of Deloitte LLP’s review report
 
 
 

Appendix 1 Capital and risk management

Country risk
Country risk is the risk of losses occurring as a result of either a country event or unfavourable country operating conditions. As country events may simultaneously affect all or many individual exposures to a country, country event risk is a concentration risk. For other types of concentration risks such as product, sector or single-name concentration, refer to the Credit risk section. For a description of the governance, monitoring and management of RBS’s country risk framework and definitions, refer to Risk and balance sheet management - Country risk of RBS’s 2013 Annual Report and Accounts.

Overview*
The comments below relate to changes in the six months to 30 June 2014 unless indicated otherwise.
·
Net balance sheet and off-balance sheet exposure to most countries shown in the summary tables declined across most broad product categories. RBS maintained a cautious stance, many clients continued to reduce debt levels, and the US dollar and the euro depreciated against sterling by 3.3% and 3.9% respectively.
   
·
Total eurozone net balance sheet exposure decreased by £4.9 billion or 5% to £97.6 billion. This was caused largely by reductions in cash deposits held with central banks in Germany and the Netherlands, in corporate lending in Ireland and Germany, and in net held-for-trading (HFT) government bond positions in the Netherlands and Spain. CDS net bought protection on eurozone exposure increased by £1.1 billion. Net HFT debt securities in Germany, France, Belgium, Austria and Finland increased while exposure to the Netherlands, Italy and Spain decreased, driven by market opportunities. Net lending in RCR was £4.3 billion for the eurozone as a whole, including £1.4 billion in Germany, £0.8 billion in Spain and £0.6 billion in both France and Ireland. Commercial real estate sector accounted for broadly half of the total.
   
·
Eurozone periphery net balance sheet exposure decreased by £1.5 billion to £40.3 billion.
 
○
Ireland - Ulster Bank Ireland moved £2.0 billion of cash deposits with RBS to the Central Bank of Ireland in anticipation of the new CRD IV liquidity coverage ratio requirements, which will come into effect in 2015. Net lending to corporates and households decreased by £1.4 billion and £0.8 billion respectively, reflecting currency movements, repayments, sales and write-offs.
 
○
Spain - net balance sheet exposure decreased by £1.8 billion, largely as a result of reductions in net HFT and AFS debt securities and lower lending to the commercial real estate sector. The reduction in AFS securities reflected the sale of some of the covered bonds ('cedulas') in the RBS NV liquidity buffer.
 
○
Italy - net derivatives to banks increased by £1.2 billion, driven by the novation of a portfolio from a counterparty. The novated exposure is fully cash collateralised. Net HFT government bonds exposure declined by £0.8 billion.
 
○
Portugal - net HFT debt securities increased by nearly £0.2 billion reflecting greater appetite for Portuguese trading exposure.



*Not within the scope of Deloitte LLP’s review report
 
 
 
 

Appendix 1 Capital and risk management

Country risk: Overview* (continued)
·
Germany - net balance sheet exposure fell by £3.8 billion, mainly due to a decrease of £2.7 billion in cash deposits with the Bundesbank. Other significant reductions were in commercial real estate lending (£1.3 billion) and in derivatives, notably to banks, by £0.6 billion reflecting market movements. Off-balance exposure decreased by £1.0 billion, mostly owing to a reduction in the insurance sector.
   
·
France - net balance sheet exposure rose by £0.8 billion, reflecting business fluctuations. Off-balance exposure decreased by £0.4 billion, largely due to reductions in the oil and gas, industrials and insurance sectors.
   
·
Netherlands - net balance sheet exposure fell by £2.8 billion as a result of a drop in HFT government bonds, a decrease in cash deposits held with the central bank, and reductions in AFS debt securities. RBS NV's liquidity needs have decreased in line with balance sheet reductions, and sales are being executed dependent on market conditions, which were relatively benign in H1. Off-balance sheet exposure increased by £0.2 billion, primarily in the non-bank financial institutions sector.
   
·
Belgium - net balance sheet exposure increased by £1.0 billion, in HFT government bonds. Off balance exposure decreased by £0.3 billion, mostly in the electricity sector.
   
