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 02, 2019
Commission File Number: 001-10306
 
The Royal Bank of Scotland Group plc
 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ
 
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
   Form 20-F X Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________
 
 
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes ___ No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
 
 
 
 
The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: 
 
 
 
 
 
 
Appendix 1
 
Capital and risk management
 
 
 
 
 
Document navigation
The following are contained within this appendix:
Capital, liquidity and funding risk (pages 1 to 7);
 
 
Credit risk – Economic loss drivers(page 8);
 
Credit risk – Banking activities (page 9);
Credit risk – Banking activities segmental exposure (pages 10 to 12);
Credit risk – Banking activities sector analysis (pages 13 to 15);
Credit risk – Banking activities personal portfolio (pages 16 to 20);
 
 
Credit risk – Banking activities CRE (pages 21);
Credit risk – Banking activities flow statements (pages 22 to 28);
Credit risk – Asset quality (pages 29 to 33);
Credit risk – Trading activities (pages 34 to 36);
Credit risk – Cross border exposure (page 36);
Non-traded market risk (pages 37 to 41);
 
Traded market risk (page 41); and
 
Other risks (page 42)
 
 
Certain disclosures in this appendix are within the scope of EY’s review report and are marked accordingly.
 
Appendix 1 Capital and risk management
Capital, liquidity and funding risk
 Key developments
The CET1 ratio decreased by 20 basis points to 16.0% as a result of the £2.0 billion attributable profit, offset by a foreseeable 5p ordinary dividend accrual of £0.6 billion, 12p special dividend of £1.4 billion and the impact of IFRS 16.
RWAs decreased by £0.2 billion in H1 2019. Credit risk decreased by £0.8 billion driven by the completion of the merger of Alawwal bank and SABB reducing credit risk by £4.6 billion, offset by increases in credit risk driven by the £1.3 billion uplift due to adoption of IFRS 16 from 1 January 2019, an increase due to PD calibrations affecting asset quality and growth in asset size. Counterparty credit risk increased primarily due to increased exposures.
The leverage ratio decreased to 5.2% driven by decreased capital.
The total loss absorbing capital ratio of 32.1% is above the BOE requirement of 24.0% by 1 January 2020.
In the first half of 2019, RBSG issued £3.0 billion new MREL eligible senior debt and redeemed a €1.0 billion Tier 2 security, with £0.5 billion of non-MREL RBSG senior debt also being repaid on maturity during the period.  In subsidiaries, NWB issued a £750 million covered bond and NatWest Markets Plc maintained active issuance programmes for senior unsecured and secured notes, with net issuance of around £3 billion in the period.
RBSG participation in the Bank of England’s Term Funding Scheme reduced by £4 billion.
The liquidity coverage ratio decreased from 158% to 154% driven by reductions in NWM Plc’s liquidity position due to seasonally low outflows at 31 December 2018.
The net stable funding ratio was relatively consistent at 140% compared to 141% for FY 2018.
 
 
Minimum capital requirements
The Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum ratios of capital to RWAs that the Group is expected to have to meet under the end-point CRR requirements applicable from 1 January 2019. These ratios apply at the consolidated group level. Different minimum capital requirements may apply to individual legal entities or sub-groups.
 
Minimum requirements
Type
CET1
Total Tier 1
Total capital
System wide
Pillar 1 minimum requirements
  4.5%
  6.0%
  8.0%
 
Capital conservation buffer
  2.5%
  2.5%
  2.5%
 
Countercyclical capital buffer (1)
  0.7%
  0.7%
  0.7%
 
G-SIB buffer (2)
  1.0%
  1.0%
  1.0%
Bank specific
Pillar 2A (4)
  2.0%
  2.7%
  3.6%
Total (excluding PRA buffer) (5)
 
10.7%
12.9%
15.8%
Capital ratios at 30 June 2019
 
16.0%
18.2%
20.9%
 
Notes:
(1)
The countercyclical capital buffer (CCyB) applied to UK designated assets is set by the Financial Policy Committee (FPC). The UK CCyB is currently 1.0% (effective from November 2018). The Republic of Ireland CCyB is currently 0.0%, the CBI have announced an increase to 1.0% effective July 2019. Foreign exposures may be subject to different CCyB rates depending on the rate set in those jurisdictions. Firm specific CCyB is based on a weighted average at CCyB’s applicable to countries in which the Bank has exposures.
(2)
Globally systemically important banks (G-SIBs), as designated by the Financial Stability Board (FSB), are subject to an additional capital buffer of between 1.0% and 3.5%. In November 2018 the FSB announced that RBS is no longer a G-SIB. From 1 January 2020, RBS will be released from this global buffer requirement.
(3)
The Group will be subject to a systemic risk buffer (SRB) and this will apply at the ring-fenced bank sub-group level rather than at the consolidated group level. As from 1 August 2019 NWH will be subject to a Systemic Risk Buffer of 1.5%. Where the Systemic Risk Buffer is greater than the G-SII buffer, the PRA may require the consolidated group to hold a higher level of capital through the PRA buffer and Leverage Ratio Group add-on.
(4)
From 1 January 2015, UK banks have been required to meet at least 56% of its Pillar 2A capital requirement with CET1 capital and with balance with Additional Tier 1 and/or Tier 2 capital. Additional capital requirements under Pillar 2A may be specified by the PRA as a ratio or as an absolute value. The table sets out an implied ratio to cover the full value of Pillar 2A requirements.
(5)
The Group may be subject to a PRA buffer requirement as set by the PRA. The PRA buffer consists of two components:
- A risk management and governance buffer that is set as a scalar, up to 40% of the Pillar 1 and Pillar 2A requirements.
- A buffer to cover stress risks informed by the results of the BoE concurrent stress testing results.
- The PRA requires that the level of this buffer is not publicly disclosed.
(6)
The capital conservation buffer, the countercyclical capital buffer, the G-SIB buffer and systemic risk buffer (where applicable) make up the combined buffer. If the Group fails to meet the combined buffer requirement, it is subject to restrictions on distributions on CET1 instruments, discretionary coupons on AT1 instruments and on payment of variable remuneration or discretionary pension benefits. These restrictions are calculated by reference to the Group’s Maximum Distributable Amount (MDA). Where a PRA buffer is applicable, the MDA trigger is below the PRA buffer and MDA restrictions are not automatically triggered if the Group fails to meet its PRA buffer. The MDA is calculated as the amount of interim or year-end profits not yet incorporated into CET1 capital multiplied by a factor ranging from 0 to 0.6 depending on the size of the CET1 shortfall against the combined buffer.
 
 
Appendix 1 Capital and risk management
Capital, liquidity and funding risk continued
Capital flow statement
Refer to Business performance summary - Capital and leverage for information on Capital, RWAs and leverage and the Pillar 3 supplement for capital and leverage relating to significant subsidiaries and also CRR templates. The table below analyses the movement in end-point CRR CET1, AT1 and Tier 2 capital for the half year ended 30 June 2019.
 
CET1
AT1
Tier 2
Total
 
£m
£m
£m
£m
At 1 January 2019
30,639 
4,051 
6,483 
41,173 
Profit for the year
711 
711 
Own credit
144 
144 
Share capital and reserve movements in respect of employee share schemes
49 
49 
Foreign exchange reserve
(296)
(296)
FVOCI reserves
(78)
(78)
Goodwill and intangibles deduction
(15)
(15)
Deferred tax assets
(129)
(129)
Prudential valuation adjustments
75 
75 
Expected loss less impairment
(72)
(72)
Net dated subordinated debt/grandfathered instruments
(1,400)
(1,400)
Foreign exchange movements
36 
36 
Foreseeable ordinary and special dividends
(728)
(728)
Other movements
(109)
(109)
At 30 June 2019
30,191 
4,051 
5,119 
39,361 
 
Risk-weighted assets
The table below analyses the movement in RWAs on the end-point CRR basis during the half year, by key drivers.
 
 
 
 
Counterparty
 
Operational
 
 
Credit risk
credit risk
Market risk
risk
Total RWAs
£bn
£bn
£bn
£bn
£bn
At 1 January 2019
137.9 
13.6 
14.8 
22.4 
188.7 
Foreign exchange movement
0.1 
0.1 
Business movements (1)
2.9 
0.4 
(0.4)
0.2 
3.1 
Risk parameter changes (2)
0.7 
0.1 
0.8 
Model updates (3)
0.2 
0.2 
0.4 
Other movements (4)
(4.7)
0.1 
(4.6)
At 30 June 2019
137.1 
14.2 
14.6 
22.6 
188.5 
 
The table below analyses segmental RWAs.
 
 
Personal & Ulster
 
Commercial & Private
 
 
Central
 
 
Ulster
 
Commercial
Private
 
NatWest
items
 
Total RWAs
UK PB
Bank RoI
 
Banking
Banking
RBSI
Markets
& other
Total
£bn
£bn
 
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2019 *
34.3 
14.7 
 
78.4 
9.4 
6.9 
44.9 
0.1 
188.7 
Foreign exchange movement
 
0.1 
0.1 
Business movements (1)
1.4 
(0.1)
 
1.0 
0.3 
0.2 
0.3 
3.1 
Risk parameter changes (2)
1.3 
(0.4)
 
(0.2)
0.1 
0.8 
Model updates (3)
 
0.2 
0.2 
0.4 
Other movements (4)
 
(1.7)
(0.2)
(3.8)
1.1 
(4.6)
At 30 June 2019
37.0 
14.2 
 
77.8 
9.7 
6.9 
41.4 
1.5 
188.5 
 
 
 
 
 
 
 
 
 
 
Credit risk
29.3 
13.2 
 
68.5 
8.4 
6.1 
10.1 
1.5 
137.1 
Counterparty credit risk
0.1 
 
0.2 
0.1 
13.8 
14.2 
Market risk
0.1 
 
0.3 
14.2 
14.6 
Operational risk
7.5 
1.0 
 
8.8 
1.2 
0.8 
3.3 
22.6 
Total RWAs
37.0 
14.2 
 
77.8 
9.7 
6.9 
41.4 
1.5 
188.5 
*Restated. Refer to Note 1 of the main announcement for further details.
 
(1)
Included within business movements is the £1.3 billion uplift in credit risk due to adoption of IFRS 16 from 1 January 2019.
(2)
Risk parameter changes relate to asset quality metrics of customers and counterparties such as probability of default (PD) and loss given default (LGD).
(3)
Model updates relates primarily to revision in LGD models for the UK mid-corporate portfolios.
(4)
Other primarily reflects the reduction following the Alawwal bank merger. Other also reflects assets which have transferred between Commercial Banking, RBSI, Central items and NatWest Markets.
 
 
Appendix 1 Capital and risk management
Capital, liquidity and funding risk continued
Capital resources (Within the scope of EY’s review report)
 
 
30 June 2019
 
31 December 2018
 
 
PRA
 
 
PRA
End-point
transitional
 
End-point
transitional
 
CRR basis
basis
 
CRR basis
basis
 
£m
£m
 
£m
£m
Shareholders’ equity (excluding non-controlling interests)
 
 
 
 
 
 Shareholders’ equity
46,221 
46,221 
 
45,736 
45,736 
 Preference shares - equity
(496)
(496)
 
(496)
(496)
 Other equity instruments
(4,058)
(4,058)
 
(4,058)
(4,058)
 
41,667 
41,667 
 
41,182 
41,182 
Regulatory adjustments and deductions
 
 
 
 
 
 Own credit
(261)
(261)
 
(405)
(405)
 Defined benefit pension fund adjustment
(400)
(400)
 
(394)
(394)
 Cash flow hedging reserve
(117)
(117)
 
191 
191 
 Deferred tax assets
(869)
(869)
 
(740)
(740)
 Prudential valuation adjustments
(419)
(419)
 
(494)
(494)
 Goodwill and other intangible assets
(6,631)
(6,631)
 
(6,616)
(6,616)
 Expected losses less impairments
(726)
(726)
 
(654)
(654)
 Foreseeable ordinary and special dividends
(2,053)
(2,053)
 
(1,326)
(1,326)
 Other regulatory adjustments
 
(105)
(105)
 
(11,476)
(11,476)
 
(10,543)
(10,543)
CET1 capital
30,191 
30,191 
 
30,639 
30,639 
Additional Tier 1 (AT1) capital
 
 
 
 
 
 Qualifying instruments and related share premium
4,051 
4,051 
 
4,051 
4,051 
 Qualifying instruments and related share premium subject to phase out
1,398 
 
1,393 
 Qualifying instruments issued by subsidiaries and held by third parties
 
 
 
 
 
   subject to phase out
140 
 
140 
AT1 capital
4,051 
5,589 
 
4,051 
5,584 
Tier 1 capital
34,242 
35,780 
 
34,690 
36,223 
Qualifying Tier 2 capital
 
 
 
 
 
 Qualifying instruments and related share premium
4,969 
5,054 
 
6,301 
6,386 
 Qualifying instruments issued by subsidiaries and held by third parties
150 
1,498 
 
182 
1,565 
Tier 2 capital
5,119 
6,552 
 
6,483 
7,951 
Total regulatory capital
39,361 
42,332 
 
41,173 
44,174 
 
 
Appendix 1 Capital and risk management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of estimated loss absorbing capital (LAC) in RBSG plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.
 
30 June 2019
 
31 December 2018
 
 
Balance
 
 
 
 
Balance
 
 
 
Par
sheet
Regulatory
LAC
 
Par
sheet
Regulatory
LAC
 
value (1)
value
value (2)
value (3)
 
value (1)
value
value (2)
value (3)
£bn
£bn
£bn
£bn
 
£bn
£bn
£bn
£bn
CET1 capital (4)
30.2 
30.2 
30.2 
30.2 
 
30.6 
30.6 
30.6 
30.6 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital: end-point CRR compliant AT1
 
 
 
 
 
 
 
 
 
  of which: RBSG (holdco)
4.0 
4.0 
4.0 
4.0 
 
4.0 
4.0 
4.0 
4.0 
  of which: RBSG operating subsidiaries (opcos)
 
 
4.0 
4.0 
4.0 
4.0 
 
4.0 
4.0 
4.0 
4.0 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital: end-point CRR non compliant
 
 
 
 
 
 
 
 
 
  of which: holdco
1.4 
1.6 
1.4 
0.5 
 
1.4 
1.6 
1.4 
0.5 
  of which: opcos
0.1 
0.1 
0.1 
0.1 
 
0.1 
0.1 
0.1 
0.1 
 
1.5 
1.7 
1.5 
0.6 
 
1.5 
1.7 
1.5 
0.6 
 
 
 
 
 
 
 
 
 
 
Tier 2 capital: end-point CRR compliant
 
 
 
 
 
 
 
 
 
  of which: holdco
5.9 
6.1 
5.0 
4.3 
 
6.8 
6.7 
6.3 
5.1 
  of which: opcos
0.5 
0.5 
0.3 
0.5 
 
0.5 
0.5 
0.3 
0.5 
 
6.4 
6.6 
5.3 
4.8 
 
7.3 
7.2 
6.6 
5.6 
 
 
 
 
 
 
 
 
 
 
Tier 2 capital: end-point CRR non compliant
 
 
 
 
 
 
 
 
 
  of which: holdco
0.1 
0.1 
0.1 
0.1 
 
0.1 
0.1 
0.1 
0.1 
  of which: opcos
1.6 
2.0 
1.3 
1.7 
 
1.9 
2.0 
1.4 
1.6 
 
1.7 
2.1 
1.4 
1.8 
 
2.0 
2.1 
1.5 
1.7 
 
 
 
 
 
 
 
 
 
 
Senior unsecured debt securities issued by:
 
 
 
 
 
 
 
 
 
  RBSG holdco
19.4 
20.0 
19.2 
 
16.8 
16.8 
15.5 
  RBS opcos
20.6 
20.5 
 
17.1 
16.9 
 
40.0 
40.5 
19.2 
 
33.9 
33.7 
15.5 
Total
83.8 
85.0 
42.4 
60.6 
 
79.3 
79.3 
44.2 
58.0 
 
 
 
 
 
 
 
 
 
 
RWAs
 
 
 
188.5 
 
 
 
 
188.7 
CRR leverage exposure
 
 
 
659.1 
 
 
 
 
644.5 
 
 
 
 
 
 
 
 
 
 
LAC as a ratio of RWAs
 
 
 
32.1%
 
 
 
 
30.7%
LAC as a ratio of CRR leverage exposure
 
 
 
9.2%
 
 
 
 
9.0%
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
Par value reflects the nominal value of securities issued.
(2)
Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.
(3)
LAC value reflects RBS’s interpretation of the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such RBS estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.
(4)
Corresponding shareholders’ equity was £46.2 billion (31 December 2018 - £45.7 billion).
(5)
Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.
 
 
Appendix 1 Capital and risk management
Capital, liquidity and funding risk continued
Funding sources (Within the scope of EY’s review report)
The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9 but excludes derivative cash collateral.
 
 
30 June 2019
 
31 December 2018
Short-term
Long-term
 
 
Short-term
Long-term
 
 
less than
more than
 
 
less than
more than
 
1 year
1 year
Total
 
1 year
1 year
Total
£m
£m
£m
 
£m
£m
£m
Personal and corporate deposits
 
 
 
 
 
 
 
Personal (1)
180,503 
1,376 
181,879 
 
178,293 
1,499 
179,792 
Corporate (2)
132,323 
272 
132,595 
 
131,575 
142 
131,717 
 
312,826 
1,648 
314,474 
 
309,868 
1,641 
311,509 
 
 
 
 
 
 
 
 
Financial institutions deposits
 
 
 
 
 
 
 
Banks (3)
6,581 
13,315 
19,896 
 
6,758 
15,865 
22,623 
Non-bank financial institutions (NBFI) (4)
46,977 
1,092 
48,069 
 
46,800 
564 
47,364 
 
53,558 
14,407 
67,965 
 
53,558 
16,429 
69,987 
 
 
 
 
 
 
 
 
Debt securities in issue
 
 
 
 
 
 
 
Commercial papers (CPs) and certificates of deposits (CDs)
3,192 
16 
3,208 
 
3,157 
3,157 
Medium-term notes
7,651 
29,662 
37,313 
 
4,928 
25,596 
30,524 
Covered bonds
1,252 
4,888 
6,140 
 
5,367 
5,367 
Securitisations
1,215 
1,215 
 
1,375 
1,375 
 
12,095 
35,781 
47,876 
 
8,085 
32,338 
40,423 
 
 
 
 
 
 
 
 
Subordinated liabilities
134 
9,674 
9,808 
 
299 
10,236 
10,535 
 
 
 
 
 
 
 
 
Repos (5)
 
 
 
 
 
 
 
Sovereign
1,479 
1,479 
 
405 
405 
Financial institutions
34,431 
424 
34,855 
 
29,664 
29,664 
Corporate
472 
472 
 
291 
291 
 
36,382 
424 
36,806 
 
30,360 
30,360 
 
 
 
 
 
 
 
 
Total funding
414,995 
61,934 
476,929 
 
402,170 
60,644 
462,814 
 
 
 
 
 
 
 
 
Of which: available in resolution (6)
25,943 
25,943 
 
22,909 
22,909 
 
 
 
 
 
 
 
 
CET 1 capital
 
 
30,191 
 
 
 
30,639 
CRR Leverage exposure
 
 
659,105 
 
 
 
644,498 
Funded assets
 
 
584,274 
 
 
 
560,886 
 
 
 
 
 
 
 
 
Funding coverage of CET 1 capital
 
 
16 
 
 
 
15 
Funding as a % of leverage exposure
 
 
72%
 
 
 
72%
Funding as a % of funded assets
 
 
82%
 
 
 
83%
Funding available in resolution as a % of CET1 capital
 
 
86%
 
 
 
75%
Funding available in resolution as a % of leverage exposure
 
 
4%
 
 
 
4%
 
Notes:
(1)
Includes £104 million (31 December 2018 - £206 million) of DFV deposits included in other financial liabilities balance sheet.
(2)
Includes £1,027 million (31 December 2018 - £428 million) of HFT deposits included in trading liabilities.
(3)
Includes £519 million (31 December 2018 - £267 million) of HFT deposits included in trading liabilities on the balance sheet. Includes £10 billion (31 December 2018 - £14 billion) relating to Term Funding Scheme participation and £1.8 billion (31 December 2018 - £1.8 billion) relating to RBS’s participation in central bank financing operations under the European Central Bank’s Targeted Long-term refinancing operations.
(4)
Includes £789 million (31 December 2018 - £1,093 million) of HFT deposits included in trading liabilities and nil (31 December 2018 – £7 million) of DFV deposits included in other financial liabilities on the balance sheet.
(5)
Includes HFT repos of £32,087 million (31 December 2018 - £25,645 million) and amortised cost repos of £4,719 million (31 December 2018 - £4,715 million).
(6)
Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £19 billion (31 December 2018 - £16 billion) under debt securities in issue (senior MREL) and £7 billion (31 December 2018 - £7 billion) under subordinated liabilities.
 