·
Other eurozone - net HFT government bonds increased by £0.6 billion reflecting increased long positions.
   
·
China - lending to banks increased by £0.2 billion, while off-balance sheet exposure to banks fell by a similar amount. The bank undertakes stress testing across both financial institutions and corporate portfolios, with early warning indicators and action plans for a possible economic downturn.
   
·
Japan - net balance sheet exposure decreased by £0.9 billion as a result of reductions in derivatives exposure to banks and other financial institutions and lower corporate lending.
   
·
India - net balance sheet exposure fell by £0.9 billion, with reductions in lending and AFS debt exposure to banks and in lending to corporate clients. These reductions in part reflected securities and loans sales to reduce risk-weighted assets in favourable market conditions.
   
·
Russia - net balance sheet exposure decreased by £0.1 billion to £1.8 billion, including £0.9 billion of corporate lending and £0.6 billion of lending to banks. Nearly half of the latter exposure was fully hedged. Following developments in Ukraine, ratings were reviewed, limits adjusted and additional credit restrictions placed on new business. Exposures are also reviewed against any international sanctions.
   
·
Turkey - lending to banks increased by £0.3 billion, partly reflecting drawings under committed limits.
   
·
Funding mismatches - material estimated funding mismatches at risk of redenomination at 30 June 2014 were: Ireland £7.5 billion (up from £6.5 billion at 31 December 2013 largely due to the £2.0 billion increase in cash held with the central bank and reduced central bank funding); Spain £5.0 billion (down from £6.5 billion); Italy £0.5 billion (broadly unchanged as assets fell and a central bank funding line was no longer used); and Portugal £0.5 billion (slightly up due to higher debt trading). The net positions for Greece and Cyprus were minimal. Risks of eurozone break-up (redenomination events) have materially fallen since 2011-2012 owing to major improvements in liquidity conditions, driven by the availability of substantial new tools for the ECB, the establishment of the European Stability Mechanism and member countries’ progress on reducing imbalances.

*Not within the scope of Deloitte LLP’s review report
 
 

Appendix 1 Capital and risk management

Country risk: Summary of country exposures
 
Net balance sheet exposure
 
Of which:
 
Off-
 
 
 
 
 
 
CDS
Govt
Central
Other
Other
 
 
 
 
Net
 
Debt securities
 
Net
balance
Total
 
Lending
AFS
 
notional less
banks
banks
FI
Corporate
Personal
Total
lending
 
AFS/LAR
HFT (net)
 
Derivatives
SFT
sheet
exposure
 
provisions
reserves
 
fair value
30 June 2014
£m
£m
£m
£m
£m
£m
£m
 
£m
 
£m
£m
 
£m
£m
 
£m
 
£m
 
£m
£m
 
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eurozone
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ireland
323 
2,082 
741 
510 
7,516 
14,972 
26,144 
 
24,628 
 
220 
372 
 
924 
- 
 
2,808 
 
28,952 
 
10,209 
(1)
 
(65)
Spain
133 
2 
2,984 
1,479 
2,573 
82 
7,253 
 
2,309 
 
3,833 
140 
 
970 
1 
 
1,849 
 
9,102 
 
181 
(215)
 
(279)
Italy
896 
16 
2,517 
671 
1,437 
27 
5,564 
 
1,473 
 
549 
501 
 
3,041 
- 
 
2,152 
 
7,716 
 
47 
(24)
 
(827)
Portugal
136 
- 
362 
130 
254 
9 
891 
 
213 
 
90 
215 
 
373 
- 
 
317 
 
1,208 
 
95 
(2)
 
(156)
Greece
- 
- 
223 
5 
100 
17 
345 
 
78 
 
- 
4 
 
263 
- 
 
24 
 
369 
 
26 
- 
 
(13)
Cyprus
9 
- 
1 
2 
107 
12 
131 
 
103 
 
- 
9 
 
19 
- 
 
15 
 
146 
 
43 
- 
 
- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eurozone
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  periphery
1,497 
2,100 
6,828 
2,797 
11,987 
15,119 
40,328 
 
28,804 
 
4,692 
1,241 
 
5,590 
1 
 
7,165 
 
47,493 
 
10,601 
(242)
 
(1,340)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Germany
8,111 
851 
3,948 
4,567 
2,388 
95 
19,960 
 
3,595 
 
5,518 
3,002 
 
6,815 
1,030 
 
6,195 
 
26,155 
 
42 
60 
 
(1,451)
France
3,203 
2 
6,895 
2,205 
2,235 
92 
14,632 
 
4,053 
 
1,749 
2,218 
 
5,931 
681 
 
9,393 
 
24,025 
 
132 
(27)
 
(2,326)
Netherlands
(224)
892 
5,055 
5,132 
2,264 
27 
13,146 
 
3,650 
 
3,856 
(534)
 
6,089 
85 
 
9,985 
 
23,131 
 
148 
646 
 
(552)
Belgium
1,358 
1 
1,928 
96 
402 
23 
3,808 
 
509 
 
369 
871 
 
1,994 
65 
 
912 
 
4,720 
 
- 
(29)
 
(237)
Luxembourg
- 
268 
586 
465 
578 
5 
1,902 
 
1,024 
 
86 
143 
 
526 
123 
 
1,201 
 
3,103 
 
47 
- 
 
(100)
Other
1,906 
22 
790 
181 
871 
19 
3,789 
 
1,082 
 
500 
954 
 
1,248 
5 
 
1,040 
 
4,829 
 
- 
(21)
 
(679)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  eurozone
15,851 
4,136 
26,030 
15,443 
20,725 
15,380 
97,565 
 
42,717 
 
16,770 
7,895 
 
28,193 
1,990 
 
35,891 
 
133,456 
 
10,970 
387 
 
(6,685)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
China
161 
126 
3,013 
282 
1,572 
45 
5,199 
 
4,882 
 
130 
12 
 
175 
- 
 
1,394 
 
6,593 
 
8 
- 
 
(7)
Japan
565 
1,416 
1,294 
561 
455 
35 
4,326 
 
2,288 
 
12 
518 
 
1,229 
279 
 
792 
 
5,118 
 
2 
- 
 
(21)
India
470 
77 
486 
129 
1,635 
38 
2,835 
 
2,304 
 
366 
121 
 
44 
- 
 
764 
 
3,599 
 
18 
(2)
 
(28)
Russia
81 
80 
631 
45 
942 
55 
1,834 
 
1,738 
 
81 
- 
 
15 
- 
 
216 
 
2,050 
 
4 
(1)
 
(101)
Turkey
97 
67 
423 
110 
1,050 
18 
1,765 
 
1,654 
 
44 
9 
 
57 
1 
 
169 
 
1,934 
 
17 
- 
 
(40)
South Korea
241 
1 
830 
51 
543 
3 
1,669 
 
1,192 
 
131 
138 
 
208 
- 
 
520 
 
2,189 
 
- 
- 
 
126 
Brazil
267 
- 
901 
8 
131 
3 
1,310 
 
966 
 
- 
274 
 
70 
- 
 
206 
 
1,516 
 
- 
- 
 
(3)

These tables show RBS exposure, at 30 June 2014 and 31 December 2013 by country of operation of the counterparty, except exposures to governments and individuals which are shown by country of residence. Balance sheet exposures are now shown net of loan impairment provisions and prior period data are shown on the same basis. Countries shown are those where the balance sheet exposure exceeded £1 billion and which had ratings of A+ or below from Standard and Poor’s, Moody’s or Fitch at 30 June 2014, as well as selected eurozone countries. The exposures are stated before taking into account risk mitigants, such as guarantees, insurance or collateral (with the exception of reverse repos). Exposures relating to ocean-going vessels are not included as they cannot be meaningfully assigned to specific countries from a country risk perspective.
 