 
 

 
Appendix 1 Capital and risk management
Capital, liquidity and funding risk continued
Liquidity portfolio (Within the scope of EY’s review report)
The table below shows the liquidity portfolio by product, liquidity value and by carrying value.
 
 
Liquidity value
 
30 June 2019
31 December 2018
 
 
UK DoL
 
 
 
UK DoL
 
RBSG (1)
Sub (2)
NWM Plc
 
RBSG (1)
Sub (2)
NWM Plc
 
£m
£m
£m
 
£m
£m
£m
Cash and balances at central banks
83,979 
56,173 
12,783 
 
83,781 
59,745 
11,005 
Central and local government bonds
 
 
 
 
 
 
 
  AAA rated governments
5,914 
2,458 
1,532 
 
8,188 
4,386 
615 
  AA- to AA+ rated governments
 
 
 
 
 
 
 
    and US agencies
41,013 
30,427 
4,260 
 
35,683 
25,845 
5,256 
  Below AA rated governments
1,594 
1,274 
 
 
48,521 
32,885 
7,066 
 
43,871 
30,231 
5,871 
 
 
 
 
 
 
 
 
Primary liquidity
132,500 
89,058 
19,849 
 
127,652 
89,976 
16,876 
Secondary liquidity (3)
70,575 
69,652 
344 
 
70,231 
69,642 
344 
Total liquidity value
203,075 
158,710 
20,193 
 
197,882 
159,618 
17,220 
 
 
 
 
 
 
 
 
Total carrying value
232,653 
187,874 
20,408 
 
225,039 
186,340 
17,388 
 
Notes:
(1)
RBSG includes UK DoLSub, NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include RBS International, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.
(2)
UK DoLSub comprises RBSG’s four licensed deposit-taking UK banks within the ring-fenced bank: National Westminster Bank Plc, The Royal Bank of Scotland
plc, Coutts & Co and Ulster Bank Limited.
(3)
Secondary liquidity represents assets pre-positioned with central bank refinancing facilities. 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.
 
 
Appendix 1 Capital and risk management
Credit risk
Economic loss drivers (Within the scope of EY’s review report)
A full description of the framework for incorporating economic loss drivers in to IFRS9 ECL calculations is provided in the Group’s 2018 Annual Report & Accounts. It includes a description of the approach adopted on multiple economic scenarios for both Personal and Wholesale portfolios.
 
The table and commentary below provides an update on the base case economics used at June 2019, and also the multiple economic scenarios used for Personal portfolios.
 
The average over the five year horizon (2019 to 2023) for the central base case and two upside and downside scenarios used for ECL modelling are set out below.
 
 
30 June 2019
 
31 December 2018
 
Upside 2
Upside 1
Base case
Downside 1
Downside 2
 
Upside 2
Upside 1
Base case
Downside 1
Downside 2
 
 %
 %
 %
 %
 %
 
%
%
 %
%
 %
UK
 
 
 
 
 
 
 
 
 
 
 
GDP - change
2.5 
2.2 
1.6 
1.3 
0.9 
 
2.6 
2.3 
1.7 
1.5 
1.1 
Unemployment
3.2 
3.7 
4.7 
5.4 
6.5 
 
3.3 
3.8 
5.0 
5.6 
6.9 
House Price Inflation - change
4.7 
3.7 
1.7 
1.0 
(0.9)
 
4.3 
3.3 
1.7 
1.1 
(0.5)
Bank of England base rate
1.3 
1.2 
1.0 
0.1 
 
1.7 
1.3 
1.1 
0.5 
 
 
 
 
 
 
 
 
 
 
 
 
Republic of Ireland
 
 
 
 
 
 
 
 
 
 
 
GDP - change
5.3 
4.3 
3.5 
3.1 
2.4 
 
4.3 
3.6 
3.0 
3.1 
2.8 
Unemployment
4.1 
4.5 
5.1 
5.9 
6.7 
 
4.2 
4.6 
5.2 
6.0 
6.8 
House Price Inflation - change
10.0 
7.3 
3.9 
2.8 
(0.1)
 
9.2 
6.8 
4.0 
3.2 
0.8 
European Central Bank base rate
1.5 
0.8 
0.1 
 
1.3 
0.8 
0.3 
 
 
 
 
 
 
 
 
 
 
 
 
World GDP - change
3.9 
3.4 
2.8 
2.5 
2.0 
 
3.6 
3.2 
2.7 
2.5 
2.3 
 
 
 
 
 
 
 
 
 
 
 
 
Probability weight
12.7 
14.8 
30.0 
29.7 
12.7 
 
12.8 
17.0 
30.0 
25.6 
14.6 
 
Probability weightings of scenarios (Within the scope of EY’s review report)
RBS’s approach to IFRS 9 multiple economic scenarios in Personal involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights to those scenarios. This involves the following steps:
Scenario selection – Two upside and two downside scenarios from Moody’s inventory of scenarios were chosen. The aim is to obtain downside scenarios that are not as severe as stress tests, so typically they have a severity of around one in ten and one in five of approximate likelihood, along with corresponding upsides.
Severity assessment – Having selected the most appropriate scenarios their severity is then assessed based on the behaviour of UK GDP by calculating a variety of measures such as average growth, deviation from baseline and peak to trough falls. These measures are compared against a set of 1,000 model runs, following which, a percentile in the distribution is established which most closely corresponds to the scenario.
Probability assignment – Having established the relevant percentile points, probability weights are assigned to ensure that the scenarios produce an unbiased result. If the severity assessment step shows the scenarios to be broadly symmetric, then this will result in a symmetric probability weight (same probability weight above and below the base case). However, if the downsides are not as extreme as the upsides, then a higher probability weight is allocated to the downsides to ensure the unbiasedness requirement is satisfied. This adjustment is made purely to restore unbiasedness, not to address any relative skew in the distribution of risks in the economic outlook.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities
Introduction
This section covers the credit risk profile of RBS’s banking activities. Banking activities include a small number of portfolios that were carried at fair value.
 
Financial instruments within the scope of the IFRS 9 ECL framework (Within the scope of EY’s review report)
Refer to Note 8 of the main announcement for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.
 
Financial assets
Of the total third party £485.1 billion AC and FVOCI balance (gross of ECL), £472 billion or 97% was within the scope of the IFRS 9 ECL framework and comprised by stage: Stage 1 £438.8 billion; Stage 2 £25.9 billion; and Stage 3 £7.3 billion (31 December 2018 – £463.9 billion of which Stage 1 £430.1 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion). Total assets within IFRS 9 ECL scope comprised the following by balance sheet caption and stage:
Loans: £325 billion of which Stage 1 £292 billion; Stage 2 £25.7 billion; and Stage 3 £7.3 billion (31 December 2018 – £319.8 billion of which Stage 1 £286.0 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion).
Other financial assets: £147 billion of which Stage 1 £146.8 billion; Stage 2 £0.2 billion; and Stage 3 nil (31 December 2018 – £144.1 billion of which Stage 1 £144.1 billion; Stage 2 nil; and Stage 3 nil).
 
Those assets outside the framework were as follows:
Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £10.1 billion. These were assessed as having no ECL unless there was evidence that they were credit impaired.
Equity shares of £1.1 billion as not within the IFRS 9 ECL framework by definition.
Fair value adjustments of £1.1 billion on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope.
Group-originated securitisations, where ECL was captured on the underlying loans of £0.4 billion.
Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer’s linked current account of £0.4 billion.
 
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 12 of the main announcement, reputationally-committed limits are also included in the scope of the IFRS 9 ECL framework. These are offset by £4 billion out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £177.4 billion comprised Stage 1; £171.3 billion; Stage 2 £5.4 billion; and Stage 3 £0.7 billion.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Portfolio summary – segment analysis (Within the scope of EY’s review report)
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
 
 
Ulster
Commercial
Private
 
 
Central items
 
 
UK PB
Bank RoI
Banking
Banking
RBSI
NWM
& other
Total
30 June 2019
£m
£m
£m
£m
£m
£m
£m
£m
Loans - amortised cost
 
 
 
 
 
 
 
 
Stage 1
137,384 
19,684 
90,287 
14,198 
15,011 
9,539 
5,881 
291,984 
Stage 2
13,515 
1,638 
9,237 
531 
426 
229 
129 
25,705 
Stage 3
1,827 
2,171 
2,340 
173 
99 
715 
7,325 
 
152,726 
23,493 
101,864 
14,902 
15,536 
10,483 
6,010 
325,014 
ECL provisions (1)
 
 
 
 
 
 
 
 
Stage 1
99 
28 
123 
12 
280 
Stage 2
417 
56 
187 
10 
682 
Stage 3
710 
588 
926 
19 
16 
81 
2,340 
 
1,226 
672 
1,236 
40 
22 
99 
3,302 
ECL provisions coverage (2)
 
 
 
 
 
 
 
 
Stage 1 (%)
0.07 
0.14 
0.14 
0.08 
0.03 
0.08 
0.10 
0.10 
Stage 2 (%)
3.09 
3.42 
2.02 
1.69 
0.47 
4.37 
0.78 
2.65 
Stage 3 (%)
38.86 
27.08 
39.57 
10.98 
16.16 
11.33 
31.95 
 
0.80 
2.86 
1.21 
0.27 
0.14 
0.94 
0.12 
1.02 
Impairment losses
 
 
 
 
 
 
 
 
ECL charge (3)
181 
(21)
202 
(3)
(3)
(36)
323 
Stage 1
(53)
(24)
(55)
(5)
(3)
(2)
(140)
Stage 2
103 
(38)
38 
(1)
(2)
101 
Stage 3
131 
41 
219 
(32)
362 
ECL loss rate - annualised (basis points)
23.70 
(17.88)
39.66 
(4.03)
(3.86)
(68.68)
9.98 
19.88 
Amounts written-off
90 
72 
276 
11 
452 
31 December 2018*
 
 
 
 
 
 
 
 
Loans - amortised cost
 
 
 
 
 
 
 
 
Stage 1
134,836 
17,822 
91,034 
13,750 
13,383 
8,196 
6,964 
285,985 
Stage 2
13,245 
2,080 
9,518 
531 
289 
407 
27 
26,097 
Stage 3
1,908 
2,308 
2,448 
225 
101 
728 
7,718 
 
149,989 
22,210 
103,000 
14,506 
13,773 
9,331 
6,991 
319,800 
ECL provisions (1)
 
 
 
 
 
 
 
 
Stage 1
101 
35 
124 
13 
285 
Stage 2
430 
114 
194 
10 
12 
763 
Stage 3
597 
638 
942 
20 
17 
106 
2,320 
 
1,128 
787 
1,260 
43 
26 
124 
3,368 
ECL provisions coverage (2)
 
 
 
 
 
 
 
 
Stage 1 (%)
0.07 
0.20 
0.14 
0.09 
0.04 
0.07 
0.10 
Stage 2 (%)
3.25 
5.48 
2.04 
1.88 
1.04 
2.95 
2.92 
Stage 3 (%)
31.29 
27.64 
38.48 
8.89 
16.83 
14.56 
30.06 
 
0.75 
3.54 
1.22 
0.30 
0.19 
1.33 
1.05 
Impairment losses
 
 
 
 
 
 
 
 
ECL charge (3)
339 
15 
147 
(6)
(2)
(92)
(3)
398 
ECL loss rate - annualised (basis points)
22.60 
6.75 
14.27 
(4.14)
(1.45)
(98.60)
(4.29)
12.45 
Amounts written-off
445 
372 
572 
89 
1,494 
*Restated. Refer to Note 1 of the main announcement for further details.
Notes:
(1)
Includes £4 million (31 December 2018 – £5 million) related to assets at FVOCI.
(2)
ECL provisions coverage is ECL provisions divided by loans - amortised cost.
(3)
Includes a £30 million charge (31 December 2018 £3 million charge) related to other financial assets, of which nil (31 December 2018 £1 million charge) related to assets at FVOCI; and a £28 million charge (31 December 2018 £31 million release) related to contingent liabilities.
 
Key points
Total ECL provisions reduced slightly in the first half of 2019. The reduced ECL requirement in Stage 1 and Stage 2 performing exposures offset a small increased provisioning requirement in Stage 3 exposures. The ECL requirement arising from the economic uncertainty associated with Brexit is formally reviewed by the Provisions Committee at the end of each quarter. As at the end of H1 2019, the modelled impact remained unchanged from the year end at £101 million.
In UK PB, the ECL levels remained broadly stable in Stage 1 and Stage 2 with the increase in Stage 3 including the effect of a loss rate model adjustment on unsecured lending. In addition, the value of new defaults was higher than write-offs and debt repayments by customers, and unlike in 2018, there were no debt sales in H1 2019.
In Ulster Bank RoI, the reduction in ECL was driven by ongoing improvements in the portfolio performance and the completion of the remainder of the Bank’s 2018 sale of non-performing loans in H1 2019.
In Commercial Banking, the ECL balance reduced marginally with write-offs of legacy positions more than offsetting the small number of significant individual charges during the period.
The impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of between 30 and 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges within Commercial Banking.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Segmental loans and impairment metrics (Within the scope of EY’s review report)
The table below shows gross loans and ECL, by segment and stage, within the scope of the ECL framework.
 
Gross loans
 
ECL provisions (2)
 
 
Stage 2 (1)
 
 
 
 
Stage 2 (1)
 
 
 
Stage 1
≤30 DPD
>30 DPD
Total
Stage 3
Total
 
Stage 1
≤30 DPD
>30 DPD
Total
Stage 3
Total
30 June 2019
£m
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
£m
UK PB
137,384 
12,900 
615 
13,515 
1,827 
152,726 
 
99 
371 
46 
417 
710 
1,226 
Ulster Bank RoI
19,684 
1,583 
55 
1,638 
2,171 
23,493 
 
28 
51 
56 
588 
672 
Personal (3)
11,304 
1,082 
37 
1,119 
2,000 
14,423 
 
23 
26 
490 
525 
Wholesale
8,380 
501 
18 
519 
171 
9,070 
 
19 
28 
30 
98 
147 
Commercial Banking
90,287 
8,891 
346 
9,237 
2,340 
101,864 
 
123 
181 
187 
926 
1,236 
Private Banking
14,198 
356 
175 
531 
173 
14,902 
 
12 
19 
40 
Personal
11,324 
203 
51 
254 
157 
11,735 
 
15 
22 
Wholesale
2,874 
153 
124 
277 
16 
3,167 
 
18 
RBS International
15,011 
417 
426 
99 
15,536 
 
16 
22 
Personal
2,610 
36 
43 
86 
2,739 
 
12 
14 
Wholesale
12,401 
381 
383 
13 
12,797 
 
NatWest Markets
9,539 
229 
229 
715 
10,483 
 
10 
10 
81 
99 
Central items and other
5,881 
129 
129 
6,010 
 
Total loans
291,984 
24,505 
1,200 
25,705 
7,325 
325,014 
 
280 
620 
62 
682 
2,340 
3,302 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
162,622 
14,221 
710 
14,931 
4,070 
181,623 
 
113 
398 
49 
447 
1,227 
1,787 
Wholesale
129,362 
10,284 
490 
10,774 
3,255 
143,391 
 
167 
222 
13 
235 
1,113 
1,515 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018*
 
 
 
 
 
 
 
 
 
 
 
 
 
UK PB
134,836 
12,521 
725 
13,245 
1,908 
149,989 
 
101 
382 
48 
430 
597 
1,128 
Ulster Bank RoI
17,822 
1,968 
112 
2,080 
2,308 
22,210 
 
35 
103 
11 
114 
638 
787 
Personal (3)
11,059 
1,353 
105 
1,458 
2,153 
14,670 
 
13 
73 
11 
84 
530 
627 
Wholesale
6,763 
615 
622 
155 
7,540 
 
22 
30 
30 
108 
160 
Commercial Banking
91,034 
9,087 
430 
9,518 
2,448 
103,000 
 
124 
186 
194 
942 
1,260 
Private Banking
13,750 
380 
151 
531 
225 
14,506 
 
13 
10 
20 
43 
Personal
10,803 
183 
25 
208 
203 
11,214 
 
17 
25 
Wholesale
2,947 
197 
126 
323 
22 
3,292 
 
18 
RBS International
13,383 
274 
15 
289 
101 
13,773 
 
17 
26 
NatWest Markets
8,196 
407 
407 
728 
9,331 
 
12 
12 
106 
124 
Central items and other
6,964 
27 
27 
6,991 
 
Total loans
285,985 
24,664 
1,433 
26,097 
7,718 
319,800 
 
285 
691 
72 
763 
2,320 
3,368 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
159,553 
14,106 
865 
14,971 
4,351 
178,875 
 
122 
458 
59 
517 
1,158 
1,797 
Wholesale
126,432 
10,558 
568 
11,126 
3,367 
140,925 
 
163 
233 
13 
246 
1,162 
1,571 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*Restated. Refer to Note 1 of the main announcement for further details.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Segmental loans and impairment metrics (Within the scope of EY’s review report)
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.
 
 
ECL provisions coverage
 
ECL
 
 
Stage 2 (1,2)
 
 
 
Total
 
Amounts
 
Stage 1
≤30 DPD
>30 DPD
Total
Stage 3
Total
 
charge
Loss rate
written-off
30 June 2019
%
%
%
%
%
%
 
£m
basis points
£m
UK PB
0.07 
2.88 
7.48 
3.09 
38.86 
0.80 
 
181 
23.70 
90 
Ulster Bank RoI
0.14 
3.22 
9.09 
3.42 
27.08 
2.86 
 
(21)
(17.88)
72 
Personal (3)
0.08 
2.13 
8.11 
2.32 
24.50 
3.64 
 
(10)
(13.87)
64 
Wholesale
0.23 
5.59 
11.11 
5.78 
57.31 
1.62 
 
(11)
(24.26)
Commercial Banking
0.14 
2.04 
1.73 
2.02 
39.57 
1.21 
 
202 
39.66 
276 
Private Banking
0.08 
1.12 
2.86 
1.69 
10.98 
0.27 
 
(3)
(4.03)
Personal
0.04 
1.48 
1.18 
9.55 
0.19 
 
(3)
(5.11)
Wholesale
0.28 
0.65 
4.03 
2.17 
25.00 
0.57 
 
RBS International
0.03 
0.48 
0.47 
16.16 
0.14 
 
(3)
(3.86)
Personal
0.04 
2.78 
2.33 
13.95 
0.51 
 
(1)
(7.30)
Wholesale
0.02 
0.26 
0.26 
30.77 
0.06 
 
(2)
(3.13)
NatWest Markets
0.08 
4.37 
4.37 
11.33 
0.94 
 
(36)
(68.68)
11 
Central items and other
0.10 
0.78 
0.78 
0.12 
 
9.98 
Total loans
0.10 
2.53 
5.17 
2.65 
31.95 
1.02 
 
323 
19.88 
452 
Of which:
 
 
 
 
 
 
 
 
 
 
Personal
0.07 
2.80 
6.90 
2.99 
30.15 
0.98 
 
167 
18.39 
157 
Wholesale
0.13 
2.16 
2.65 
2.18 
34.19 
1.06 
 
156 
21.76 
295 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018*
 
 
 
 
 
 
 
 
 
 
UK PB
0.07 
3.05 
6.62 
3.25 
31.29 
0.75 
 
339 
22.6 
445 
Ulster Bank RoI
0.20 
5.23 
9.82 
5.48 
27.64 
3.54 
 
15 
6.8 
372 
Personal (3)
0.12 
5.40 
10.48 
5.76 
24.62 
4.27 
 
20 
13.6 
343 
Wholesale
0.33 
4.88 
4.82 
69.68 
2.12 
 
(5)
(6.6)
29 
Commercial Banking
0.14 
2.05 
1.86 
2.04 
38.48 
1.22 
 
147 
14.3 
572 
Private Banking
0.09 
1.32 
3.31 
1.88 
8.89 
0.30 
 
(6)
(4.1)
Personal
0.05 
1.64 
1.44 
8.37 
0.22 
 
(6)
(5.4)
Wholesale
0.27 
1.02 
3.97 
2.17 
13.64 
0.55 
 
RBS International
0.04 
1.09 
1.04 
16.83 
0.19 
 
(2)
(1.5)
NatWest Markets
0.07 
2.95 
2.95 
14.56 
1.33 
 
(92)
(98.6)
89 
Central items and other
 
(3)
(4.3)
Total loans excluding
 
 
 
 
 
 
 
 
 
 
   balances at central banks
0.10 
2.80 
5.02 
2.92 
30.06 
1.05 
 
398 
12.5 
1,494 
Personal
0.08 
3.25 
6.82 
3.45 
26.61 
1.00 
 
354 
19.8 
776 
Wholesale
0.13 
2.21 
2.29 
2.21 
34.51 
1.11 
 
44 
3.1 
718 
Total loans
0.08 
2.80 
5.02 
2.92 
30.06 
0.83 
 
398 
9.8 
1,494 
 
 
 
 
 
 
 
 
 
 
 
*Restated. Refer to Note 1 of the main announcement for further details.
Notes:
(1)
30 DPD – 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for significant increase in credit risk.
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
(3)
Includes a £1 million charge and a £1 million write off (31 December 2018 – £1 million and £3 million) related to the business banking portfolio in Ulster Bank RoI.
(4)
Balances at central banks in scope for ECL are £84.1 billion (31 December 2018 - £87.2 billion). ECL provision related to these balances is £3 million (31 December 2018 - £2 million).
 