 

 
Appendix 1 Capital and risk management

Country risk: Summary of country exposures

 
Net balance sheet exposure
 
Of which:
 
Off-
 
 
 
 
 
 
 
Govt
Central
Other
Other
 
 
 
 
Net
 
Debt securities
 
Net
balance
Total
 
Lending
AFS
 
CDS notional
banks
banks
FI
Corporate
Personal
Total
lending
 
AFS/LAR
HFT (net)
 
Derivatives
SFT
sheet
exposure
 
provisions
reserves
 
less fair value
31 December 2013
£m
£m
£m
£m
£m
£m
£m
 
£m
 
£m
£m
 
£m
£m
 
£m
 
£m
 
£m
£m
 
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eurozone
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ireland
188 
116 
688 
561 
8,973 
15,821 
26,347 
 
24,893 
 
233 
248 
 
900 
73 
 
2,711 
 
29,058 
 
10,701 
(9)
 
(166)
Spain
858 
- 
3,439 
1,405 
3,093 
293 
9,088 
 
3,084 
 
4,162 
853 
 
989 
- 
 
1,981 
 
11,069 
 
177 
(449)
 
(444)
Italy
1,676 
22 
1,329 
891 
1,171 
26 
5,115 
 
1,582 
 
519 
1,240 
 
1,774 
- 
 
1,962 
 
7,077 
 
46 
(43)
 
(734)
Portugal
35 
- 
310 
114 
312 
6 
777 
 
290 
 
93 
43 
 
351 
- 
 
280 
 
1,057 
 
99 
(5)
 
(163)
Greece
- 
1 
228 
1 
105 
14 
349 
 
89 
 
- 
- 
 
260 
- 
 
38 
 
387 
 
38 
- 
 
(12)
Cyprus
2 
- 
1 
- 
144 
10 
157 
 
139 
 
- 
2 
 
16 
- 
 
18 
 
175 
 
54 
- 
 
- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eurozone
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  periphery
2,759 
139 
5,995 
2,972 
13,798 
16,170 
41,833 
 
30,077 
 
5,007 
2,386 
 
4,290 
73 
 
6,990 
 
48,823 
 
11,115 
(506)
 
(1,519)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Germany
7,215 
3,588 
5,044 
4,265 
3,520 
90 
23,722 
 
8,013 
 
5,168 
2,524 
 
7,416 
601 
 
7,189 
 
30,911 
 
211 
29 
 
(1,340)
France
2,806 
- 
6,714 
1,832 
2,427 
79 
13,858 
 
4,197 
 
1,692 
1,678 
 
5,660 
631 
 
9,807 
 
23,665 
 
123 
(32)
 
(1,747)
Netherlands
1,509 
1,713 
4,604 
5,786 
2,303 
21 
15,936 
 
4,652 
 
4,661 
819 
 
5,697 
107 
 
9,763 
 
25,699 
 
187 
97 
 
(356)
Belgium
106 
- 
1,995 
267 
431 
2 
2,801 
 
713 
 
443 
(480)
 
2,123 
2 
 
1,170 
 
3,971 
 
26 
(34)
 
(123)
Luxembourg
(1)
11 
524 
659 
386 
4 
1,583 
 
741 
 
75 
98 
 
581 
88 
 
1,043 
 
2,626 
 
50 
- 
 
(58)
Other
1,075 
22 
654 
160 
783 
18 
2,712 
 
879 
 
510 
331 
 
918 
74 
 
1,202 
 
3,914 
 
1 
(24)
 
(476)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  eurozone
15,469 
5,473 
25,530 
15,941 
23,648 
16,384 
102,445 
 
49,272 
 
17,556 
7,356 
 
26,685 
1,576 
 
37,164 
 
139,609 
 
11,713 
(470)
 
(5,619)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
China
345 
200 
2,794 
244 
1,518 
33 
5,134 
 
4,584 
 
166 
13 
 
370 
1 
 
1,689 
 
6,823 
 
16 
(1)
 
(14)
Japan
(129)
1,600 
2,240 
830 
687 
34 
5,262 
 
2,795 
 
72 
(172)
 
2,365 
202 
 
352 
 
5,614 
 
2 
- 
 
4 
India
536 
70 
949 
91 
2,050 
36 
3,732 
 
2,909 
 
571 
160 
 
92 
- 
 
813 
 
4,545 
 
18 
(4)
 
(21)
Russia
152 
37 
754 
6 
949 
53 
1,951 
 
1,781 
 
149 
2 
 
19 
- 
 
364 
 
2,315 
 
2 
- 
 
(65)
Turkey
173 
59 
169 
126 
1,064 
24 
1,615 
 
1,404 
 
50 
67 
 
94 
- 
 
324 
 
1,939 
 
18 
- 
 
(32)
South Korea
238 
4 
755 
133 
576 
2 
1,708 
 
1,125 
 
179 
154 
 
250 
- 
 
681 
 
2,389 
 
- 
- 
 
176 
Brazil
262 
- 
914 
2 
148 
3 
1,329 
 
977 
 
- 
268 
 
84 
- 
 
245 
 
1,574 
 
- 
- 
 
12 








Appendix 2

Income statement reconciliations

Appendix 2 Income statement reconciliations

 
Half year ended
 
30 June 2014
 
30 June 2013
 
Non-
One-off items
Presentational
Statutory
 
Non-
One-off items
Presentational
Statutory
statutory
reallocation
adjustments (1)
 
statutory
reallocation
adjustments (1)
£m
£m 
£m 
£m
 
£m
£m 
£m 
£m
 
 
 
 
 
 
 
 
 
 
Interest receivable
7,621 
- 
- 
7,621 
 
8,560 
- 
- 
8,560 
Interest payable
(2,125)
(3)
- 
(2,128)
 
(3,118)
(5)
- 
(3,123)
 
 
 
 
 
 
 
 
 
 
Net interest income
5,496 
(3)
- 
5,493 
 
5,442 
(5)
- 
5,437 
 
 
 
 
 
 
 
 
 
 
Fees and commissions receivable
2,605 
- 
- 
2,605 
 
2,708 
- 
- 
2,708 
Fees and commissions payable
(487)
- 
- 
(487)
 
(460)
- 
- 
(460)
Income from trading activities
1,482 
11 
- 
1,493 
 
1,890 
174 
- 
2,064 
Gain on redemption of own debt
- 
20 
- 
20 
 
- 
191 
- 
191 
Other operating income
882 
154 
- 
1,036 
 
1,028 
304 
- 
1,332 
 
 
 
 
 
 
 
 
 
 
Non-interest income
4,482 
185 
- 
4,667 
 
5,166 
669 
- 
5,835 
 
 
 
 
 
 
 
 
 
 
Total income
9,978 
182 
- 
10,160 
 
10,608 
664 
- 
11,272 
 
 
 
 
 
 
 
 
 
 
Staff costs
(3,340)
- 
(196)
(3,536)
 
(3,585)
- 
(142)
(3,727)
Premises and equipment
(1,079)
- 
(196)
(1,275)
 
(1,079)
- 
(25)
(1,104)
Other administrative expenses
(1,292)
(1)
(369)
(1,662)
 
(1,479)
2 
(704)
(2,181)
Depreciation and amortisation
(551)
- 
(3)
(554)
 
(716)
- 
(20)
(736)
Restructuring costs
(514)
- 
514 
- 
 
(271)
- 
271 
- 
Litigation and conduct costs
(250)
- 
250 
- 
 
(620)
- 
620 
- 
Write-down of goodwill and other intangible assets
(82)
(130)
- 
(212)
 
- 
- 
- 
- 
 
 
 
 
 
 
 
 
 
 
Operating expenses
(7,108)
(131)
- 
(7,239)
 
(7,750)
2 
- 
(7,748)
 
 
 
 
 
 
 
 
 
 
Profit before impairment losses
2,870 
51 
- 
2,921 
 
2,858 
666 
- 
3,524 
Impairment losses
(269)
- 
- 
(269)
 
(2,150)
- 
- 
(2,150)
 
 
 
 
 
 
 
 
 
 
Operating profit
2,601 
51 
- 
2,652 
 
708 
666 
- 
1,374 

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

Appendix 2 Income statement reconciliations

 
Half year ended
 
30 June 2014
 
30 June 2013
 
Non-
One-off items
Presentational
Statutory
 
Non-
One-off items
Presentational
Statutory
 
statutory
reallocation
adjustments (1)
 
statutory
reallocation
adjustments (1)
 