Key points
For UK PB, the annualised loss rate of 24 basis points compared to 23 basis points for 2018, with the impairment charge for underlying new defaults broadly stable in H1 2019. The overall coverage level increased slightly driven by the uplift in Stage 3 which included the effect of a loss rate model adjustment on unsecured lending. The reduction in the total value of Stage 3 exposures reflected a methodology refinement in the mortgage portfolio.
In Ulster Bank RoI, the P&L benefited from a provision release due to improvements in the portfolio performance reflective of the prevailing macro economic environment.
In Commercial Banking, the loss rate of 40 basis points increased from 2018 reflecting a small number of individual charges and a reduction in the level of impairment releases. The coverage level remained stable at 1.21%.
In NatWest Markets, the negative loss rate reflected the impact of impairment releases on the legacy portfolio and included a £27 million gain on purchased or originated credit impaired assets.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Portfolio summary – sector analysis (Within the scope of EY’s review report)
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region based on the country of operation of the customer.
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages (1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
30 June 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by geography
167,499 
4,181 
9,943 
181,623 
 
36,918 
71,708 
27,035 
7,730 
143,391 
 
325,014 
  - UK
152,515 
4,085 
9,467 
166,067 
 
33,910 
59,111 
17,312 
3,428 
113,761 
 
279,828 
  - RoI
14,119 
96 
223 
14,438 
 
1,225 
4,131 
194 
3,662 
9,212 
 
23,650 
  - Other Europe
274 
90 
364 
 
1,387 
3,927 
4,308 
334 
9,956 
 
10,320 
  - RoW
591 
163 
754 
 
396 
4,539 
5,221 
306 
10,462 
 
11,216 
Loans by asset quality (2,3)
167,499 
4,181 
9,943 
181,623 
 
36,918 
71,708 
27,035 
7,730 
143,391 
 
325,014 
  - AQ1-AQ4
105,736 
24 
1,070 
106,830 
 
15,740 
23,161 
25,792 
7,574 
72,267 
 
179,097 
  - AQ5-AQ8
57,317 
3,955 
7,935 
69,207 
 
19,548 
46,230 
1,219 
150 
67,147 
 
136,354 
  - AQ9
1,144 
62 
310 
1,516 
 
114 
605 
722 
 
2,238 
  - AQ10
3,302 
140 
628 
4,070 
 
1,516 
1,712 
22 
3,255 
 
7,325 
Loans by stage
167,499 
4,181 
9,943 
181,623 
 
36,918 
71,708 
27,035 
7,730 
143,391 
 
325,014 
  - Stage 1
152,647 
2,831 
7,144 
162,622 
 
33,252 
61,854 
26,537 
7,719 
129,362 
 
291,984 
  - Stage 2
11,550 
1,210 
2,171 
14,931 
 
2,150 
8,142 
476 
10,774 
 
25,705 
  - Stage 3
3,302 
140 
628 
4,070 
 
1,516 
1,712 
22 
3,255 
 
7,325 
Weighted average 12 months PDs *
 
 
 
 
 
 
 
 
 
 
 
 
  - IFRS 9 (%)
0.33 
4.15 
2.84 
0.55 
 
0.73 
0.91 
0.12 
0.07 
0.71 
 
0.61 
  - Basel (%)
0.83 
3.82 
4.02 
1.06 
 
0.98 
1.59 
0.22 
0.08 
1.07 
 
1.07 
ECL provisions by geography
739 
224 
824 
1,787 
 
424 
1,050 
32 
1,515 
 
3,302 
  - UK
236 
221 
805 
1,262 
 
361 
681 
17 
1,065 
 
2,327 
  - RoI
503 
19 
525 
 
40 
116 
158 
 
683 
  - Other Europe
 
21 
139 
12 
173 
 
173 
  - RoW
 
114 
119 
 
119 
ECL provisions by stage
739 
224 
824 
1,787 
 
424 
1,050 
32 
1,515 
 
3,302 
  - Stage 1
16 
36 
61 
113 
 
44 
103 
11 
167 
 
280 
  - Stage 2
96 
100 
251 
447 
 
41 
185 
235 
 
682 
  - Stage 3
627 
88 
512 
1,227 
 
339 
762 
12 
1,113 
 
2,340 
ECL provisions coverage (%)
0.44 
5.36 
8.29 
0.98 
 
1.15 
1.46 
0.12 
0.12 
1.06 
 
1.02 
  - Stage 1 (%)
0.01 
1.27 
0.85 
0.07 
 
0.13 
0.17 
0.04 
0.12 
0.13 
 
0.10 
  - Stage 2 (%)
0.83 
8.26 
11.56 
2.99 
 
1.91 
2.27 
1.89 
2.18 
 
2.65 
  - Stage 3 (%)
18.99 
62.86 
81.53 
30.15 
 
22.36 
44.51 
54.55 
34.19 
 
31.95 
ECL charge
26 
138 
167 
 
22 
134 
(2)
156 
 
323 
ECL loss rate (%)
1.24 
2.78 
0.18 
 
0.12 
0.37 
(0.01)
0.05 
0.22 
 
0.20 
Amounts written-off
71 
35 
51 
157 
 
173 
112 
10 
295 
 
452 
Other financial assets by asset quality (3)
 
710 
12,490 
133,781 
146,981 
 
146,981 
  - AQ1-AQ4
 
115 
11,825 
133,781 
145,721 
 
145,721 
  - AQ5-AQ8
 
587 
659 
1,246 
 
1,246 
  - AQ9
 
11 
 
11 
  - AQ10
 
 
Off-balance sheet
12,883 
16,768 
12,390 
42,041 
 
16,230 
53,157 
26,949 
39,064 
135,400 
 
177,441 
Loan commitments
12,883 
16,768 
12,380 
42,031 
 
15,538 
50,061 
25,356 
39,064 
130,019 
 
172,050 
Financial guarantees
10 
10 
 
692 
3,096 
1,593 
5,381 
 
5,391 
Off-balance sheet by asset quality (3)
12,883 
16,768 
12,390 
42,041 
 
16,230 
53,157 
26,949 
39,064 
135,400 
 
177,441 
  - AQ1-AQ4
11,830 
309 
9,455 
21,594 
 
11,983 
36,462 
25,443 
39,049 
112,937 
 
134,531 
  - AQ5-AQ8
1,043 
16,166 
2,924 
20,133 
 
4,125 
16,349 
1,504 
15 
21,993 
 
42,126 
  - AQ9
11 
16 
 
88 
96 
 
112 
  - AQ10 (4)
289 
298 
 
114 
258 
374 
 
672 
 
 
 
 
 
*Not within the scope of EY's review report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Portfolio summary – sector analysis (Within the scope of EY’s review report)
 
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages (1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
31 December 2018
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by geography
165,081 
4,216 
9,578 
178,875 
 
36,707 
72,240 
25,011 
6,967 
140,925 
 
319,800 
  - UK
150,233 
4,112 
9,117 
163,462 
 
33,855 
60,657 
11,611 
3,089 
109,212 
 
272,674 
  - RoI
14,350 
104 
233 
14,687 
 
1,114 
3,733 
392 
2,497 
7,736 
 
22,423 
  - Other Europe
102 
67 
169 
 
1,395 
3,760 
5,903 
1,088 
12,146 
 
12,315 
  - RoW
396 
161 
557 
 
343 
4,090 
7,105 
293 
11,831 
 
12,388 
Loans by asset quality (2,3)
165,081 
4,216 
9,578 
178,875 
 
36,707 
72,240 
25,011 
6,967 
140,925 
 
319,800 
  - AQ1-AQ4
104,989 
35 
1,040 
106,064 
 
16,133 
22,587 
22,397 
6,802 
67,919 
 
173,983 
  - AQ5-AQ8
55,139 
3,990 
7,736 
66,865 
 
18,815 
47,651 
2,574 
161 
69,201 
 
136,066 
  - AQ9
1,287 
69 
239 
1,595 
 
74 
359 
438 
 
2,033 
  - AQ10
3,666 
122 
563 
4,351 
 
1,685 
1,643 
35 
3,367 
 
7,718 
Loans by stage
165,081 
4,216 
9,578 
178,875 
 
36,707 
72,240 
25,011 
6,967 
140,925 
 
319,800 
  - Stage 1
149,760 
2,851 
6,942 
159,553 
 
33,145 
61,844 
24,502 
6,941 
126,432 
 
285,985 
  - Stage 2
11,655 
1,243 
2,073 
14,971 
 
1,877 
8,753 
474 
22 
11,126 
 
26,097 
  - Stage 3
3,666 
122 
563 
4,351 
 
1,685 
1,643 
35 
3,367 
 
7,718 
Weighted average 12 months PDs *
 
 
 
 
 
 
 
 
 
 
 
 
  - IFRS 9 (%)
0.32 
4.03 
2.77 
0.54 
 
0.75 
0.97 
0.14 
0.06 
0.75 
 
0.62 
  - Basel (%)
0.84 
3.52 
3.50 
1.04 
 
0.95 
1.43 
0.23 
0.06 
1.01 
 
1.03 
ECL provisions by geography
839 
230 
728 
1,797 
 
588 
941 
41 
1,571 
 
3,368 
  - UK
237 
227 
707 
1,171 
 
518 
615 
27 
1,161 
 
2,332 
  - RoI
602 
21 
626 
 
43 
125 
170 
 
796 
  - Other Europe
 
22 
53 
10 
85 
 
85 
  - RoW
 
148 
155 
 
155 
ECL provisions by stage
839 
230 
728 
1,797 
 
588 
941 
41 
1,571 
 
3,368 
  - Stage 1
23 
38 
61 
122 
 
43 
107 
12 
163 
 
285 
  - Stage 2
150 
120 
247 
517 
 
39 
200 
246 
 
763 
  - Stage 3
666 
72 
420 
1,158 
 
506 
634 
22 
1,162 
 
2,320 
ECL provisions coverage (%)
0.51 
5.46 
7.60 
1.00 
 
1.60 
1.30 
0.16 
0.01 
1.11 
 
1.05 
  - Stage 1 (%)
0.02 
1.33 
0.88 
0.08 
 
0.13 
0.17 
0.05 
0.01 
0.13 
 
0.10 
  - Stage 2 (%)
1.29 
9.65 
11.92 
3.45 
 
2.08 
2.28 
1.48 
2.21 
 
2.92 
  - Stage 3 (%)
18.17 
59.02 
74.60 
26.61 
 
30.03 
38.59 
62.86 
34.51 
 
30.06 
ECL charge
57 
87 
210 
354 
 
30 
13 
(2)
44 
 
398 
ECL loss rate (%)
0.03 
2.06 
2.19 
0.20 
 
0.08 
0.02 
0.01 
(0.03)
0.03 
 
0.12 
Amounts written-off
368 
79 
329 
776 
 
292 
395 
31 
718 
 
1,494 
Other financial assets by asset quality (3)
 
105 
652 
8,838 
134,546 
144,141 
 
144,141 
  - AQ1-AQ4
 
105 
10 
8,110 
134,546 
142,771 
 
142,771 
  - AQ5-AQ8
 
642 
721 
1,363 
 
1,363 
  - AQ9
 
 
  - AQ10
 
 
Off-balance sheet
13,228 
16,613 
12,229 
42,070 
 
16,044 
52,730 
28,761 
29,277 
126,812 
 
168,882 
Loan commitments
13,228 
16,613 
12,229 
42,070 
 
15,335 
48,569 
26,684 
29,276 
119,864 
 
161,934 
Financial guarantees
 
709 
4,161 
2,077 
6,948 
 
6,948 
Off-balance sheet by asset quality (3)
13,228 
16,613 
12,229 
42,070 
 
16,044 
52,730 
28,761 
29,277 
126,812 
 
168,882 
  - AQ1-AQ4
12,116 
422 
9,103 
21,641 
 
11,945 
36,134 
27,364 
29,262 
104,705 
 
126,346 
  - AQ5-AQ8
1,101 
15,900 
3,116 
20,117 
 
3,928 
16,390 
1,397 
15 
21,730 
 
41,847 
  - AQ9
10 
19 
 
46 
52 
 
71 
  - AQ10 (4)
10 
283 
293 
 
165 
160 
325 
 
618 
 
 
 
 
 
 
 
 
 
 
 
 
 
*Not within the scope of EY's review report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
Includes £0.6 billion (31 December 2018 – £0.7 billion) secured lending in Private Banking, in line with ECL calculation methodology.
(2)
AQ10 includes £0.7 billion (31 December 2018 – £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3.
(3)
AQ bandings are based on Basel PDs and mapping is as follows: 
 
Internal asset quality band
Probability of default range
Indicative S&P rating
AQ1
0% - 0.034%
AAA to AA
AQ2
0.034% - 0.048%
AA to AA-
AQ3
0.048% - 0.095%
A+ to A
AQ4
0.095% - 0.381%
BBB+ to BBB-
AQ5
0.381% - 1.076%
BB+ to BB
AQ6
1.076% - 2.153%
BB- to B+
AQ7
2.153% - 6.089%
B+ to B
AQ8
6.089% - 17.222%
B- to CCC+
AQ9
17.222% - 100%
CCC to C
AQ10
100%
D
 
(4)
£0.3 billion (December 2018 - £0.3 billion) AQ10 Personal balances primarily relate to loan commitments, the draw down of which is effectively prohibited.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Portfolio summary – sector analysis (Within the scope of EY’s review report)
Wholesale forbearance
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on the next page.
 
FI
Property
Sovereigns
Other corporate
Total
30 June 2019
£m
£m
£m
£m
£m
Forbearance (flow)
284 
1,594 
1,881 
Heightened Monitoring and Risk of Credit Loss
88 
1,082 
3,771 
4,941 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
Forbearance (flow)
14 
305 
2,247 
2,566 
Heightened Monitoring and Risk of Credit Loss
100 
503 
16 
4,145 
4,764 
 
Key points
  Loans by stage – The percentage of exposure in Stage 1 and Stage 2 was broadly unchanged from the 2018 year end. The reduction in value of mortgage Stage 3 exposures included a methodology change in the UK PB portfolio and also the completion of the remainder of Ulster Bank RoI’s 2018 sale of non-performing loans in H1 2019.
Weighted average 12 months PDs – In Wholesale, Basel PDs, which are based on a through-the-cycle approach, tend to be higher than point-in-time best estimate IFRS 9 PDs, which reflect the current state in the economic cycle. Basel PDs also include an element of conservatism associated with the regulatory capital framework. In Personal, the Basel PDs, which are point-in-time estimates, also tend to be higher also reflecting conservatism (conservatism is higher in mortgages than other products), and an element of default rate under-prediction in the IFRS 9 PD models. This overall default rate under-prediction was mitigated by net ECL modelling overlays of approximately £30 million at H1 2019, pending model calibrations being implemented. The IFRS 9 PD for credit cards was higher than the Basel equivalent and reflected the relative sensitivity of the IFRS 9 model to forward-looking economic drivers, as well as an IFRS 9 model over-prediction mitigated within the ECL overlay.
● ECL provision by stage and coverage – The majority of ECL by value in both Personal and Wholesale was in Stage 3. Provision coverage was progressively higher by stage reflecting the lifetime nature of losses in both Stage 2 and Stage 3. In the Personal portfolio, provision coverage was materially lower in mortgages relative to credit cards and other personal unsecured products reflecting the secured nature of the facilities. For Wholesale exposures, security and enterprise value mitigated losses in Stage 3.
In mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in the Ulster Bank RoI business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI’s 2018 sale of non-performing loans in H1 2019. The increase in ECL and provision coverage on Other personal included the effect of a loss rate model adjustment.
The ECL impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of 30 to 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges.
Completed Wholesale forbearance in the six months to 30 June 2019 was £1.9 billion compared to £2.6 billion for the full year 2018. Forbearance during the period was largely driven by Services, Retail & Leisure, Property and Transport sectors. The volume of customers completing forbearance was similar to 2018. However, exposure levels increased due to a small number of entities with large exposures. The portfolio continues to be monitored closely with targeted sector reviews.
Heightened Monitoring and Risk of Credit Loss – The volume of customers classified as Heightened Monitoring or Risk of Credit Loss remained similar to December 2018 with exposure increasing from £4.8 billion to £4.9 billion in the period to 30 June 2019. The increase in exposures was driven by the Heightened Monitoring portfolio. With ongoing economic and political uncertainty, key wholesale sectors continue to be reviewed at senior credit forums with business appetite and underwriting standards tightened where necessary.
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Personal portfolio (Within the scope of EY’s review report)
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
 
 
 
 
 
 
30 June 2019
 
31 December 2018
 
UK
Ulster
Private
 
 
 
UK
Ulster
Private
 
 
 
PB
Bank RoI
Banking
RBSI
Total
 
PB
Bank RoI
Banking
RBSI
Total
Personal lending
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
Mortgages
140,929 
14,181 
9,474 
2,661 
167,245 
 
138,250 
14,361 
9,082 
2,684 
164,377 
of which:
 
 
 
 
 
 
 
 
 
 
 
  Owner occupied
125,719 
13,070 
8,302 
1,756 
148,847 
 
122,642 
13,105 
7,953 
1,781 
145,481 
  Buy-to-let
15,210 
1,111 
1,172 
905 
18,398 
 
15,608 
1,256 
1,129 
903 
18,896 
  Interest only - variable
7,062 
179 
3,585 
431 
11,257 
 
8,358 
188 
3,871 
489 
12,906 
  Interest only - fixed
12,632 
10 
4,275 
226 
17,143 
 
12,229 
12 
3,636 
187 
16,064 
  Mixed (1)
6,088 
63 
22 
6,175 
 
6,036 
68 
18 
6,124 
  Impairment provision (2)
215 
502 
13 
735 
 
212 
602 
16 
835 
Other personal lending (3)
12,179 
317 
1,654 
52 
14,202 
 
11,633 
330 
1,676 
55 
13,694 
 Impairment provision (2)
1,003 
22 
17 
1,043 
 
909 
25 
19 
954 
Total personal lending
153,108 
14,498 
11,128 
2,713 
181,447 
 
149,883 
14,691 
10,758 
2,739 
178,071 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage LTV ratios
 
 
 
 
 
 
 
 
 
 
 
  - Total portfolio
57%
61%
56%
58%
57%
 
56%
62%
56%
58%
57%
    - Stage 1
57%
58%
56%
57%
57%
 
56%
58%
56%
57%
56%
    - Stage 2
59%
66%
56%
66%
60%
 
58%
67%
58%
55%
59%
    - Stage 3
56%
74%
58%
91%
67%
 
55%
77%
58%
99%
69%
  - Buy-to-let
53%
63%
53%
53%
54%
 
53%
64%
53%
53%
54%
    - Stage 1
52%
60%
53%
53%
53%
 
53%
58%
53%
52%
53%
    - Stage 2
58%
68%
58%
48%
59%
 
57%
72%
53%
57%
60%
    - Stage 3
59%
76%
61%
67%
68%
 
58%
78%
68%
75%
71%
Gross new mortgage lending
13,957 
612 
1,015 
173 
15,757 
 
29,555 
1,015 
1,846 
353 
32,769 
of which:
 
 
 
 
 
 
 
 
 
 
 
  Owner occupied exposure
13,480 
606 
929 
113 
15,128 
 
28,608 
1,004 
1,689 
241 
31,542 
  Weighted average LTV
70%
75%
64%
73%
70%
 
69%
73%
62%
68%
69%
  Buy-to-let exposure
477 
86 
60 
628 
 
947 
11 
157 
112 
1,227 
  Weighted average LTV
62%
59%
57%
64%
61%
 
61%
57%
55%
61%
60%
  Interest only variable rate
13 
309 
325 
 
43 
697 
13 
753 
  Interest only fixed rate
567 
500 
30 
1,097 
 
1,189 
764 
43 
1,996 
  Mixed (1)
461 
461 
 
912 
913 
Mortgage forbearance
 
 
 
 
 
 
 
 
 
 
 
Forbearance flow
254 
169 
435 
 
446 
210 
11 
16 
683 
Forbearance stock
1,289 
2,429 
12 
3,737 
 
1,338 
2,645 
17 
4,008 
  Current
683 
1,265 
10 
1,962 
 
724 
1,291 
14 
2,035 
  1-3 months in arrears
351 
204 
559 
 
350 
261 
612 
  >3 months in arrears
255 
960 
1,216 
 
264 
1,093 
1,362 
 
Notes:
(1)
Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.
(2)
For UK PB this excludes a non material amount of provisions held on relatively small legacy portfolios.
(3)
Other lending comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. Other Lending excludes loans that that are commercial in nature.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Personal portfolio (Within the scope of EY’s review report)
Key points
The overall credit risk profile of the Personal portfolio, and its performance against credit risk appetite, remained stable during 2019.
 
 
In UK PB, lending grew by £2.7 billion in the first six months with new lending partly offset by mortgage redemptions and repayments. In Ulster Bank RoI, the reduction in the mortgage portfolio was primarily driven by the completion of the remainder of Ulster Bank RoI’s 2018 sale of non-performing loans in H1 2019, as well as portfolio amortisation and redemptions outweighing new lending in the first half of 2019.
 
 
New mortgage lending was higher than in H1 2018. The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, loan-to-income ratios, buy-to-let concentrations, new-build concentrations and credit quality. Underwriting standards were maintained during the period.
 
 
Mortgage growth was driven by the owner-occupied portfolio. New mortgages in the buy-to-let portfolio remained subdued as tax and regulatory changes in the UK affected borrower activity.
 
 
The mortgage portfolio loan-to-value ratio increased slightly in the UK, reflecting slower UK house price growth.
 
 
The stock of lending in Greater London and the South East was 42% of the UK PB portfolio. (31 December 2018 – 42%). The average weighted loan-to-value for these regions was 52% (31 December 2018 – 51%) compared to 57% for all regions.
 
 
By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced, driven by fewer buy-to-let mortgages and low volumes of owner occupier interest only new business.
 
 
As at 30 June 2019, 85% of customers in the UK PB mortgage portfolio were on fixed rates (47% on five-year deals). In addition, 97% of all new mortgage completions were fixed-rate deals (62% of which were five-year deals), as customers sought to minimise the impact of potential rate rises.
 
 
The growth in unsecured lending during the first six months of 2019 was driven by the UK PB unsecured loans portfolio. The bank also reintroduced 0% balance transfer credit cards during the period which has increased credit card exposure. Unsecured new business increased 2% in the first half of 2019 (compared to H2 2018), reflecting product offering differences, pricing initiatives, and increased marketing activity.
 
 
Unsecured credit quality improved modestly, reflecting active portfolio management with tightening implemented across loan and credit card portfolios in H1 2019 to ensure that performance of higher risk customers remained within risk appetite.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Personal portfolio (Within the scope of EY’s review report)
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value.
 
Mortgages
 
 
 
ECL provisions
 
ECL provisions coverage (2)
 
 
Not within
 
 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS 9 ECL
 
 
Gross new
 
 
 
 
 
 
 
 
 
 
UK PB
Stage 1
Stage 2
Stage 3
scope
Total
 
lending
 
Stage 1
Stage 2
Stage 3
Total (1)
 
Stage 1
Stage 2
Stage 3
Total
30 June 2019
£m
£m
£m
£m
£m
 
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
46,571 
3,362 
511 
140 
50,584 
 
2,045 
 
18 
63 
82 
 
0.5 
12.3 
0.2 
>50% and ≤70%
44,371 
3,679 
465 
40 
48,555 
 
3,873 
 
25 
38 
65 
 
0.7 
8.2 
0.1 
>70% and ≤80%
21,454 
1,702 
153 
23,317 
 
3,578 
 
12 
12 
26 
 
0.7 
8.0 
0.1 
>80% and ≤90%
13,419 
1,191 
84 
14,698 
 
3,868 
 
12 
22 
 
1.0 
9.7 
0.1 
>90% and ≤100%
3,210 
241 
25 
3,481 
 
511 
 
 
2.0 
11.8 
0.2 
>100% and ≤110%
50 
36 
96 
 
 
 
0.1 
4.3 
17.5 
3.2 
>110% and ≤130%
57 
36 
104 
 
 
 
0.1 
5.4 
24.1 
3.9 
>130% and ≤150%
22 
23 
51 
 
 
 
0.1 
5.7 
15.4 
4.4 
>150%
17 
 
 
 
0.1 
5.2 
30.6 
10.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total with LTVs
129,158 
10,279 
1,266 
200 
140,903 
 
13,875 
 
77 
130 
215 
 
0.7 
10.3 
0.2 
Other
22 
26 
 
82 
 
 
0.1 
4.5 
48.1 
2.2 
Total
129,180 
10,282 
1,267 
200 
140,929 
 
13,957 
 
77 
130 
215 
 
0.7 
10.3 
0.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
47,111 
3,423 
516 
153 
51,203 
 
4,779 
 
16 
64 
82 
 
0.5 
12.4 
0.2 
>50% and ≤70%
44,037 
3,632 
459 
49 
48,177 
 
8,535 
 
23 
39 
64 
 
0.6 
8.5 
0.1 
>70% and ≤80%
20,345 
1,490 
135 
15 
21,985 
 
7,434 
 
11 
11 
23 
 
0.7 
8.1 
0.1 
>80% and ≤90%
12,733 
1,118 
81 
12 
13,944 
 
7,524 
 
12 
22 
 
1.1 
10.0 
0.2 
>90% and ≤100%
2,343 
178 
24 
2,552 
 
1,104 
 
 
2.4 
12.1 
0.3 
>100% and ≤110%
57 
35 
101 
 
 
 
0.1 
4.6 
14.1 
2.8 
>110% and ≤130%
53 
41 
105 
 
 
 
0.1 
5.4 
14.6 
3.4 
>130% and ≤150%
23 
23 
52 
 
 
 
0.1 
6.2 
13.4 
4.3 
>150%
15 
 
 
 
0.1 
6.2 
17.3 
7.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total with LTVs
126,705 
9,949 
1,241 
239 
138,134 
 
29,376 
 
72 
129 
209 
 
0.7 
10.4 
0.2 
Other
96 
13 
116 
 
179 
 
 
4.7 
53.5 
2.6 
Total
126,801 
9,962 
1,245 
242 
138,250 
 
29,555 
 
73 
131 
212 
 
0.7 
10.5 
0.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Personal portfolio (Within the scope of EY’s review report)
 
 
Mortgages
 
ECL provisions
 
ECL provisions coverage (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank RoI
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
4,120 
333 
518 
4,971 
 
79 
86 
 
1.4 
15.2 
1.7 
>50% and ≤70%
3,537 
252 
448 
4,237 
 
70 
75 
 
1.4 
15.6 
1.8 
>70% and ≤80%
1,392 
134 
233 
1,759 
 
48 
51 
 
1.5 
20.6 
2.9 
>80% and ≤90%
1,077 
121 
241 
1,439 
 
61 
64 
 
0.1 
1.8 
25.4 
4.4 
>90% and ≤100%
540 
97 
204 
841 
 
64 
66 
 
0.1 
1.9 
31.1 
7.8 
>100% and ≤110%
247 
59 
158 
464 
 
52 
54 
 
0.1 
2.9 
33.2 
11.7 
>110% and ≤130%
149 
44 
168 
361 
 
69 
70 
 
0.2 
3.2 
40.9 
19.5 
>130% and ≤150%
19 
51 
78 
 
25 
25 
 
0.3 
5.9 
49.3 
33.1 
>150%
21 
31 
 
11 
11 
 
0.3 
10.2 
52.7 
36.3 
Total with LTVs
11,089 
1,050 
2,042 
14,181 
 
18 
479 
502 
 
0.1 
1.7 
23.4 
3.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
3,818 
374 
463 
4,655 
 
40 
46 
 
1.4 
8.6 
1.0 
>50% and ≤70%
3,567 
365 
459 
4,391 
 
10 
47 
59 
 
2.7 
10.3 
1.3 
>70% and ≤80%
1,564 
190 
241 
1,995 
 
11 
52 
64 
 
0.1 
5.5 
21.5 
3.2 
>80% and ≤90%
1,059 
184 
272 
1,515 
 
15 
82 
99 
 
0.2 
8.3 
30.2 
6.5 
>90% and ≤100%
570 
154 
261 
985 
 
17 
99 
118 
 
0.4 
11.1 
37.7 
11.9 
>100% and ≤110%
197 
80 
207 
484 
 
10 
85 
97 
 
0.9 
12.8 
41.1 
20.1 
>110% and ≤130%
51 
35 
179 
265 
 
84 
90 
 
0.8 
16.6 
47.0 
34.0 
>130% and ≤150%
37 
47 
 
20 
21 
 
0.3 
19.1 
54.7 
45.2 
>150%
10 
13 
24 
 
 
2.1 
27.2 
58.9 
33.5 
Total with LTVs
10,841 
1,388 
2,132 
14,361 
 
10 
76 
516 
602 
 
0.1 
5.4 
24.2 
4.2 
 
Notes:
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
(2)
ECL provisions coverage is ECL provisions divided by drawn exposure.
 
Key points
The UK mortgage portfolio LTV ratio increased slightly reflecting slower UK house price growth. In Ulster Bank RoI the small changes to portfolio level LTVs were mainly driven by the implementation of an enhanced indexation methodology that improves the granularity of information at individual mortgage account level.
 
 
ECL coverage rates increased through the LTV bands with both UK PB and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK PB included the effect of the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity, and also discounting expected recoveries over time. Similarly in Ulster Bank RoI, the relatively high coverage level in the lower LTV bands is driven by the implementation of a new modelling methodology that applies higher losses to these LTV bands.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Personal portfolio (Within the scope of EY’s review report)
UK PB Mortgage LTV distribution by region
 
 
 
 
 
 
 
 
 
 
 
 
 
50%
80%
100%
 
 
Weighted
 
 
 
 
≤50%
≤80%
≤100%
≤150%
>150%
Total
average LTV
Other
Total
Total
LTV ratio value
£m
£m
£m
£m
£m
£m
%
£m
£m
%
30 June 2019
 
 
 
 
 
 
 
 
 
 
South East
13,336 
18,064 
4,099 
11 
35,510 
56 
35,518 
25 
Greater London
13,792 
9,442 
837 
24,075 
47 
24,079 
17 
Scotland
3,591 
5,987 
1,188 
10,768 
58 
10,769 
North West
4,029 
7,830 
2,140 
14,004 
60 
14,007 
10 
South West
4,265 
7,089 
1,323 
12,684 
57 
12,686 
West Midlands
2,791 
5,653 
1,735 
10,184 
61 
10,185 
Rest of the UK
8,780 
17,807 
6,856 
218 
17 
33,678 
63 
33,685 
24 
Total
50,584 
71,872 
18,178 
252 
17 
140,903 
57 
26 
140,929 
100 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
South East
14,699 
17,147 
2,843 
34,697 
53 
27 
34,724 
25 
Greater London
12,928 
9,614 
1,298 
23,843 
48 
19 
23,862 
17 
Scotland
3,205 
5,612 
1,844 
11 
10,672 
60 
10,680 
North West
4,163 
7,756 
1,970 
13,895 
59 
12 
13,907 
10 
South West
4,231 
6,843 
1,292 
12,374 
57 
12,383 
West Midlands
3,036 
5,642 
1,192 
9,874 
58 
9,881 
Rest of the UK
8,942 
17,548 
6,056 
217 
16 
32,779 
62 
34 
32,813 
24 
Total
51,204 
70,162 
16,495 
257 
16 
138,134 
56 
116 
138,250 
100 
 
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly at senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of guarantee or letter or credit; derivatives – the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral.
 
 
 
 
 
 
 
 
 
 
 
30 June 2019
 
31 December 2018
 
UK
RoI
Other
Total
 
UK
RoI
Other
Total
By geography and sub sector (1)
£m
£m
£m
£m
 
£m
£m
£m
£m
Investment
 
 
 
 
 
 
 
 
 
Residential (2)
4,571 
382 
27 
4,980 
 
4,426 
363 
54 
4,843 
Office (3)
3,014 
150 
621 
3,785 
 
2,889 
164 
651 
3,704 
Retail (4)
5,239 
52 
126 
5,417 
 
5,168 
40 
92 
5,300 
Industrial (5)
2,351 
54 
106 
2,511 
 
2,270 
51 
176 
2,497 
Mixed/other (6)
3,340 
214 
38 
3,592 
 
3,221 
180 
123 
3,524 
 
18,515 
852 
918 
20,285 
 
17,974 
798 
1,096 
19,868 
 
 
 
 
 
 
 
 
 
 
Development
 
 
 
 
 
 
 
 
 
Residential (2)
2,639 
152 
20 
2,811 
 
2,715 
122 
124 
2,961 
Office (3)
118 
118 
 
192 
192 
Retail (4)
103 
111 
 
94 
102 
Industrial (5)
120 
122 
 
119 
12 
133 
Mixed/other (6)
27 
30 
 
32 
34 
 
3,007 
164 
21 
3,192 
 
3,152 
133 
137 
3,422 
 
 
 
 
 
 
 
 
 
 
Total
21,522 
1,016 
939 
23,477 
 
21,126 
931 
1,233 
23,290 
 
Notes:
(1)
Geographical splits are based on country of collateral risk.
(2)
Residential properties including houses, flats and student accommodation.
(3)
Office properties including offices in central business districts, regional headquarters and business parks.
(4)
Retail properties including high street retail, shopping centres, restaurants, bars and gyms.
(5)
Industrial properties including distribution centres, manufacturing and warehouses.
(6)
Mixed usage or other properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.
 
 
Appendix 1 Capital and risk management
Credit risk: Banking activities continued
Commercial real estate
CRE LTV distribution by stage (Within the scope of EY’s review report)
The table below shows CRE current exposure and related ECL by LTV band.
 
Current exposure (gross of provisions) (1,2)
 
ECL provisions
 
ECL provisions coverage (4)
 
 
 
Not within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS 9 ECL
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
Stage 2
Stage 3
scope (3)
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2019
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
8,836 
264 
45 
794 
9,939 
 
12 
25 
 
0.1 
1.8 
26.3 
0.3 
>50% and ≤70%
4,674 
464 
79 
781 
5,998 
 
12 
24 
 
0.1 
1.3 
14.9 
0.5 
>70% and ≤80%
266 
92 
36 
15 
409 
 
11 
 
0.3 
1.1 
24.8 
2.7 
>80% and ≤90%
70 
22 
101 
 
 
0.4 
4.7 
16.3 
4.2 
>90% and ≤100%
14 
24 
43 
 
12 
13 
 
0.7 
15.1 
50.4 
29.3 
>100% and ≤110%
24 
12 
40 
 
 
0.4 
5.0 
36.1 
11.7 
>110% and ≤130%
13 
12 
114 
143 
 
29 
30 
 
0.7 
5.0 
24.7 
20.9 
>130% and ≤150%
15 
 
 
1.0 
14.1 
48.4 
20.2 
>150%
37 
30 
72 
 
20 
21 
 
0.6 
10.8 
68.4 
29.3 
Total with LTVs
13,941 
855 
367 
1,597 
16,760 
 
15 
15 
104 
134 
 
0.1 
1.7 
28.2 
0.9 
Total portfolio average LTV (%)
44%
55%
101%
48%
46%
 
n/a
n/a
n/a
n/a
 
n/a
n/a
n/a
n/a
Other (5)
2,217 
283 
716 
309 
3,525 
 
51 
58 
 
0.1 
1.6 
7.1 
1.8 
Development (6)
2,667 
194 
144 
187 
3,192 
 
10 
73 
86 
 
0.4 
1.7 
50.8 
2.9 
Total
18,824 
1,332 
1,227 
2,093 
23,477 
 
28 
22 
228 
278 
 
0.2 
1.6 
18.6 
1.3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
8,229 
245 
52 
795 
9,321 
 
14 
25 
 
0.1 
1.7 
26.4 
0.3 
>50% and ≤70%
4,769 
297 
78 
703 
5,847 
 
14 
26 
 
0.1 
2.0 
17.8 
0.5 
>70% and ≤80%
394 
43 
33 
476 
 
10 
 
0.3 
2.6 
23.4 
2.1 
>80% and ≤90%
55 
11 
24 
92 
 
 
0.3 
3.4 
20.9 
6.1 
>90% and ≤100%
31 
20 
59 
 
 
0.6 
5.1 
34.9 
12.9 
>100% and ≤110%
53 
15 
72 
 
 
0.3 
4.2 
34.6 
7.6 
>110% and ≤130%
22 
111 
140 
 
22 
22 
 
0.4 
5.4 
19.4 
16.0 
>130% and ≤150%
10 
10 
26 
 
 
0.9 
6.3 
40.6 
18.1 
>150%
30 
42 
78 
 
29 
30 
 
0.5 
9.8 
69.6 
38.1 
Total with LTVs
13,589 
626 
385 
1,511 
16,111 
 
14 
13 
108 
135 
 
0.1 
2.1 
27.9 
0.9 
Total portfolio average LTV (%)
 
n/a
n/a
n/a
n/a
 
n/a
n/a
n/a
n/a
Other (5)
2,655 
133 
784 
185 
3,757 
 
50 
59 
 
0.2 
4.0 
6.3 
1.7 
Development (6)
2,865 
205 
178 
174 
3,422 
 
11 
80 
94 
 
0.4 
1.6 
44.8 
2.9 
Total
19,109 
964 
1,347 
1,870 
23,290 
 
29 
21 
238 
288 
 
0.2 
2.3 
17.6 
1.3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as pert of the overall CRE portfolio.
(2)
The exposure in Stage 3 mainly related to legacy assets.
(3)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives.
(4)
ECL provisions coverage is ECL provisions divided by current exposure.
(5)
Relates mainly to business banking, rate risk management products and unsecured corporate lending. The low Stage 3 ECL provisions coverage was driven by a single large exposure, which has been written down to the expected recoverable amount.
(6)
Related to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
 
Key points
Overall – The majority of the CRE portfolio was managed in the UK within Commercial Banking and Private Banking. Business appetite and strategy remain aligned across the segments.
2019 trends – The portfolio remained broadly unchanged in size and composition, although activity in the commercial property market in H1 2019 has been slower than in previous years. While the office and industrial sub-sectors have remained relatively resilient to date, rents and values in the retail sub-sector and market liquidity have declined significantly. The risk of a disorderly exit from the EU persists. The mainstream residential CRE market remained resilient, supported by high employment and a competitive mortgage market. However, liquidity has been markedly reduced for higher value homes and values in London reduced slightly from recent highs. The build to rent market continues to grow, backed by very strong demand from institutional investors.
Credit quality – Despite the challenges in the sub-sector, the CRE retail portfolio had a low default rate, with a limited number of new defaults. The sub-sector was monitored on a regular basis and credit quality was in line with the wider CRE portfolio.
Risk appetite – Lending criteria for commercial real estate are considered conservative, with lower leverage required for new London office originations, in addition to parts of the retail sector.
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report)
The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures in this section may therefore differ from those reported in other tables in the credit risk section, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL impact. Other points to note:
 
Financial assets presented in the flow statements include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included.
 
Stage transfers (for example, exposures moving from Stage 1 to Stage 2) are a key feature of ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly there is an ECL benefit for accounts improving stage.
 
Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down.
 
Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements.
 
Amounts written-off – represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity.
 
There were small ECL flows from Stage 3 to Stage 1. This does not however indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the  effect of portfolio debt sales and also staging at the start of the analysis period.
 
 
 The impact of model changes during H1 2019 was not material at a RBS Group-wide level or in the portfolios disclosed below.
 Reporting enhancements since 31 December 2018 now mean all movements are captured monthly and aggregated. Previously, for example, the main Personal portfolios were prepared on a six month movement basis.
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Group total
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
422,541 
297 
 
27,360 
772 
 
7,796 
2,327 
 
457,697 
3,396 
Currency translation and other adjustments
227 
(2)
 
(2)
(2)
 
97 
 
322 
(4)
Transfers from Stage 1 to Stage 2
(13,427)
(54)
 
13,427 
54 
 
 
Transfers from Stage 2 to Stage 1
10,781 
167 
 
(10,781)
(167)
 
 
Transfers to Stage 3
(216)
(3)
 
(1,663)
(136)
 
1,879 
139 
 
Transfers from Stage 3
241 
15 
 
727 
64 
 
(968)
(79)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(140)
 
 
279 
 
 
307 
 
 
446 
  Changes in risk parameters (model inputs)
 
(37)
 
 
(138)
 
 
172 
 
 
(3)
  Other changes in net exposure
(7,654)
37 
 
(2,257)
(40)
 
(892)
(32)
 
(10,803)
(35)
  Other (P&L only items)
 
 
 
 
 
(85)
 
 
(85)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(140)
 
 
101 
 
 
362 
 
 
323 
Amounts written-off
 
(4)
(4)
 
(448)
(448)
 
(452)
(452)
Other movements
 
 
 
 
 
(46)
 
 
(46)
At 30 June 2019
412,493 
280 
 
26,807 
682 
 
7,464 
2,340 
 
446,764 
3,302 
Net carrying amount
412,213 
 
 
26,125 
 
 
5,124 
 
 
443,462 
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report) 
The following flow statements show the material portfolios underpinning the Group flow statements.
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
UK PB - mortgages
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
127,671 
10 
 
10,241 
74 
 
1,216 
132 
 
139,128 
216 
Transfers from Stage 1 to Stage 2
(3,535)
(1)
 
3,535 
 
 
Transfers from Stage 2 to Stage 1
2,507 
 
(2,507)
(8)
 
 
Transfers to Stage 3
(8)
 
(324)
(11)
 
332 
11 
 
Transfers from Stage 3
12 
 
188 
15 
 
(200)
(16)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(8)
 
 
15 
 
 
 
 
16 
  Changes in risk parameters (model inputs)
 
 
 
(2)
 
 
32 
 
 
30 
  Other changes in net exposure
1,559 
(1)
 
(742)
(6)
 
(119)
(7)
 
698 
(14)
  Other (P&L only items)
 
 
 
 
 
(14)
 
 
(14)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(9)
 
 
 
 
20 
 
 
18 
Amounts written-off
 
(1)
(1)
 
(11)
(11)
 
(12)
(12)
Other movements
 
 
 
 
 
(18)
 
 
(18)
At 30 June 2019
128,206 
 
10,390 
77 
 
1,218 
132 
 
139,814 
218 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
128,197 
 
 
10,313 
 
 
1,086 
 
 
139,596 
 
 
Key points
ECL remained broadly stable across all stages.
ECL transfers from Stage 3 back to Stage 1 and Stage 2 were higher than those in unsecured lending, due to the higher cure activity typically seen in mortgages.
The increase in Stage 3 ECL changes in risk parameters reflected the monthly assessment of the loss requirement, capturing underlying portfolio movements.  
Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. Write-off would typically be within five years from default but can be longer.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report)
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
UK PB - credit cards
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
2,632 
36 
 
1,226 
118 
 
106 
71 
 
3,964 
225 
Transfers from Stage 1 to Stage 2
(617)
(11)
 
617 
11 
 
 
Transfers from Stage 2 to Stage 1
522 
35 
 
(522)
(35)
 
 
Transfers to Stage 3
(10)
 
(65)
(21)
 
75 
21 
 
Transfers from Stage 3
 
 
(5)
(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(25)
 
 
73 
 
 
28 
 
76 
  Changes in risk parameters (model inputs)
 
(10)
 
 
(51)
 
 
 
(53)
  Other changes in net exposure
23 
 
(64)
 
(15)
(1)
 
(56)
  Other (P&L only items)
 
 
 
 
 
(5)
 
 
(5)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(26)
 
 
22 
 
 
30 
 
 
26 
Amounts written off
 
 
(35)
(35)
 
(35)
(35)
Other movements
 
 
 
 
 
(3)
 
 
(3)
At 30 June 2019
2,550 
34 
 
1,197 
98 
 
126 
86 
 
3,873 
218 
Net carrying amount
2,516 
 
 
1,099 
 
 
40 
 
 
3,655 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key points
Overall ECL reduced slightly over the period. This was mainly due to lower Stage 2 ECL, reflecting a recalibration of the modelled loss rate to align to observed experience. The increase in Stage 3 exposures and ECL reflected the impact of business-as-usual default flows, which have been broadly stable in 2019.
The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. The level has reduced compared to prior years reflecting the debt sales executed in 2018.
Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.
 
UK PB - Other personal unsecured
 
 
 
 
 
 
 
 
 
 
 
At 1 January 2019
5,073 
54 
 
1,970 
239 
 
495 
394 
 
7,538 
687 
Currency translation and other adjustments
217 
 
10 
 
 
233 
Transfers from Stage 1 to Stage 2
(1,213)
(20)
 
1,213 
20 
 
 
Transfers from Stage 2 to Stage 1
593 
40 
 
(593)
(40)
 
 
Transfers to Stage 3
(6)
 
(161)
(56)
 
167 
56 
 
Transfers from Stage 3
 
18 
 
(20)
(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(31)
 
 
114 
 
 
48 
 
131 
  Changes in risk parameters (model inputs)
 
 
 
(23)
 
 
56 
 
35 
  Other changes in net exposure
736 
11 
 
(296)
(17)
 
(18)
(4)
 
422 
(10)
  Other (P&L only items)
 
 
 
 
 
(19)
 
 
(19)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(18)
 
 
74 
 
 
81 
 
 
137 
Amounts written off
 
 
(43)
(43)
 
(43)
(43)
Other movements
 
 
 
 
 
(12)
 
 
(12)
At 30 June 2019
5,402 
56 
 
2,161 
242 
 
587 
492 
 
8,150 
790 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
5,346 
 
 
1,919 
 
 
95 
 
 
7,360 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key points
The overall increase in ECL was driven by Stage 3 exposures which included the effect of a loss rate model adjustment. Furthermore, the value of new defaults was higher than write-offs and customer debt repayments, and unlike in 2018, there were no debt sales in H1 2019.  
There was a modest increase in the rate of default over the last six months from a low level addressed through the tightening of risk appetite.  
Stage 1 and Stage 2 ECL remained broadly stable.  
The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. The level has reduced compared to prior years reflecting the debt sales executed in 2018.  
Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than six years after default.  
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report)
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Ulster Bank RoI - mortgages
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
10,782 
11 
 
1,394 
75 
 
2,137 
516 
 
14,313 
602 
Currency translation and other adjustments
(1)
 
(8)
(2)
 
(2)
(1)
 
(6)
(4)
Transfers from Stage 1 to Stage 2
(739)
(3)
 
739 
 
 
Transfers from Stage 2 to Stage 1
889 
14 
 
(889)
(14)
 
 
Transfers to Stage 3
(35)
(2)
 
(236)
(25)
 
271 
27 
 
Transfers from Stage 3
 
121 
22 
 
(129)
(22)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(11)
 
 
 
 
 
 
(10)
  Changes in risk parameters (model inputs)
 
(4)
 
 
(40)
 
 
23 
 
 
(21)
  Other changes in net exposure
96 
 
(64)
 
(177)
(2)
 
(145)
(1)
  Other (P&L only items)
 
 
 
 
 
20 
 
 
20 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(14)
 
 
(39)
 
 
41 
 
 
(12)
Amounts written off
 
(2)
(2)
 
(55)
(55)
 
(57)
(57)
Other movements
 
 
 
 
 
(7)
 
 
(7)
At 30 June 2019
11,005 
 
1,055 
18 
 
2,045 
479 
 
14,105 
502 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
11,000 
 
 
1,037 
 
 
1,566 
 
 
13,603 
 
 
Key points
The overall ECL reduction reflected the completion of the remainder of Ulster Bank RoI’s 2018 sale of non-performing loans in H1 2019 and ongoing improvements in underlying portfolio performance.
The transfers into Stage 3 were reflective of the implementation of an enhanced Stage 3 definition, with £230 million of exposures re-classified as Stage 3 assets under the new definition.
The reduction in Stage 2 ECL was driven by the implementation of the enhanced Stage 3 definition and the re-allocation of post-model adjustments to Stage 3 assets.
Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding which has been deemed irrecoverable. There is no set time period within which write-offs can occur.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report)
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Commercial Banking - excluding business banking
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
81,485 
108 
 
9,393 
155 
 
2,358 
785 
 
93,236 
1,048 
Currency translation and other adjustments
86 
(3)
 
(10)
 
94 
(3)
 
170 
(5)
Inter-Group transfers
(319)
 
19 
 
(1)
13 
 
(301)
13 
Transfers from Stage 1 to Stage 2
(5,804)
(10)
 
5,804 
10 
 
 
Transfers from Stage 2 to Stage 1
4,801 
43 
 
(4,801)
(43)
 
 
Transfers to Stage 3
(107)
 
(716)
(11)
 
823 
11 
 
Transfers from Stage 3
189 
10 
 
363 
 
(552)
(18)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(43)
 
 
41 
 
 
185 
 
 
183 
  Changes in risk parameters (model inputs)
 
(5)
 
 
(1)
 
 
22 
 
 
16 
  Other changes in net exposure
2,453 
 
(982)
(7)
 
(403)
 
1,068 
  Other (P&L only items)
 
 
 
 
 
(15)
 
 
(15)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(42)
 
 
33 
 
 
193 
 
 
184 
Amounts written off
 
 
(247)
(247)
 
(247)
(247)
Other movements
 
 
 
 
 
 
 
Unwinding of discount
 
 
 
 
 
(3)
 
 
(3)
At 30 June 2019
82,784 
106 
 
9,070 
153 
 
2,072 
746 
 
93,926 
1,005 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
82,678 
 
 
8,917 
 
 
1,326 
 
 
92,921 
 
 
 
 
Key points
ECL decreased with write-offs exceeding the level of impairment charges on new into default cases.
Stage 1 and Stage 2 ECL remained largely unchanged during H1 2019. Changes to risk parameters in Stage 1 and Stage 2 largely reflected improvements in underlying credit risk metrics which were partially offset by regular updates to certain underlying models.
Growth in Stage 1 assets represented new business during the period. Stage 2 balances reduced as new transfers-in were offset by repayments and loans transferring to Stage 1.
Stage 3 income statement charges increased during the period compared to 2018. This was due to a small number of individually significant impairment charges which also impacted the transfers to Stage 3 during the period.
 
 
Commercial - business banking
 
 
 
 
 
 
 
 
 
 
 
At 1 January 2019
6,303 
22 
 
897 
43 
 
235 
153 
 
7,435 
218 
Currency translation and other adjustments
 
 
 
Transfers from Stage 1 to Stage 2
(483)
(3)
 
483 
 
 
Transfers from Stage 2 to Stage 1
353 
10 
 
(353)
(10)
 
 
Transfers to Stage 3
(9)
 
(70)
(10)
 
79 
10 
 
Transfers from Stage 3
 
13 
 
(17)
(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(9)
 
 
25 
 
 
26 
 
 
42 
  Changes in risk parameters (model inputs)
 
(6)
 
 
(16)
 
 
28 
 
 
  Other changes in net exposure
199 
 
(130)
(4)
 
(33)
(5)
 
36 
(7)
  Other (P&L only items)
 
 
 
 
 
(21)
 
 
(21)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(13)
 
 
 
 
28 
 
 
20 
Amounts written off
 
 
(29)
(29)
 
(29)
(29)
Other movements
 
 
 
 
 
(2)
 
 
(2)
At 30 June 2019
6,367 
17 
 
841 
34 
 
235 
177 
 
7,443 
228 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
6,350 
 
 
807 
 
 
58 
 
 
7,215 
 
Key points
The overall increase in ECL was driven by Stage 3 including the effect of a loss rate model adjustment. The reduction in Stage 1 and Stage 2 ECL was driven by calibrations to the ECL models.
The flow of new defaults in the period increased slightly compared to 2018. This increase reflected an uplift in default rates within the Business Banking portfolio (in particular for low value, unsecured lending, representing 14% of Business Banking stock), which has been addressed through a tightening of risk appetite.
The portfolio continues to benefit from cash recoveries post write-off, which are reported as other (P&L only items).    
Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than five years after default.
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
NatWest Markets (1)
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
32,758 
 
732 
14 
 
708 
112 
 
34,198 
133 
Currency translation and other adjustments
38 
 
(2)
 
(1)
 
36 
Inter-Group transfers
(57)
 
 
(13)
 
(48)
(13)
Transfers from Stage 1 to Stage 2
(190)
 
190 
 
 
Transfers from Stage 2 to Stage 1
281 
 
(281)
(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(2)
 
 
 
 
 
 
(1)
  Changes in risk parameters (model inputs)
 
(2)
 
 
(1)
 
 
(6)
 
 
(9)
  Other changes in net exposure
1,204 
 
(193)
(2)
 
 
1,012 
  Other (P&L only items)
 
 
 
 
 
(26)
 
 
(26)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement releases
 
(2)
 
 
(2)
 
 
(32)
 
 
(36)
Amounts written-off
 
 
(11)
(11)
 
(11)
(11)
Other movements
 
 
 
 
 
 
 
At 30 June 2019
34,034 
 
454 
10 
 
699 
81 
 
35,187 
99 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
34,026 
 
 
444 
 
 
618 
 
 
35,088 
 
Note:
(1)
Reflects NatWest Markets segment and includes NWM N.V..
 
Key points
Stage 3 financial assets included £193 million (31 December 2018 - £166 million) purchased or originated credit impaired (POCI) assets. No ECL impairment was held on these positions and a £27 million impairment recovery was recognised on these POCI assets during H1 (included in other (P&L only items).
Stage 1 and Stage 2 changes to risk parameters reflected an improvement in underlying credit risk metrics.
The increase in Stage 1 exposure was due to a combination of new transactions and increased short-term placements with governments and central banks following changes made for ring-fencing.
 
Private Banking
 
 
 
 
 
 
 
 
 
 
 
At 1 January 2019
13,950 
14 
 
519 
10 
 
232 
19 
 
14,701 
43 
Currency translation and other adjustments
(3)
 
(1)
 
 
(3)
Transfers from Stage 1 to Stage 2
(284)
(1)
 
284 
 
 
Transfers from Stage 2 to Stage 1
304 
 
(304)
(4)
 
 
Transfers to Stage 3
(25)
 
(48)
 
73 
 
Transfers from Stage 3
 
 
(8)
(4)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(3)
 
 
 
 
 
 
(2)
  Changes in risk parameters (model inputs)
 
(3)
 
 
(1)
 
 
 
 
  Other changes in net exposure
532 
 
(33)
(1)
 
(86)
(3)
 
413 
(3)
  Other (P&L only items)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income statement (releases)/charges
 
(5)
 
 
(1)
 
 
 
(3)
Amounts written off
 
 
 
 
(1)
(1)
 
(1)
(1)
Unwinding of discount
 
 
 
 
 
At 30 June 2019
14,481 
12 
 
419 
 
210 
19 
 
15,110 
40 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
14,469 
 
 
410 
 
 
191 
 
 
15,070 
 
 
Key points
ECL reduced marginally due to an improvement in underlying Stage 1 and Stage 2 credit quality.
Stage 1 exposure increased during the period reflecting growth in mortgages with minimal ECL impact due to high credit quality. The reduction in Stage 2 exposure was a result of both repayment of debt and the transfer of assets to Stage 1.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Flow statements (Within the scope of EY’s review report)
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
RBS International
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2019
26,749 
 
276 
 
95 
17 
 
27,120 
27 
Currency translation and other adjustments
(55)
 
(1)
 
 
(55)
Inter-Group transfers
(598)
 
(27)
(1)
 
 
(625)
(1)
Transfers from Stage 1 to Stage 2
(342)
(2)
 
342 
 
 
Transfers from Stage 2 to Stage 1
276 
 
(276)
(3)
 
 
Transfers to Stage 3
(10)
 
(17)
 
27 
 
Transfers from Stage 3
 
 
(14)
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net re-measurement of ECL on stage transfer
 
(3)
 
 
 
 
 
 
(2)
  Changes in risk parameters (model inputs)
 
(1)
 
 
 
 
 
 
  Other changes in net exposure
1,424 
 
132 
(1)
 
(14)
(2)
 
1,542 
(2)
  Other (P&L only items)
 
 
 
 
 
(1)
 
 
(1)
 
 
 
 
 
 
 
 
 
 
 
 
Income statement releases
 
(3)
 
 
 
 
 
 
(3)
Amounts written off
 
 
(2)
(2)
 
(2)
(2)
Other movements
 
 
 
 
 
 
 
At 30 June 2019
27,452 
 
435 
 
93 
16 
 
27,980 
22 
 
 
 
 
 
 
 
 
 
 
 
 
Net carrying amount
27,448 
 
 
433 
 
 
77 
 
 
27,958 
 
 
Key points
The level of ECL reduced in all stages during the period.
In Stage 1, the increase in exposure was partly due to new lending, but mainly due to the management of a liquidity portfolio across banks and sovereign bond holdings, with low credit risk and minimal ECL.
The increase in Stage 2 exposure was driven by a combination of flows from Stage 1 and balance increases on a small number of individual exposures in the Wholesale portfolio where credit quality deteriorated in the period. Increases in Stage 2 exposures were largely limited to specific sectors.
Stage 2 ECL reduced in the period because exposure transferring in carried lower ECL than exposure that transferred from Stage 2.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Stage 2 decomposition – arrears status and contributing factors
The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios.
 
 
UK mortgages
 
RoI mortgages
 
Other mortgages
 
Credit cards
 
Other
 
Total
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
30 June 2019
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
Personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
529 
12 
 
31 
 
 
15 
 
91 
19 
 
666 
38 
Currently up-to-date
9,973 
66 
 
1,016 
16 
 
 
1,195 
95 
 
2,080 
232 
 
14,265 
409 
 - PD deterioration
4,058 
54 
 
338 
11 
 
 
765 
73 
 
1,324 
182 
 
6,485 
320 
 - Up-to-date, PD persistence
1,365 
 
40 
 
 
327 
14 
 
465 
28 
 
2,197 
45 
 - Other driver (adverse credit, forbearance etc)
4,550 
 
638 
 
 
103 
 
291 
22 
 
5,583 
44 
Total Stage 2
10,502 
78 
 
1,047 
18 
 
 
1,210 
100 
 
2,171 
251 
 
14,931 
447 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
658 
10 
 
90 
10 
 
 
17 
 
88 
22 
 
856 
48 
Currently up-to-date
9,612 
64 
 
1,292 
66 
 
 
1,226 
114 
 
1,985 
225 
 
14,115 
469 
 - PD deterioration
3,855 
54 
 
680 
44 
 
 
778 
85 
 
1,255 
176 
 
6,568 
359 
 - Up-to-date, PD persistence
1,448 
 
54 
 
 
337 
17 
 
440 
26 
 
2,279 
49 
 - Other driver (adverse credit, forbearance etc)
4,309 
 
558 
21 
 
 
111 
12 
 
290 
23 
 
5,268 
61 
Total Stage 2
10,270 
74 
 
1,382 
76 
 
 
1,243 
120 
 
2,073 
247 
 
14,971 
517 
 
Key points
ECL coverage remained higher for accounts that are more than 30 days past due. Also in line with expectations, accounts exhibiting PD deterioration have a higher ECL coverage than accounts in Stage 2 for other reasons.
The ECL reduction in the Ulster Bank RoI mortgages portfolio reflected the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in that business.
 
 
 
Property
 
Corporate
 
FI
 
Other
 
Total
30 June 2019
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
Wholesale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
182 
 
316 
 
 
 
499 
13 
Currently up-to-date
1,968 
34 
 
7,826 
179 
 
475 
 
 
10,275 
222 
 - PD deterioration
865 
21 
 
4,712 
123 
 
384 
 
 
5,965 
151 
 - Up-to-date, PD persistence
45 
 
152 
 
 
 
199 
 - Other driver (forbearance, RoCL etc)
1,058 
12 
 
2,962 
53 
 
89 
 
 
4,111 
67 
Total Stage 2
2,150 
41 
 
8,142 
185 
 
476 
 
 
10,774 
235 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholesale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
255 
 
315 
 
 
 
571 
12 
Currently up-to-date
1,622 
32 
 
8,438 
195 
 
473 
 
22 
 
10,555 
234 
 - PD deterioration
924 
23 
 
5,564 
138 
 
281 
 
 
6,777 
167 
 - Up-to-date, PD persistence
57 
 
170 
 
 
 
231 
 - Other driver (forbearance, RoCL etc)
641 
 
2,704 
52 
 
188 
 
14 
 
3,547 
61 
Total Stage 2
1,877 
39 
 
8,753 
200 
 
474 
 
22 
 
11,126 
246 
 
Key points
The ECL coverage was broadly consistent in total. Coverage can, however, vary across categories or sectors reflecting the individual characteristics of the customer and exposure type.
The reduction in Stage 2 exposure was primarily due to improvements in PDs in the corporate portfolio. An increase in the RoCL portfolio, driven by a small number of large cases, increased the other driver category.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
 
 
UK mortgages
 
RoI mortgages
 
Other mortgages
 
Credit cards
 
Other
 
Total
30 June 2019
£m
%
 
£m
%
 
£m
%
 
£m
%
 
£m
%
 
£m
%
Personal trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
4,458 
42.5 
 
362 
34.5 
 
 
780 
64.5 
 
1,379 
63.5 
 
6,979 
46.7 
PD persistence
1,366 
13.0 
 
40 
3.8 
 
 
328 
27.1 
 
467 
21.5 
 
2,201 
14.7 
Adverse credit bureau recorded with
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  credit reference agency
3,124 
29.7 
 
 
 
58 
4.8 
 
96 
4.4 
 
3,278 
22.0 
Forbearance support provided
189 
1.8 
 
0.4 
 
 
 
13 
0.6 
 
206 
1.4 
Customers in collections
147 
1.4 
 
96 
9.2 
 
 
0.2 
 
34 
1.6 
 
280 
1.9 
Other reasons (2)
1,110 
10.6 
 
545 
52.1 
 
100 
 
41 
3.4 
 
157 
7.2 
 
1,854 
12.4 
Days past due >30
108 
1.0 
 
 
 
 
25 
1.2 
 
133 
0.9 
 
10,502 
100 
 
1,047 
100 
 
100 
 
1,210 
100 
 
2,171 
100 
 
14,931 
100 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
4,273 
41.6 
 
767 
55.6 
 
 
793 
63.8 
 
1,307 
63.0 
 
7,140 
47.7 
PD persistence
1,450 
14.1 
 
54 
3.9 
 
 
338 
27.2 
 
440 
21.2 
 
2,282 
15.2 
Adverse credit bureau recorded with
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  credit reference agency
2,996 
29.2 
 
 
 
61 
4.9 
 
101 
4.9 
 
3,158 
21.1 
Forbearance support provided
206 
2.0 
 
0.1 
 
 
 
13 
0.6 
 
221 
1.5 
Customers in collections
144 
1.4 
 
57 
4.1 
 
 
0.4 
 
36 
1.7 
 
242 
1.6 
Other reasons (2)
982 
9.6 
 
502 
36.3 
 
 
46 
3.7 
 
151 
7.3 
 
1,681 
11.2 
Days past due >30
219 
2.1 
 
 
100 
 
 
25 
1.2 
 
247 
1.6 
 
10,270 
100 
 
1,382 
100 
 
100 
 
1,243 
100 
 
2,073 
100 
 
14,971 
100 
 
Key point
PD remained the primary driver of credit deterioration, which including persistence, accounted for the majority of movements to Stage 2. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination particularly in mortgages.
 
 
Property
 
Corporate
 
FI
 
Other
 
Total
30 June 2019
£m
%
 
£m
%
 
£m
%
 
£m
%
 
£m
%
Wholesale trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
883 
40.9 
 
4,756 
58.3 
 
384 
80.7 
 
66.7 
 
6,027 
55.9 
PD persistence
45 
2.1 
 
153 
1.9 
 
0.4 
 
 
200 
1.9 
Risk of Credit Loss
767 
35.7 
 
2,162 
26.6 
 
66 
13.9 
 
 
2,995 
27.8 
Forbearance support provided
62 
2.9 
 
159 
2.0 
 
 
 
221 
2.1 
Customers in collections
10 
0.5 
 
44 
0.5 
 
 
 
54 
0.5 
Other reasons (3)
227 
10.6 
 
634 
7.8 
 
23 
4.8 
 
33.3 
 
886 
8.2 
Days past due >30
156 
7.3 
 
234 
2.9 
 
0.2 
 
 
391 
3.6 
 
2,150 
100 
 
8,142 
100 
 
476 
100 
 
100 
 
10,774 
100 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholesale trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
940 
50.1 
 
5,617 
64.2 
 
281 
59.3 
 
36.4 
 
6,845 
61.5 
PD persistence
57 
3.0 
 
171 
2.0 
 
0.8 
 
 
232 
2.1 
Risk of Credit Loss
321 
17.1 
 
1,964 
22.4 
 
103 
21.7 
 
 
2,388 
21.5 
Forbearance support provided
65 
3.5 
 
209 
2.4 
 
 
 
274 
2.5 
Customers in collections
0.5 
 
43 
0.5 
 
 
 
52 
0.5 
Other reasons (3)
251 
13.4 
 
525 
6.0 
 
85 
17.9 
 
14 
63.6 
 
875 
7.9 
Days past due >30
234 
12.5 
 
224 
2.6 
 
0.2 
 
 
460 
4.1 
 
1,877 
100 
 
8,753 
100 
 
474 
100 
 
22 
100 
 
11,126 
100 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
The table is produced on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.
(2)
Includes customers that have accessed payday lending, interest only mortgages past end of term, a small number of mortgage customers on a highly flexible mortgage significantly behind outline repayment plan and customers breaching risk appetite thresholds for new business acquisition. In the RoI mortgage portfolio, this reflected customers who remained in probation following the conclusion of forbearance support, exposures breaching risk appetite thresholds for new business acquisition and exposures classified as non-performing exposures under European Banking Authority requirements.
(3)
Includes customers where a PD assessment cannot be undertaken due to missing PDs.
 
Key point
PD remained the primary driver of credit deterioration, which including persistence, accounted for 58% of Stage 2 exposure. The Risk of Credit Loss framework accounted for a further 28%, an increase from 22% at 31 December 2018, driven by a small number of large cases.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Stage 3 vintage analysis
The table below shows estimated vintage analysis of the material Stage 3 portfolios totalling 90% of the Stage 3 loans of £7.3 billion.
 
 
 
 
 
 
 
 
30 June 2019
31 December 2018
 
UK PB
Ulster Bank RoI
 
UK PB
Ulster Bank RoI
 
 
mortgages
mortgages
Wholesale
mortgages
mortgages
Wholesale
Stage 3 loans (£bn)
1.3 
2.0 
3.2 
1.2 
2.1 
3.4 
Vintage (time in default):
 
 
 
 
 
 
<1 year
28%
16%
30%
26%
7%
22%
1-3 years
22%
27%
13%
21%
12%
19%
3-5 years
12%
12%
8%
14%
14%
9%
5-10 years
32%
41%
49%
35%
63%
50%
>10 years
6%
4%
4%
4%
 
100%
100%
100%
100%
100%
100%
 
Key points
Mortgages – The proportion of the Stage 3 defaulted population which have been in default for over five years reflected RBS’s support for customers in financial difficulty. When customers continue to engage constructively with RBS making regular payments, RBS continues to support them. RBS’s provisioning approach can retain customers in Stage 3 for a life-time loss provisioning calculation even when their arrears status reverts to below 90 days past due.
Wholesale – The value of Stage 3 loans in default for 5-10 years mainly reflects customers in a protracted formal insolvency process or subject to litigation or a complaints process.
 
Asset quality (Within the scope of EY’s review report)
The table below shows asset quality bands of gross loans and ECL by stage for the Personal portfolio.
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
 
Total
30 June 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
 
%
UK mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
95,880 
3,640 
 
99,520 
 
10 
 
15 
 
0.01 
0.27 
 
 
0.02 
AQ5-AQ8
44,773 
6,053 
 
50,826 
 
46 
 
51 
 
0.01 
0.76 
 
 
0.10 
AQ9
44 
809 
 
853 
 
22 
 
22 
 
2.72 
 
 
2.58 
AQ10
 
 
1,316 
1,316 
 
 
 
148 
148 
 
 
 
11.25 
 
11.25 
 
140,697 
10,502 
1,316 
152,515 
 
10 
78 
148 
236 
 
0.01 
0.74 
11.25 
 
0.15 
RoI mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
5,356 
161 
 
5,517 
 
 
 
0.04 
0.62 
 
 
0.05 
AQ5-AQ8
5,730 
598 
 
6,328 
 
11 
 
15 
 
0.07 
1.84 
 
 
0.24 
AQ9
288 
 
291 
 
 
 
2.08 
 
 
2.06 
AQ10 (1)
 
 
1,983 
1,983 
 
 
 
479 
479 
 
 
 
24.16 
 
24.16 
 
11,089 
1,047 
1,983 
14,119 
 
18 
479 
503 
 
0.05 
1.72 
24.16 
 
3.56 
Other mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
698 
 
699 
 
 
 
 
 
AQ5-AQ8
163 
 
163 
 
 
 
 
 
AQ9
 
 
 
 
 
 
AQ10
 
 
 
 
 
 
 
 
 
 
861 
865 
 
 
 
Credit cards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
24 
 
24 
 
 
 
 
 
AQ5-AQ8
2,803 
1,152 
 
3,955 
 
36 
85 
 
121 
 
1.28 
7.38 
 
 
3.06 
AQ9
58 
 
62 
 
15 
 
15 
 
25.86 
 
 
24.19 
AQ10
 
 
140 
140 
 
 
 
88 
88 
 
 
 
62.86 
 
62.86 
 
2,831 
1,210 
140 
4,181 
 
36 
100 
88 
224 
 
1.27 
8.26 
62.86 
 
5.36 
Other personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
1,014 
56 
 
1,070 
 
 
10 
 
0.39 
10.71 
 
 
0.93 
AQ5-AQ8
6,046 
1,889 
 
7,935 
 
54 
185 
 
239 
 
0.89 
9.79 
 
 
3.01 
AQ9
84 
226 
 
310 
 
60 
 
63 
 
3.57 
26.55 
 
 
20.32 
AQ10
 
 
628 
628 
 
 
 
512 
512 
 
 
 
81.53 
 
81.53 
 
7,144 
2,171 
628 
9,943 
 
61 
251 
512 
824 
 
0.85 
11.56 
81.53 
 
8.29 
Total personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
102,972 
3,858 
 
106,830 
 
11 
17 
 
28 
 
0.01 
0.44 
 
 
0.03 
AQ5-AQ8
59,515 
9,692 
 
69,207 
 
99 
327 
 
426 
 
0.17 
3.37 
 
 
0.62 
AQ9
135 
1,381 
 
1,516 
 
103 
 
106 
 
2.22 
7.46 
 
 
6.99 
AQ10
 
 
4,070 
4,070 
 
 
 
1,227 
1,227 
 
 
 
30.15 
 
30.15 
 
162,622 
14,931 
4,070 
181,623 
 
113 
447 
1,227 
1,787 
 
0.07 
2.99 
30.15 
 
0.98 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Asset quality (Within the scope of EY’s review report)
 
 
Gross loans
 
ECL Provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
31 December 2018
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
UK mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
95,618 
3,621 
 
99,239 
 
11 
 
17 
 
0.01 
0.30 
 
0.02 
AQ5-AQ8
42,771 
5,845 
 
48,616 
 
46 
 
52 
 
0.01 
0.79 
 
0.11 
AQ9
32 
804 
 
836 
 
17 
 
17 
 
2.11 
 
2.03 
AQ10
 
 
1,541 
1,541 
 
 
151 
151 
 
 
9.80 
9.80 
 
138,421 
10,270 
1,541 
150,232 
 
12 
74 
151 
237 
 
0.01 
0.72 
9.80 
0.16 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RoI mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
5,164 
226 
 
5,390 
 
 
 
0.08 
2.21 
 
0.17 
AQ5-AQ8
5,668 
717 
 
6,385 
 
32 
 
39 
 
0.12 
4.46 
 
0.61 
AQ9
12 
439 
 
451 
 
39 
 
39 
 
8.88 
 
8.65 
AQ10 (1)
 
 
2,124 
2,124 
 
 
 
515 
515 
 
 
 
24.25 
24.25 
 
10,844 
1,382 
2,124 
14,350 
 
11 
76 
515 
602 
 
0.10 
5.50 
24.25 
4.20 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
359 
 
360 
 
 
 
 
AQ5-AQ8
136 
 
138 
 
 
 
 
AQ10
 
 
 
 
 
 
 
 
 
 
495 
499 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
34 
 
35 
 
 
 
 
AQ5-AQ8
2,810 
1,180 
 
3,990 
 
38 
103 
 
141 
 
1.35 
8.73 
 
3.53 
AQ9
62 
 
69 
 
17 
 
17 
 
27.42 
 
24.64 
AQ10
 
 
122 
122 
 
 
 
72 
72 
 
 
 
59.02 
59.02 
 
2,851 
1,243 
122 
4,216 
 
38 
120 
72 
230 
 
1.33 
9.65 
59.02 
5.46 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
997 
43 
 
1,040 
 
 
 
0.40 
11.63 
 
0.87 
AQ5-AQ8
5,889 
1,847 
 
7,736 
 
55 
186 
 
241 
 
0.93 
10.07 
 
3.12 
AQ9
56 
183 
 
239 
 
56 
 
58 
 
3.57 
30.60 
 
24.27 
AQ10
 
 
563 
563 
 
 
 
420 
420 
 
 
 
74.60 
74.60 
 
6,942 
2,073 
563 
9,578 
 
61 
247 
420 
728 
 
0.88 
11.92 
74.60 
7.60 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
102,172 
3,892 
 
106,064 
 
14 
21 
 
35 
 
0.01 
0.54 
 
0.03 
AQ5-AQ8
57,274 
9,591 
 
66,865 
 
106 
367 
 
473 
 
0.19 
3.83 
 
0.71 
AQ9
107 
1,488 
 
1,595 
 
129 
 
131 
 
1.87 
8.67 
 
8.21 
AQ10
 
 
4,351 
4,351 
 
 
 
1,158 
1,158 
 
 
 
26.61 
26.61 
 
159,553 
14,971 
4,351 
178,875 
 
122 
517 
1,158 
1,797 
 
0.08 
3.45 
26.61 
1.00 
 
Note:
(1)
AQ10 includes £0.7 billion (31 December 2018 – £0.6 billion) RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3.
 
Key points
Overall credit quality remained broadly stable with some movements at product level. Mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing.
The relatively high level of Stage 3 impaired assets (AQ10) in RoI mortgages reflected their legacy mortgage portfolio and the residual effects from the financial crisis. For UK mortgages, the reduction in value of Stage 3 exposures included the effect of a methodology change.
In other personal, the relatively high level of exposures in AQ10 reflected the fact that impaired assets can be held on balance sheet with commensurate ECL provision for up to six years after default. The increase in ECL included the effect of a loss rate model adjustment. Furthermore, the value of new defaults was higher than write-offs and customer debt repayments, and unlike in 2018, there were no debt sales in H1 2019.
ECL provisions coverage shows the expected pattern with higher coverage in the poorer asset quality bands, and also by stage.
In Ulster Bank RoI mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in that business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI’s 2018 sale of non-performing loans in H1 2019.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Banking activities continued
Asset quality (Within the scope of EY’s review report)
The table below shows asset quality bands of gross loans and ECL by stage for the Wholesale portfolio.
 
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2019
 
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
Property
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
15,375 
365 
 
15,740 
 
 
15 
 
0.05 
2.19 
 
0.10 
AQ5-AQ8
 
17,838 
1,710 
 
19,548 
 
37 
27 
 
64 
 
0.21 
1.58 
 
0.33 
AQ9
 
39 
75 
 
114 
 
 
 
8.00 
 
5.26 
AQ10
 
 
 
1,516 
1,516 
 
 
 
339 
339 
 
 
 
22.36 
22.36 
 
 
33,252 
2,150 
1,516 
36,918 
 
44 
41 
339 
424 
 
0.13 
1.91 
22.36 
1.15 
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
22,324 
837 
 
23,161 
 
11 
15 
 
26 
 
0.05 
1.79 
 
0.11 
AQ5-AQ8
 
39,298 
6,932 
 
46,230 
 
91 
156 
 
247 
 
0.23 
2.25 
 
0.53 
AQ9
 
232 
373 
 
605 
 
14 
 
15 
 
0.43 
3.75 
 
2.48 
AQ10
 
 
 
1,712 
1,712 
 
 
 
762 
762 
 
 
 
44.51 
44.51 
 
 
61,854 
8,142 
1,712 
71,708 
 
103 
185 
762 
1,050 
 
0.17 
2.27 
44.51 
1.46 
Financial institutions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
25,527 
265 
 
25,792 
 
 
12 
 
0.02 
2.64 
 
0.05 
AQ5-AQ8
 
1,010 
209 
 
1,219 
 
 
 
0.59 
0.48 
 
0.57 
AQ9
 
 
 
 
 
50.00 
 
50.00 
AQ10
 
 
 
22 
22 
 
 
 
12 
12 
 
 
 
54.55 
54.55 
 
 
26,537 
476 
22 
27,035 
 
11 
12 
32 
 
0.04 
1.89 
54.55 
0.12 
Sovereign
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
7,570 
 
7,574 
 
 
 
0.12 
 
0.12 
AQ5-AQ8
 
148 
 
150 
 
 
 
 
AQ9
 
 
 
 
 
 
AQ10
 
 
 
 
 
 
 
 
 
 
 
7,719 
7,730 
 
 
0.12 
0.12 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
70,796 
1,471 
 
72,267 
 
32 
30 
 
62 
 
0.05 
2.04 
 
0.09 
AQ5-AQ8
 
58,294 
8,853 
 
67,147 
 
134 
184 
 
318 
 
0.23 
2.08 
 
0.47 
AQ9
 
272 
450 
 
722 
 
21 
 
22 
 
0.37 
4.67 
 
3.05 
AQ10
 
 
 
3,255 
3,255 
 
 
 
1,113 
1,113 
 
 
 
34.19 
34.19 
 
 
129,362 
10,774 
3,255 
143,391 
 
167 
235 
1,113 
1,515 
 
0.13 
2.18 
34.19 
1.06 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
15,740 
393 
 
16,133 
 
 
17 
 
0.05 
2.29 
 
0.11 
AQ5-AQ8
 
17,397 
1,418 
 
18,815 
 
35 
26 
 
61 
 
0.20 
1.83 
 
0.32 
AQ9
 
66 
 
74 
 
 
 
6.06 
 
5.41 
AQ10
 
 
 
1,685 
1,685 
 
 
 
506 
506 
 
 
 
30.03 
30.03 
 
 
33,145 
1,877 
1,685 
36,707 
 
43 
39 
506 
588 
 
0.13 
2.08 
30.03 
1.60 
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
21,814 
773 
 
22,587 
 
13 
14 
 
27 
 
0.06 
1.81 
 
0.12 
AQ5-AQ8
 
40,004 
7,647 
 
47,651 
 
93 
171 
 
264 
 
0.23 
2.24 
 
0.55 
AQ9
 
26 
333 
 
359 
 
15 
 
16 
 
3.85 
4.50 
 
4.46 
AQ10
 
 
 
1,643 
1,643 
 
 
 
634 
634 
 
 
 
38.59 
38.59 
 
 
61,844 
8,753 
1,643 
72,240 
 
107 
200 
634 
941 
 
0.17 
2.28 
38.59 
1.30 
Financial institutions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
22,150 
247 
 
22,397 
 
 
10 
 
0.02 
2.02 
 
0.04 
AQ5-AQ8
 
2,352 
222 
 
2,574 
 
 
 
0.30 
0.90 
 
0.35 
AQ9
 
 
 
 
 
 
AQ10
 
 
 
35 
35 
 
 
 
22 
22 
 
 
 
62.86 
62.86 
 
 
24,502 
474 
35 
25,011 
 
12 
22 
41 
 
0.05 
1.48 
62.86 
0.16 
Sovereign
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
6,780 
22 
 
6,802 
 
 
 
0.01 
 
0.01 
AQ5-AQ8
 
161 
 
161 
 
 
 
 
AQ10
 
 
 
 
 
 
 
 
 
 
 
6,941 
22 
6,967 
 
 
0.01 
0.01 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
66,484 
1,435 
 
67,919 
 
27 
28 
 
55 
 
0.04 
1.95 
 
0.08 
AQ5-AQ8
 
59,914 
9,287 
 
69,201 
 
135 
199 
 
334 
 
0.23 
2.14 
 
0.48 
AQ9
 
34 
404 
 
438 
 
19 
 
20 
 
2.94 
4.70 
 
4.57 
AQ10
 
 
 
3,367 
3,367 
 
 
 
1,162 
1,162 
 
 
 
34.51 
34.51 
 
 
126,432 
11,126 
3,367 
140,925 
 
163 
246 
1,162 
1,571 
 
0.13 
2.21 
34.51 
1.11 
Key points
Across the Wholesale portfolio, the asset quality band distribution differed reflecting the diverse nature of differing sectors, but remained broadly unchanged during the first half of 2019.
The reduction in Stage 3 provision coverage in property was driven by the write-off of defaulted debt that carried a higher than average level of impairment compared to the rest of the portfolio. The lower coverage level in this sector reflected the secured nature of the exposure.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Trading activities
This section covers the credit risk profile of RBS’s trading activities.
 
Securities funding transactions and collateral (Within the scope of EY’s review report)
The table below shows securities funding transactions in NWM and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.
 
 
Reverse repos
 
Repos
 
 
 
Outside
 
 
 
Outside
 
 
Of which
netting
 
 
Of which
netting
 
Total
can be offset
arrangements
 
Total
can be offset
arrangements
30 June 2019
£m
£m
£m
 
£m
£m
£m
Gross
80,146 
75,389 
4,757 
 
85,931 
83,534 
2,397 
IFRS offset
(49,125)
(49,125)
 
(49,125)
(49,125)
Carrying value
31,021 
26,264 
4,757 
 
36,806 
34,409 
2,397 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Master netting arrangements
(1,191)
(1,191)
 
(1,191)
(1,191)
Securities collateral
(24,808)
(24,808)
 
(33,078)
(33,078)
Potential for offset not recognised under IFRS
(25,999)
(25,999)
 
(34,269)
(34,269)
Net
5,022 
265 
4,757 
 
2,537 
140 
2,397 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
Gross
68,044 
65,057 
2,987 
 
70,097 
68,940 
1,157 
IFRS offset
(39,737)
(39,737)
 
(39,737)
(39,737)
Carrying value
28,307 
25,320 
2,987 
 
30,360 
29,203 
1,157 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Master netting arrangements
(762)
(762)
 
(762)
(762)
Securities collateral
(24,548)
(24,548)
 
(28,441)
(28,441)
Potential for offset not recognised under IFRS
(25,310)
(25,310)
 
(29,203)
(29,203)
Net
2,997 
10 
2,987 
 
1,157 
1,157 
 
 
 
Appendix 1 Capital and risk management
Credit risk – Trading activities continued
Derivatives (Within the scope of EY’s review report)
The table below shows derivatives by type of contract. The master netting agreements and collateral shown below do not result in a net presentation on the balance sheet under IFRS 9. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table below also includes hedging derivatives in Treasury.
 
 
30 June 2019
 
31 December 2018
Notional
 
 
 
 
 
 
GBP
USD
Euro
Other
Total
Assets
Liabilities
Notional
Assets
Liabilities
£bn
£bn
£bn
£bn
£bn
£m
£m
£bn
£m
£m
Gross exposure
 
 
 
 
 
153,424 
151,725 
 
 
138,390 
135,673 
IFRS offset
 
 
 
 
 
(7,830)
(10,028)
 
 
(5,041)
(6,776)
Carrying value
3,014 
6,317 
5,214 
1,942 
16,487 
145,594 
141,697 
 
13,979 
133,349 
128,897 
Of which:
 
 
 
 
 
 
 
 
 
 
 
Interest rate (1)
 
 
 
 
 
 
 
 
 
 
 
  Interest rate swaps
 
 
 
 
 
91,365 
88,255 
 
 
81,855 
74,004 
  Options purchased
 
 
 
 
 
18,124 
 
 
14,481 
  Options written
 
 
 
 
 
15,847 
 
 
16,371 
  Futures and forwards
 
 
 
 
 
68 
73 
 
 
74 
69 
Total
2,627 
4,550 
4,603 
872 
12,652 
109,557 
104,175 
 
10,536 
96,410 
90,444 
Exchange rate
 
 
 
 
 
 
 
 
 
 
 
  Spot, forwards and futures
 
 
 
 
 
19,350 
20,177 
 
 
17,904 
18,610 
  Currency swaps
 
 
 
 
 
10,079 
10,453 
 
 
11,322 
12,062 
  Options purchased
 
 
 
 
 
6,329 
 
 
7,319 
  Options written
 
 
 
 
 
6,617 
 
 
7,558 
Total
386 
1,760 
600 
1,070 
3,816 
35,758 
37,247 
 
3,426 
36,545 
38,230 
Credit
11 
18 
266 
254 
 
16 
346 
208 
Equity and commodity
13 
21 
 
48 
15 
Carrying value
 
 
 
 
16,487 
145,594 
141,697 
 
13,979 
133,349 
128,897 
 
 
 
 
 
 
 
 
 
 
 
 
Counterparty mark-to-market netting
 
 
 
 
 
(116,595)
(116,595)
 
 
(106,762)
(106,762)
Cash collateral
 
 
 
 
 
(19,927)
(17,592)
 
 
(17,937)
(15,227)
Securities collateral
 
 
 
 
 
(3,997)
(3,364)
 
 
(4,469)
(3,466)
Net exposure
 
 
 
 
 
5,075 
4,146 
 
 
4,181 
3,442 
Of which outside netting arrangements
 
 
 
 
1,891 
3,874 
 
 
2,061 
1,708 
 
 
 
 
 
 
 
 
 
 
 
 
Banks (2)
 
 
 
 
 
258 
903 
 
 
362 
443 
Other financial institutions (3)
 
 
 
 
 
1,472 
1,311 
 
 
1,054 
1,144 
Corporate (4)
 
 
 
 
 
2,994 
1,832 
 
 
2,510 
1,817 
Government (5)
 
 
 
 
 
351 
100 
 
 
255 
38 
Net exposure
 
 
 
 
 
5,075 
4,146 
 
 
4,181 
3,442 
 
 
 
 
 
 
 
 
 
 
 
 
UK
 
 
 
 
 
2,635 
1,332 
 
 
1,935 
1,304 
Europe
 
 
 
 
 
1,280 
2,460 
 
 
1,308 
1,465 
US
 
 
 
 
 
844 
80 
 
 
588 
298 
RoW
 
 
 
 
 
316 
274 
 
 
350 
375 
Net exposure
 
 
 
 
 
5,075 
4,146 
 
 
4,181 
3,442 
 
Notes:
(1) The notional amount of interest rate derivatives includes £7,843 billion (31 December 2018 – £5,952 billion) in respect of contracts cleared through central clearing counterparties.
(2) Transactions with certain counterparties with whom RBS has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions for example China where the collateral agreements are not deemed to be legally enforceable.
(3) Transactions with securitisation vehicles and funds where collateral posting is contingent on RBS’s external rating.
(4) Mainly large corporates with whom RBS may have netting arrangements in place, but operational capability does not support collateral posting.
(5) Sovereigns and supranational entities with one-way collateral agreements in their favour.
 
 
 
Appendix 1 Capital and risk management
Credit risk – Trading Activities continued
Debt securities (Within the scope of EY’s review report)
The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor’s, Moody’s and Fitch. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets.
 
 
Central and local government
Financial
 
 
 
UK
US
Other
institutions
Corporate
Total
30 June 2019
£m
£m
£m
£m
£m
£m
AAA
3,198 
1,928 
5,130 
AA to AA+
5,365 
6,093 
3,686 
811 
95 
16,050 
A to AA-
4,508 
628 
46 
5,182 
BBB- to A-
4,861 
818 
467 
6,146 
Non-investment grade
88 
517 
294 
899 
Unrated
505 
121 
626 
Total
5,365 
6,093 
16,341 
5,207 
1,027 
34,033 
 
 
 
 
 
 
 
Short positions
(5,589)
(1,773)
(15,811)
(1,652)
(189)
(25,014)
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
AAA
2,093 
1,459 
3,559 
AA to AA+
6,834 
4,689 
3,161 
773 
120 
15,577 
A to AA-
4,571 
482 
51 
5,104 
BBB- to A-
3,592 
802 
285 
4,679 
Non-investment grade
81 
832 
237 
1,150 
Unrated
572 
580 
Total
6,834 
4,689 
13,498 
4,920 
708 
30,649 
 
 
 
 
 
 
 
Short positions
(6,394)
(2,008)
(13,500)
(1,724)
(201)
(23,827)
 
 
 
 
 
 
 
 
 
Credit risk – Cross border exposure
Cross border exposures comprise both banking and trading activities, including reverse repurchase agreements. Exposures comprise loans, including finance leases and instalment credit receivables, and other monetary assets, such as debt securities. The geographical breakdown is based on the country of domicile of the borrower or guarantor of ultimate risk. Cross border exposures include non-local currency claims of overseas offices on local residents but exclude exposures to local residents in local currencies. The table below shows cross border exposures greater than 0.05% of RBS’s total assets.
 
 
Government
Banks
Other
Total
 Short positions
Net of short positions
30 June 2019
£m
£m
£m
£m
£m
£m
Western Europe
22,879 
10,801 
21,062 
54,742 
16,480 
38,262 
  Of which: France
3,892 
2,363 
2,471 
8,726 
3,982 
4,744 
  Of which: Germany
7,535 
3,790 
1,401 
12,726 
3,892 
8,834 
  Of which: Netherlands
1,858 
663 
5,157 
7,678 
1,454 
6,224 
  Of which: Italy
2,965 
720 
1,759 
5,444 
2,405 
3,039 
  Of which: Spain
1,587 
522 
1,917 
4,026 
1,947 
2,079 
United States
14,093 
5,657 
8,582 
28,332 
1,868 
26,464 
Japan
4,611 
3,512 
431 
8,554 
13 
8,541 
Jersey
3,858 
3,858 
3,857 
31 December 2018
 
 
 
 
 
 
Western Europe
21,121 
19,003 
16,741 
56,865 
14,103 
42,762 
  Of which: France
3,396 
10,209 
1,579 
15,184 
1,626 
13,558 
  Of which: Germany
8,023 
3,086 
1,145 
12,254 
5,397 
6,857 
  Of which: Netherlands
1,142 
675 
3,739 
5,556 
985 
4,571 
  Of which: Italy
2,179 
248 
584 
3,011 
1,796 
1,215 
  Of which: Spain
891 
450 
1,848 
3,189 
1,164 
2,025 
United States
13,558 
5,458 
8,379 
27,395 
2,103 
25,292 
Japan
4,857 
2,327 
405 
7,589 
11 
7,578 
Jersey
3,064 
3,069 
3,067 
 
 
Appendix 1 Capital and risk management
Non-traded market risk
Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.
 
Key developments
 
● Non-traded market risk is now managed separately on both sides of the ring-fence. However, it continues to be aggregated and monitored against risk appetite at RBS level.
Five- and ten-year sterling interest-rate swap rates fell by 0.35%-0.40% in H1 2019. The structural hedge provides some protection against volatility in interest rates and the yield remained stable, falling by only 0.02% in H1 2019 from 1.23% to 1.21%.
 
● Following the Alawwal bank merger, RBS holds a minority equity holding in SABB. This investment in the newly-merged entity is held in NWM Plc. The investment is held at fair value. Changes in value are recognised in reserves. This exposure is now captured in the VaR table below.
By 30 June 2019, the disposal of the lender-option/borrower-option loan portfolio was materially complete, reducing RBS’s exposure to changes in the credit spread compared to the 2018 year-end.
 
Value-at-risk (Within the scope of EY’s review report)
The following table shows one-day internal banking book VaR at a 99% confidence level, split by risk type.
 
 
Half year ended
 
30 June 2019
 
30 June 2018
 
31 December 2018
 
 
 
 
Period
 
 
 
 
Period
 
 
 
 
Period
 
Average
Maximum
Minimum
end
 
Average
Maximum
Minimum
end
 
Average
Maximum
Minimum
end
 
£m
£m
£m
£m
 
£m
£m
£m
£m
 
£m
£m
£m
£m
Interest rate
11.9 
14.0 
9.3 
9.9 
 
19.4 
28.2 
8.9 
19.2 
 
9.3 
11.6 
7.3 
11.6 
Euro
1.2 
1.8 
0.7 
1.8 
 
2.7 
3.9 
1.3 
2.9 
 
1.4 
2.4 
1.0 
1.0 
Sterling
11.5 
14.1 
9.5 
9.9 
 
18.7 
26.0 
11.2 
19.9 
 
10.3 
13.7 
7.9 
13.3 
US dollar
4.7 
6.0 
3.8 
3.8 
 
5.6 
6.8 
1.5 
1.5 
 
3.7 
8.7 
1.4 
8.7 
Other
0.3 
0.4 
0.2 
0.4 
 
0.4 
0.7 
0.3 
0.3 
 
0.5 
0.7 
0.3 
0.7 
Credit spread
54.9 
58.0 
49.2 
56.6 
 
56.9 
60.8 
49.4 
49.4 
 
62.4 
77.8 
53.9 
77.8 
Foreign exchange
20.0 
23.8 
7.2 
7.2 
 
12.8 
32.7 
5.9 
16.6 
 
14.0 
16.4 
12.2 
13.0 
Equity
38.6 
38.6 
38.6 
38.6 
 
 
Pipeline risk 
0.3 
0.5 
0.2 
0.3 
 
0.6 
1.3 
0.3 
0.4 
 
0.6 
0.8 
0.4 
0.4 
Diversification (1)
(70.5)
 
 
(50.7)
 
(29.3)
 
 
(22.6)
 
(20.6)
 
 
(20.5)
Total
55.2 
61.9 
48.1 
61.9 
 
60.4 
69.8 
54.9 
63.0 
 
65.7 
82.3 
61.4 
82.3 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note:
(1)
RBS benefits from diversification 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.
 
Key point
The increase in total VaR at the end of June 2019 compared to the average, reflected the equity exposure to SABB following the Alawwal bank merger in June 2019. The inclusion of this exposure outweighed the decrease in the foreign exchange VaR at 30 June 2019 resulting from lower sensitivity to the Saudi Riyal exchange rate following the merger.
 
 
Appendix 1 Capital and risk management
Non-traded market risk continued
Structural hedging
RBS has the benefit of a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed-rate assets (such as fixed-rate mortgages or UK government gilts) or by using interest rate swaps, which are generally booked as cash flow hedges or floating rate assets, in order to provide a consistent and predictable revenue stream.
 
After hedging the net interest rate exposure of the bank externally, RBS allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution to products and interest rate returns. The programme aims to track a time series of medium-term swap rates, but the yield will be affected by changes in product volumes and RBS’s capital composition.
 
The table below shows the incremental income allocation (above three-month LIBOR), total income allocation (including three-month LIBOR), the period end and average notional balances and the total yield (including three-month LIBOR) associated with the structural hedges managed by RBS.
 
Half year ended
 
30  June 2019
 
30 June 2018
 
31 December 2018
 
Incremental
Total
Spot
Average
Overall
 
Incremental
Total
Spot
Average
Overall
 
Incremental
Total
Spot
Average
Overall
 
income
income
notional
notional
yield
 
income
income
notional
notional
yield
 
income
income
notional
notional
yield
 
£m
£m
£bn
£bn
%
 
£m
£m
£bn
£bn
%
 
£m
£m
£bn
£bn
%
Equity
 197 
 332 
 29 
 29 
 2.31 
 
 257 
 335 
 29 
 28 
 2.40 
 
 212 
 338 
 29 
 30 
 2.28 
Product (1)
 82 
 558 
 111 
 111 
 1.01 
 
 225 
 545 
 108 
 108 
 1.01 
 
 143 
 558 
 110 
 109 
 1.03 
Other
 27 
 84 
 21 
 21 
 0.79 
 
 50 
 80 
 21 
 21 
 0.75 
 
 39 
 86 
 22 
 22 
 0.78 
Total
 306 
 974 
 161 
 161 
 1.21 
 
 532 
 960 
 158 
 157 
 1.22 
 
 394 
 982 
 161 
 161 
 1.23 
 
Note:
(1)
Refer to the next table for a segmental split.
 
 
Key points
The five year sterling swap rate fell to 0.83% at the end of June 2019 from 1.22% at December 2018. The ten-year sterling swap rate also fell to 0.97% from 1.35%. However, the yield of the structural hedge was relatively stable. At 1.21% the overall yield was also higher than market swap rates at 30 June 2019.
Incremental income in excess of three-month LIBOR fell in H1 2019 compared to H2 2018. This was primarily due to higher three-month LIBOR fixings, resulting in less income benefit from the hedge.
 
Equity structural hedges refer to income attributed to the hedging of equity and reserves, primarily in NatWest Markets Plc and NatWest Holdings. Product structural hedges refer to income allocated to customer products, for example current accounts, in NatWest Holdings. Other structural hedges refer to hedges managed by the subsidiaries. Approximately 37% of other structural hedges are euro-denominated.
 
The following table presents the incremental income associated with product structural hedges at segment level.
 
 
 
 
 
Half year ended
30 June 2019
30 June 2018*
31 December 2018*
£m 
£m
£m 
UK Personal Banking
 38 
 101 
 65 
Commercial and Business Banking
 44 
 122 
 78 
Other
 - 
 2 
 - 
Total
 82 
 225 
 143 
Note:
(1)
For further detail on incremental income related to product structural hedges refer to the table below.
 
*Restated. Refer to Note 1 of the main announcement for further details.
 
 
Appendix 1 Capital and risk management
Non-traded market risk continued
Sensitivity of net interest earnings
Net interest earnings are sensitive to changes in the level of interest rates because changes to coupons on some customer products do not always match changes in market rates of interest or central bank policy rates.
 
The sensitivity of the net interest income table shows the expected impact, over 12 months, to an immediate upward or downward change of 25 and 100 basis points to all interest rates. Yield curves are expected to move in parallel, though interest rates are assumed to floor at zero per cent or, for euro rates, at the current negative rate.
 
The methodology, assumptions and limitations relating to the following two earnings sensitivity tables did not change materially in H1 2019. For further details, refer to pages 154-155 of the 2018 Annual Report and Accounts.
 
 
 
 
 
 
 
 
 
 
 
Parallel shifts in yield curve
 
+25 basis points
-25 basis points
+100 basis points
-100 basis points
30 June 2019
£m
£m
£m
£m
Euro
23 
88 
Sterling
201 
(142)
707 
(706)
US dollar
15 
(9)
51 
(52)
Other
(2)
(9)
15 
Total
237 
(144)
837 
(734)
 
 
 
 
 
30 June 2018
 
 
 
 
Euro
26 
Sterling
156 
(173)
673 
(674)
US dollar
(6)
43 
(29)
Other
(3)
16 
(7)
Total
175 
(178)
758 
(706)
 
 
 
 
 
31 December 2018
 
 
 
 
Euro
29 
(3)
114 
(1)
Sterling
152 
(201)
651 
(717)
US dollar
15 
(8)
63 
(42)
Other
Total
197 
(210)
830 
(757)
 
 
 
 
 
Refer to the key points under the next table for analysis.
 
 
Appendix 1 Capital and risk management
Non-traded market risk continued
The table below shows the net interest earnings sensitivity on a one-year, two-year and three-year forward-looking basis to a parallel upward or downward shift in interest rates of 25 basis points. The projection is a simplified sensitivity in which the balance sheet is assumed to be constant, with no change in customer behaviour or margin management strategy as a result of rate changes. The impact of the rate shock on structural hedges increases as maturing hedges are replaced at higher or lower rates through the three-year period.
 
 
 
 
 
 
 
 
 
 
+25 basis points parallel upward shift
 
-25 basis points parallel downward shift
 
Year 1
Year 2 (1)
Year 3 (1)
 
Year 1
Year 2 (1)
Year 3 (1)
30 June 2019
£m
£m
£m
 
£m
£m
£m
Structural hedges
32 
99 
171 
 
(30)
(97)
(168)
Managed margin (2)
213 
241 
243 
 
(129)
(104)
(108)
Other
(8)
 
15 
Total
237 
340 
414 
 
(144)
(201)
(276)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
Structural hedges
32 
98 
170 
 
(32)
(98)
(167)
Managed margin (2)
150 
171 
170 
 
(177)
(189)
(163)
Other
15 
 
(2)
Total
197 
269 
340 
 
(210)
(287)
(330)
 
Notes:
(1) The projections for Year 2 and Year 3 consider only the main drivers of earnings sensitivity, namely structural hedging and margin management.
(2) Primarily current accounts and savings accounts.
 
Key points
Changes to earnings sensitivity to rate shocks between December 2018 and June 2019 were mainly driven by changes to estimates of how product pricing will respond to interest rate shocks. These estimates are regularly reviewed and are influenced by the overall level of interest rates, the Group’s competitive position and other strategic considerations.
Sensitivity to a 100 basis point downward shift in yield curves was also affected by the changes in the level of interest rates. In the shock scenario, rates fell less at 30 June 2019 before hitting an assumed zero per cent floor compared to 31 December 2018. This resulted in a slightly lower adverse impact at 30 June 2019.  
 
 
Appendix 1 Capital and risk management
Non-traded market risk continued
Foreign exchange risk (Within the scope of EY’s review report)
The table below shows structural foreign currency exposures.
 
 
 
Net
 
Structural
 
 
 
Net
 
investments
 
foreign currency
 
Residual
 
investments
 
in foreign
Net
 exposures
 
structural
in foreign
 
operations
 investment
pre-economic
Economic
foreign currency
 operations
NCI (1)
excluding NCI
 hedges
 hedges
 hedges (2)
 exposures
30 June 2019
£m
£m
£m
£m
£m
£m
£m
US dollar
1,412 
1,412 
(33)
1,379 
(1,379)
Euro
6,935 
6,932 
(1,711)
5,221 
5,221 
Other non-sterling
1,492 
1,492 
(145)
1,347 
1,347 
Total
9,839 
9,836 
(1,889)
7,947 
(1,379)
6,568 
 
 
 
 
 
 
 
 
31 December 2018
 
 
 
 
 
 
 
US dollar
553 
553 
(4)
549 
(549)
Euro
6,428 
33 
6,395 
(853)
5,542 
5,542 
Other non-sterling
2,600 
710 
1,890 
(1,249)
641 
(81)
560 
Total
9,581 
743 
8,838 
(2,106)
6,732 
(630)
6,102 
 
Notes:
(1)
Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners’ equity.
(2)
Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. Economic hedges of other currency net investments in foreign operations represent monetary liabilities that are not booked as net investment hedges.
 
Key points
 
Other non-sterling net investments in foreign operations fell. This reflected the Alawwal bank merger. The minority equity stake in Saudi British Bank is too small to be consolidated as a net investment in a foreign operation. The increase in euro net investments in foreign operations also partly resulted from the gain on the sale of NWM N.V.’s equity stake in SABB to NWM Plc. NWM Plc has increased the capitalisation of its US branch. This has reduced the branch’s debt funding and NWM Plc’s regulatory exposure to fluctuations in the US dollar exchange rate against sterling. 
Changes in exchange rates affect equity in proportion to structural foreign currency exposures. At 30 June 2019, a 5% strengthening in all foreign currencies against sterling would result in a £0.4 billion increase in equity reserves, while a 5% weakening in all foreign currencies against sterling would result in a £0.4 billion reduction in equity reserves. 
 
Traded market risk
Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.
 
Traded internal VaR (Within the scope of EY’s review report)
The table below shows one-day internal value-at-risk (VaR) for RBS’s trading portfolios, split by exposure type.
 
Half year ended
 
30 June 2019
 
30 June 2018
 
31 December 2018
 
 
 
 
Period
 
 
 
 
Period
 
 
 
 
Period
 
Average
Maximum
Minimum
end
 
Average
Maximum
Minimum
end
 
Average
Maximum
Minimum
end
Traded VaR (1-day 99%)
£m
£m
£m
£m
 
£m
£m
£m
£m
 
£m
£m
£m
£m
Interest rate
10.3 
16.9 
6.9 
9.8 
 
15.0 
27.3 
10.4 
16.5 
 
13.6 
19.9 
9.2 
13.0 
Credit spread
9.4 
12.7 
7.0 
9.9 
 
13.2 
24.2 
9.1 
10.4 
 
8.9 
14.6 
6.9 
8.2 
Currency
3.6 
5.8 
2.0 
3.8 
 
3.2 
7.6 
1.4 
3.5 
 
3.0 
6.3 
1.7 
5.3 
Equity
0.7 
2.2 
0.3 
0.5 
 
0.6 
0.9 
0.3 
0.8 
 
1.0 
1.6 
0.5 
0.8 
Commodity
0.2 
0.5 
0.2 
 
0.4 
1.0 
0.1 
0.5 
 
0.2 
0.6 
0.1 
Diversification (1)
(9.3)
 
 
(10.6)
 
(11.2)
 
 
(11.9)
 
(9.9)
 
 
(8.8)
Total
14.9 
21.5 
12.1 
13.6 
 
21.2 
35.6 
15.4 
19.8 
 
16.8 
26.8 
11.7 
18.6 
 
Note:
(1)
RBS benefits from diversification 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.
 
Key points
Traded VaR remained broadly unchanged on an average basis during H1 2019 compared to H2 2018.
The decrease, on an average basis compared to H1 2018, is attributed to peaks in H1 2018 due to long euro rates positioning and bond syndication activity.
 
 
Appendix 1 Capital and risk management
Other risks 
Operational risk
RBS continues to develop its cyber risk management and defence strategies, including tracking prominent threat groups and working with the National Cyber Security Centre through its Industry 100 initiative.
There was also continued oversight of the Group’s preparations for the UK’s exit from the EU to ensure that processes and systems are in place to ensure continuity of service for customers. Additionally, continuing improvements to the Group’s control environment, including further embedding of the operational risk management framework and refresh of the risk appetite framework, were also a focus.
 
Compliance and Conduct risk
Embedding the compliance and conduct risk framework across RBS was a key focus in H1 2019. The complementary compliance and conduct risk manual was also launched to support this work. Training was completed across all three lines of defence, supported by business-specific case studies.
Work continued on concluding most of RBS’s material remediation projects in 2019. Some material projects remain under active management, with plans in place to conclude the majority by the end of the year. Meeting the PPI closure deadline of 29 August 2019, and ensuring the effective and timely management of residual work thereafter, remains a key focus with the current timeline being end of Q2 2020.
 
Climate risk
RBS reclassified climate change as a top risk and work continued on integrating climate-related financial risks into the core risk framework. This included work on scenario-based analysis for both physical and transition risks. In March 2019, RBS also joined the Climate Financial Risk Forum, established by the FCA and PRA to develop practical tools to address climate-related financial risks. 
 
 
 
 
 
 
 
 
Appendix 2
 
Non-IFRS financial measures
 
 
 
Appendix 2 Non-IFRS financial measures
 
As described in Note 1 on page 23, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (GAAP). The Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:
 
Non-IFRS financial measures
Measure
Basis of preparation
Additional analysis or reconciliation
RBS return on tangible equity
Annualised profit for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is total equity less intangible assets and other owners’ equity.
Note 1
Segmental return on tangible equity
Segmental operating profit adjusted for tax and for preference share dividends divided by average notional equity, allocated at an operating segment specific rate, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).
Note 1
Operating expenses analysis – management view
The management analysis of strategic disposals in other income and operating expenses shows strategic costs and litigation and conduct costs in separate lines, these amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.
Note 2
Cost:income ratio
Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.
Note 3
Commentary – adjusted periodically for specific items
Group and segmental business performance commentary have been adjusted for the impact of specific items such as the Alawwal bank merger, additional authorised push payments fraud costs, notable items(detailed on Page 3), strategic, litigation and conduct costs(detailed on Page 14 to 18).
Notable items - Page 3
Strategic, litigation and conduct costs – Pages 14 to 18.
Aggregation of business segments into franchises
Personal & Ulster franchise results, combining the reportable segments of UK Personal Banking (UK PB) and Ulster Bank RoI, Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking and Private Banking.
Page 26 Note 4
Bank net interest margin (NIM)
Net interest income of the banking business less the NatWest Markets element as a percentage of interest-earning assets of the banking business less the NatWest Markets element.
Note 4
 
Performance metrics not defined under IFRS(1) 
Measure
Basis of preparation
Additional analysis or reconciliation
Loan:deposit ratio
Net customer loans held at amortised cost divided by total customer deposits.
Note 5
Tangible net asset value
Tangible equity divided by the number of ordinary shares in issue. Tangible equity is ordinary shareholders’ interest less intangible assets.
Page 2
NIM
Net interest income of the banking business as a percentage of interest-earning assets of the banking business.
Pages 14 -18.
Funded assets
Total assets less derivatives.
Page 14 -18.
ECL loss rate
The annualised loan impairment charge divided by gross customer loans.
Pages 35.
 
Note:
(1) Metric based on GAAP measures, included as not defined under IFRS and reported for compliance with ESMA adjusted performance measure rules.
 
Appendix 2 Non-IFRS financial measures
1. Return on tangible equity
 
 
Half year ended
 
Quarter ended
 
and as at
 
and as at
 
30 June
30 June
 
30 June
31 March
30 June
RBS return on tangible equity
2019 
2018 
 
2019 
2019 
2018 
Profit attributable to ordinary shareholders (£m)
2,038 
888 
 
1,331 
707 
96 
Adjustment for Alawwal bank merger gain (£m)
764 
 
Adjusted profit attributable to ordinary shareholders (£m)
1,274 
 
Annualised profit attributable to ordinary shareholders (£m)
4,076 
1,776 
 
5,324 
2,828 
384 
Annualised adjusted profit attributable to ordinary shareholders (£m)
2,548 
 
 
 
 
 
 
 
 
Average total equity (£m)
46,310 
48,773 
 
46,179 
46,516 
48,578 
Adjustment for other owners equity and intangibles (£m)
(12,528)
(15,019)
 
(12,410)
(12,581)
(15,056)
Adjusted total tangible equity (£m)
33,782 
33,754 
 
33,769 
33,935 
33,522 
 
 
 
 
 
 
 
Return on tangible equity (%)
12.1%
5.3%
 
15.8%
8.3%
1.1%
Return on tangible equity adjusting for impact of Alawwal bank merger (%)
7.5%
 
 
 
 
 
 
 
 
 
 
 
 
UK
Ulster
Commercial & Private
 
 
 
Personal
 Bank
Commercial
Private
RBS
NatWest
Half year ended 30 June 2019
Banking
RoI
Banking
Banking
International
Markets
Operating profit (£m)
1,037 
23 
701 
155 
194 
300 
Adjustment for tax (£m)
(290)
(196)
(43)
(27)
(84)
Preference share cost allocation (£m)
(36)
(82)
(8)
(30)
Adjusted attributable profit (£m)
711 
23 
423 
104 
167 
186 
Annualised adjusted attributable profit (£m)
1,422 
46 
846 
207 
334 
372 
Adjustment for Alawwal merger gain (£m)
(299)
Annualised adjusted profit attributable to
 
 
 
 
 
 
  ordinary shareholders (£m)
1,422 
46 
846 
207 
334 
73 
Monthly average RWAe (£bn)
37.0 
14.3 
79.6 
9.6 
7.0 
49.2 
Equity factor
15.0%
15.0%
12.0%
13.0%
16.0%
15.0%
RWAe applying equity factor (£bn)
5.5 
2.1 
9.6 
1.2 
1.1 
7.4 
Return on equity (%)
25.6%
2.1%
8.8%
16.6%
29.7%
1.0%
 
 
 
 
 
 
 
Half year ended 30 June 2018*
 
 
 
 
 
 
Operating profit (£m)
1,129 
86 
1,215 
156 
173 
46 
Adjustment for tax (£m)
(316)
(340)
(44)
(24)
(13)
Preference share cost allocation (£m)
(40)
(94)
(12)
(8)
(54)
Adjusted attributable profit (£m)
773 
86 
781 
100 
141 
(21)
Annualised adjusted attributable profit (£m)
1,546 
172 
1,562 
200 
282 
(42)
Monthly average RWAe (£bn)
32.8 
17.7 
86.5 
9.4 
6.9 
56.4 
Equity factor
15.0%
14.0%
12.0%
13.5%
16.0%
15.0%
RWAe applying equity factor (£bn)
4.9 
2.5 
10.4 
1.3 
1.1 
8.5 
Return on equity
31.4%
7.0%
15.1%
15.8%
25.7%
-0.5%
* Restated. Refer to Note 1 for further details.
 
 
 
 
 
 
 
 
Appendix 2 Non-IFRS financial measures
 
 
 
 
1. Return on tangible equity continued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UK
Ulster
Commercial & Private
 
 
 
Personal
 Bank
Commercial
Private
RBS
NatWest
Quarter ended 30 June 2019
Banking
RoI
Banking
Banking
International
Markets
Operating profit (£m)
539 
264 
75 
101 
362 
Adjustment for tax (£m)
(151)
(74)
(21)
(14)
(101)
Preference share cost allocation (£m)
(18)
(41)
(4)
(30)
Adjusted attributable profit (£m)
370 
149 
50 
87 
231 
Annualised adjusted attributable profit (£m)
1,480 
12 
596 
199 
345 
924 
Adjustment for Alawwal merger gain (£m)
(598)
Annualised adjusted profit attributable to
 
 
 
 
 
 
  ordinary shareholders (£m)
1,480 
12 
596 
199 
345 
326 
Monthly average RWAe (£bn)
37.2 
14.3 
80.1 
9.6 
7.0 
49.1 
Equity factor
15.0%
15.0%
12.0%
13.0%
16.0%
15.0%
RWAe applying equity factor (£bn)
5.6 
2.1 
9.6 
1.2 
1.1 
7.4 
Return on equity
26.5%
0.6%
6.2%
15.9%
30.8%
4.4%
Quarter ended 31 March 2019
 
 
 
 
 
 
Operating profit (£m)
498 
20 
437 
80 
93 
(62)
Adjustment for tax (£m)
(139)
(122)
(23)
(13)
17 
Preference share cost allocation (£m)
(18)
(41)
(4)
Adjusted attributable profit (£m)
341 
20 
274 
53 
80 
(45)
Annualised adjusted attributable profit (£m)
1,364 
80 
1,096 
212 
320 
(180)
Monthly average RWAe (£bn)
36.8 
14.2 
79.1 
9.6 
7.0 
49.4 
Equity factor
15.0%
15.0%
12.0%
13.0%
16.0%
15.0%
RWAe applying equity factor (£bn)
5.5 
2.1 
9.5 
1.2 
1.1 
7.4 
Return on equity
24.7%
3.8%
11.5%
17.1%
28.6%
-2.4%
Quarter ended 30 June 2018*
 
 
 
 
 
 
Operating profit (£m)
585 
76 
664 
94 
95 
(51)
Adjustment for tax (£m)
(164)
(186)
(26)
(13)
14 
Preference share cost allocation (£m)
(20)
(47)
(6)
(4)
(27)
Adjusted attributable profit (£m)
401 
76 
431 
62 
78 
(64)
Annualised adjusted attributable profit (£m)
1,604 
304 
1,724 
248 
310 
(256)
Monthly average RWAe (£bn)
32.4 
17.4 
87.4 
9.5 
6.9 
56.4 
Equity factor
15.0%
14.0%
12.0%
13.5%
16.0%
15.0%
RWAe applying equity factor (£bn)
4.9 
2.4 
10.5 
1.3 
1.1 
8.5 
Return on equity
33.0%
12.5%
16.4%
19.3%
27.9%
-3.0%
*Restated. Refer to Note 1 for further details.
 
 
 
 
 
 
 
 
 
Appendix 2 Non-IFRS performance measures
2. Operating expenses analysis
 
Statutory analysis (1,2)
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2019 
2018 
 
2019 
2019 
2018 
Operating expenses
£m
£m
 
£m
£m
£m
Staff expenses
2,028 
2,086 
 
1,017 
1,011 
1,031 
Premises and equipment
558 
644 
 
293 
265 
274 
Other administrative expenses
863 
1,636 
 
445 
418 
1,237 
Administrative expenses
3,449 
4,366 
 
1,755 
1,694 
2,542 
Depreciation and amortisation
621 
338 
 
377 
244 
175 
Write down of other intangible assets
30 
31 
 
30 
Total operating expenses
4,100 
4,735 
 
2,162 
1,938 
2,724 
 
Non-statutory analysis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2019 
2018 
 
2019 
2019 
2018 
Operating expenses
£m
£m
 
£m
£m
£m
Staff expenses
1,841 
1,903 
 
905 
936 
939 
Premises and equipment
493 
574 
 
245 
248 
288 
Other administrative expenses
673 
760 
 
318 
355 
413 
Strategic costs (1)
629 
350 
 
434 
195 
141 
Litigation and conduct costs (2)
60 
801 
 
55 
782 
Administrative expenses
3,696 
4,388 
 
1,957 
1,739 
2,563 
Depreciation and amortisation
399 
316 
 
200 
199 
154 
Write down of other intangible assets
31 
 
Total
4,100 
4,735 
 
2,162 
1,938 
2,724 
 
Notes:
(1) On a statutory, or GAAP, basis, strategic costs are included within staff, premises and equipment, depreciation and amortisation, write-down of other intangible assets and other administrative expenses.
(2) On a statutory, or GAAP, basis, litigation and conduct costs are included within other administrative expenses.
 
3. Cost:income ratio
 
 
UK
 
Commercial & Private
 
 
 
 
 
Personal
Ulster Bank
Commercial
Private
RBS
NatWest
Central items
RBS
 
Banking
RoI
Banking
Banking
International
Markets
& other
Group
Half year ended 30 June 2019
£m
£m
£m
£m
£m
£m
£m
£m
Operating expenses
(1,229)
(281)
(1,262)
(232)
(119)
(678)
(299)
(4,100)
Operating lease depreciation
68 
68 
Adjusted operating expenses
(1,229)
(281)
(1,194)
(232)
(119)
(678)
(299)
(4,032)
 
 
 
 
 
 
 
 
 
Total income
2,447 
283 
2,165 
384 
310 
942 
586 
7,117 
Operating lease depreciation
(68)
(68)
Adjusted total income
2,447 
283 
2,097 
384 
310 
942 
586 
7,049 
 
 
 
 
 
 
 
 
 
Cost:income ratio (%)
50.2%
99.3%
56.9%
60.4%
38.4%
72.0%
nm
57.2%
Half year ended 30 June 2018 *
 
 
 
 
 
 
 
 
Operating expenses
(1,291)
(252)
(1,140)
(225)
(114)
(671)
(1,042)
(4,735)
Operating lease depreciation
57 
57 
Adjusted operating expenses
(1,291)
(252)
(1,083)
(225)
(114)
(671)
(1,042)
(4,678)
 
 
 
 
 
 
 
 
 
Total income
2,551 
312 
2,390 
382 
284 
721 
62 
6,702 
Operating lease depreciation
(57)
(57)
Adjusted total income
2,551 
312 
2,333 
382 
284 
721 
62 
6,645 
 
 
 
 
 
 
 
 
 
Cost:income ratio (%)
50.6%
80.8%
46.4%
58.9%
40.1%
93.1%
nm
70.4%
* Restated. Refer to Note 1 for further details.
 
 
 
 
 
 
 
 
 
Appendix 2 Non-IFRS performance measures
3. Cost:income ratio continued
 
 
UK
 
Commercial & Private
 
 
 
 
 
Personal
Ulster Bank
Commercial
Private
RBS
NatWest
Central items
RBS
 
Banking
RoI
Banking
Banking
International
Markets
& others
Group
Quarter ended 30 June 2019
£m
£m
£m
£m
£m
£m
£m
£m
Operating expenses
(594)
(145)
(622)
(115)
(60)
(344)
(282)
(2,162)
Operating lease depreciation
34 
34 
Adjusted operating expenses
(594)
(145)
(588)
(115)
(60)
(344)
(282)
(2,128)
 
 
 
 
 
 
 
 
 
Total income
1,202 
138 
1,083 
191 
159 
686 
621 
4,080 
Operating lease depreciation
(34)
(34)
Adjusted total income
1,202 
138 
1,049 
191 
159 
686 
621 
4,046 
 
 
 
 
 
 
 
 
 
Cost:income ratio
49.4%
105.1%
56.1%
60.2%
37.7%
50.1%
nm
52.6%
Quarter ended 31 March 2019
 
 
 
 
 
 
 
 
Operating expenses
(635)
(136)
(640)
(117)
(59)
(334)
(17)
(1,938)
Operating lease depreciation
34 
34 
Adjusted operating expenses
(635)
(136)
(606)
(117)
(59)
(334)
(17)
(1,904)
 
 
 
 
 
 
 
 
 
Total income
1,245 
145 
1,082 
193 
151 
256 
(35)
3,037 
Operating lease depreciation
(34)
(34)
Adjusted total income
1,245 
145 
1,048 
193 
151 
256 
(35)
3,003 
 
 
 
 
 
 
 
 
 
Cost:income ratio
51.0%
93.8%
57.8%
60.6%
39.1%
130.5%
nm
63.4%
Quarter ended 30 June 2018 *
 
 
 
 
 
 
 
 
Operating expenses
(605)
(124)
(545)
(104)
(55)
(322)
(969)
(2,724)
Operating lease depreciation
26 
26 
Adjusted operating expenses
(605)
(124)
(519)
(104)
(55)
(322)
(969)
(2,698)
 
 
 
 
 
 
 
 
 
Total income
1,253 
166 
1,232 
198 
147 
284 
120 
3,400 
Operating lease depreciation
(26)
(26)
Adjusted total income
1,253 
166 
1,206 
198 
147 
284 
120 
3,374 
 
 
 
 
 
 
 
 
 
Cost:income ratio
48.3%
74.7%
43.0%
52.5%
37.4%
113.4%
nm
80.0%
 
* Restated. Refer to Note 1 for further details.
 
4. Net interest margin
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2019 
2018 
 
2019 
2019 
2018 
 
£m
£m
 
£m
£m
£m
RBS net interest income
4,004 
4,326 
 
1,971 
2,033 
2,180 
NWM net interest income
122 
(67)
 
91 
31 
(31)
Net interest income excluding NWM
4,126 
4,259 
 
2,062 
2,064 
2,149 
Annualised net interest income
8,074 
8,724 
 
7,906 
8,245 
8,744 
Annualised net interest income excluding NWM
8,320 
8,589 
 
8,271 
8,371 
8,620 
Average interest earning assets (IEA)
440,309 
431,211 
 
444,800 
435,768 
434,928 
NWM average IEA
33,261 
27,134 
 
34,436 
32,072 
26,981 
Average IEA excluding NWM
407,048 
404,077 
 
410,364 
403,696 
407,947 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest margin
1.83%
2.02%
 
1.78%
1.89%
2.01%
Bank net interest margin (excluding NWM)
2.04%
2.13%
 
2.02%
2.07%
2.11%
 
5. Loan:deposit ratio
 
 
 
As at
 
 
 
30 June
31 March
31 December
 
 
 
2019 
2019 
2018 
 
 
 
£bn
£bn
 £bn
Loans to customers - amortised cost
 
 
310.6 
306.4 
305.1 
Customer deposits
 
 
361.6 
355.2 
360.9 
Loan:deposit ratio (%)
 
 
86%
86%
85%
 
 
 
 
 
 
 
Legal Entity Identifier: 2138005O9XJIJN4JPN90
 
 
 
 
Date: 02 August 2019
 
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By: /s/ Jan Cargill
 
 
 
Name: Jan Cargill
 
Title: Deputy Secretary