£m
£m
£m
£m
 
£m
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
Operating profit
2,601 
51 
- 
2,652 
 
708 
666 
- 
1,374 
Own credit adjustments (2)
(51)
51 
- 
- 
 
376 
(376)
- 
- 
Gain on redemption of own debt
20 
(20)
- 
- 
 
191 
(191)
- 
- 
Write-down of goodwill
(130)
130 
- 
- 
 
- 
- 
- 
- 
Strategic disposals
191 
(191)
- 
- 
 
- 
- 
- 
- 
RFS Holdings minority interest
21 
(21)
- 
- 
 
99 
(99)
- 
- 
 
 
 
 
 
 
 
 
 
 
Profit before tax
2,652 
- 
- 
2,652 
 
1,374 
- 
- 
1,374 
Tax charge
(733)
- 
- 
(733)
 
(678)
- 
- 
(678)
 
 
 
 
 
 
 
 
 
 
Profit for continuing operations
1,919 
- 
- 
1,919 
 
696 
- 
- 
696 
Profit from discontinued operations, net of tax
35 
- 
- 
35 
 
138 
- 
- 
138 
 
 
 
 
 
 
 
 
 
 
Profit for the period
1,954 
- 
- 
1,954 
 
834 
- 
- 
834 
Non-controlling interests
(42)
- 
- 
(42)
 
(117)
- 
- 
(117)
Preference share and other dividends
(487)
- 
- 
(487)
 
(182)
- 
- 
(182)
 
 
 
 
 
 
 
 
 
 
Profit attributable to ordinary and B shareholders
1,425 
- 
- 
1,425 
 
535 
- 
- 
535 

Notes:
(1)
Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense line.
(2)
Reallocation of £11 million gain (2013 - £175 million gain) to income from trading activities and £62 million loss (2013 - £201 million gain) to other operating income.



Appendix 2 Income statement reconciliations

 
Quarter ended
 
30 June 2014
 
31 March 2014
 
30 June 2013
 
Non-
One-off items
Presentational
Statutory
 
Non-
One-off items
Presentational
Statutory
 
Non-
One-off items
Presentational
Statutory
statutory
reallocation
adjustments (1)
 
statutory
reallocation
adjustments (1)
 
statutory
reallocation
adjustments (1)
£m
£m
£m
£m
 
£m
£m
£m
£m
 
£m
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest receivable
3,822 
(1)
- 
3,821 
 
3,799 
1 
- 
3,800 
 
4,281 
- 
- 
4,281 
Interest payable
(1,024)
1 
- 
(1,023)
 
(1,101)
(4)
- 
(1,105)
 
(1,511)
(3)
- 
(1,514)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
2,798 
- 
- 
2,798 
 
2,698 
(3)
- 
2,695 
 
2,770 
(3)
- 
2,767 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions receivable
1,314 
- 
- 
1,314 
 
1,291 
- 
- 
1,291 
 
1,392 
- 
- 
1,392 
Fees and commissions payable
(251)
- 
- 
(251)
 
(236)
- 
- 
(236)
 
(250)
- 
- 
(250)
Income from trading activities
626 
(85)
- 
541 
 
856 
96 
- 
952 
 
874 
75 
- 
949 
Gain on redemption of own debt
- 
- 
- 
- 
 
- 
20 
- 
20 
 
- 
242 
- 
242 
Other operating income
438 
(93)
- 
345 
 
444 
247 
- 
691 
 
661 
59 
- 
720 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest income
2,127 
(178)
- 
1,949 
 
2,355 
363 
- 
2,718 
 
2,677 
376 
- 
3,053 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total income
4,925 
(178)
- 
4,747 
 
5,053 
360 
- 
5,413 
 
5,447 
373 
- 
5,820 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Staff costs
(1,693)
1 
(153)
(1,845)
 
(1,647)
(1)
(43)
(1,691)
 
(1,764)
- 
(76)
(1,840)
Premises and equipment
(485)
- 
(137)
(622)
 
(594)
- 
(59)
(653)
 
(526)
- 
(22)
(548)
Other administrative expenses
(605)
(2)
(344)
(951)
 
(687)
1 
(25)
(711)
 
(801)
1 
(618)
(1,418)
Depreciation and amortisation
(282)
1 
(1)
(282)
 
(269)
(1)
(2)
(272)
 
(346)
- 
(3)
(349)
Restructuring costs
(385)
- 
385 
- 
 
(129)
- 
129 
- 
 
(149)
- 
149 
- 
Litigation and conduct costs
(250)
- 
250 
- 
 
- 
- 
- 
- 
 
(570)
- 
570 
- 
Write down of goodwill and other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  intangible assets
- 
(130)
- 
(130)
 
(82)
- 
- 
(82)
 
- 
- 
- 
- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
(3,700)
(130)
- 
(3,830)
 
(3,408)
(1)
- 
(3,409)
 
(4,156)
1 
- 
(4,155)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit before impairment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  losses
1,225 
(308)
- 
917 
 
1,645 
359 
- 
2,004 
 
1,291 
374 
- 
1,665 
Impairment losses
93 
- 
- 
93 
 
(362)
- 
- 
(362)
 
(1,117)
- 
- 
(1,117)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit
1,318 
(308)
- 
1,010 
 
1,283 
359 
- 
1,642 
 
174 
374 
- 
548 

For the notes to this refer to the following page.

Appendix 2 Income statement reconciliations

 
Quarter ended
 
30 June 2014
 
31 March 2014
 
30 June 2013
 
Non-
One-off items
Presentational
Statutory
 
Non-
One-off items
Presentational
Statutory
 
Non-
One-off items
Presentational
Statutory
 
statutory
reallocation
adjustments (1)
 
statutory
reallocation
adjustments (1)
 
statutory
reallocation
adjustments (1)
 
£m
£m
£m
£m
 
£m
£m
£m
£m
 
£m
£m
£m
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit
1,318 
(308)
- 
1,010 
 
1,283 
359 
- 
1,642 
 
174 
374 
- 
548 
Own credit adjustments (2)
(190)
190 
- 
- 
 
139 
(139)
- 
- 
 
127 
(127)
- 
- 
Gain on redemption of own debt
- 
- 
- 
- 
 
20 
(20)
- 
- 
 
242 
(242)
- 
- 
Write-down of goodwill
(130)
130 
- 
- 
 
- 
- 
- 
- 
 
- 
- 
- 
- 
Strategic disposals
- 
- 
- 
- 
 
191 
(191)
- 
- 
 
6 
(6)
- 
- 
RFS Holdings minority interest
12 
(12)
- 
- 
 
9 
(9)
- 
- 
 
(1)
1 
- 
- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit before tax
1,010 
- 
- 
1,010 
 
1,642 
- 
- 
1,642 
 
548 
- 
- 
548 
Tax charge
(371)
- 
- 
(371)
 
(362)
- 
- 
(362)
 
(328)
- 
- 
(328)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit from continuing operations
639 
- 
- 
639 
 
1,280 
- 
- 
1,280 
 
220 
- 
- 
220 
Profit from discontinued operations,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  net of tax
26 
- 
- 
26 
 
9 
- 
- 
9 
 
9 
- 
- 
9 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
665 
- 
- 
665 
 
1,289 
- 
- 
1,289 
 
229 
- 
- 
229 
Non-controlling interests
(23)
- 
- 
(23)
 
(19)
- 
- 
(19)
 
14 
- 
- 
14 
Preference share and other dividends
(412)
- 
- 
(412)
 
(75)
- 
- 
(75)
 
(101)
- 
- 
(101)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit attributable to ordinary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  and B shareholders
230 
- 
- 
230 
 
1,195 
- 
- 
1,195 
 
142 
- 
- 
142 

Notes:
(1)
Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense line.
(2)
Reallocation of £84 million loss (Q1 2014 - £95 million gain; Q2 2013 - £76 million gain) to income from trading activities and £106 million loss (Q1 2014 - £44 million gain; Q2 2013 - £51 million gain) to other operating income.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Signatures


 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.







 
 
Date: 1 August 2014
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary