RNS Number : 7507F
Royal Bank of Scotland Group PLC
23 February 2018

The Royal Bank of Scotland Group plc

2017 RBS performance summary

Highlights

RBS reported its first 'bottom-line' profit in ten years

?

2017 operating profit of 2,239 million, an increase of 6,321 million compared with 2016.

?

Adjusted operating profit(1)(2) increased by 31.1% to 4,818 million.

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2017 attributable profit of 752 million.

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Q4 2017 operating loss before tax of 583 million and an attributable loss of 579 million.

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4.0% increase in adjusted income(1) and an 8.1% reduction in adjusted operating expenses(2) driving a 12.1% improvement in operating leverage.

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Net interest margin (NIM) reduced by 5 basis points to 2.13% compared with 2016.

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Supported the UK economy through a 6.0 billion, or 2.2%,(3) increase in net lending across PBB, CPB and RBSI. Whilst behind our 3% target, this represents strong growth in a competitive environment.

Continued track record of delivery against our stated objectives

?

Grow income: Adjusted income increased by 490 million, or 4.0%.(1)

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Cut costs: Excluding VAT recoveries, adjusted operating expenses reduced by 810 million,(2) or 9.6%.

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Reduce capital usage: Excluding volume growth, RWAs reduced by 20.8 billion across PBB (0.6 billion), CPB (12.9 billion), RBSI (4.4 billion) and NatWest Markets core (2.9 billion), already achieving our 2018 target.

?

Resolve legacy issues; during 2017, RBS:

Wound up the former Capital Resolution business. Legacy RWAs now represent around 11% of total;

Received formal approval from the European Commission for its alternative remedies package in respect of the business previously described as Williams & Glyn; and

Reached settlement with the Federal Housing Finance Agency (FHFA) and the California State Attorney General in the US and resolved the 2008 rights issue shareholder litigation.

Significant capital build throughout 2017

?

CET1 ratio increased by 250 basis points to 15.9%, despite absorbing significant additional legacy costs.

?

IFRS 9 adoption on 1 January 2018 increased CET1 by a further 30 basis points.

Prioritising transformation acceleration

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Increased investment and innovation spend focused on achieving higher levels of digitisation and automation.

?

Faster repositioning of the bank's existing distribution network and technology platforms towards mobile, cloud based platforms and virtualisation.

Delivery against our 2017 targets

Strategy goal

2017 target

2017

Strength and sustainability

Maintain bank CET1 ratio of 13%

CET1 ratio of 15.9%; up 250 basis points from Q4 2016

Customer experience

Significantly increase NPS or maintain No.1 in chosen customer segments

We have achieved target in half our key customer segments and Commercial Banking remains ahead of its main competitors. Trust has improved for both NatWest and Royal Bank of Scotland

Simplifying the bank

Reduce adjusted operating expenses by at least 750 million

Adjusted operating expenses down 810 million, or 9.6%, excluding VAT recoveries

Supporting growth

Net 3% growth on total PBB, CPB and RBSI loans to customers

Net customer loans in PBB, CPB and RBSI up 2.2%(3)

Employee engagement

Improve employee engagement

Employee engagement improved by 7 basis points to 83, 1 point above the GFS norm

Notes:

(1)

Income excluding own credit adjustments 69 million loss (2016 - 180 million gain), loss on redemption of own debt 7 million (2016 - 126 million), and strategic disposals 347 million (2016 - 164 million).

(2)

Operating expenses excluding litigation and conduct costs 1,285 million (2016 - 5,868 million), restructuring costs 1,565 million (2016 - 2,106 million), and VAT recoveries of 86 million (2016 - 227 million).

(3)

Excluding transfers. See notes on page 4 for further details.

Highlights

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

Performance key metrics and ratios

2017

2016

2017

2017

2016

Operating profit

2,239

(4,082)

(583)

871

(4,063)

Operating profit - adjusted (1,2)

4,818

3,674

512

1,245

1,185

Profit/(loss) attributable to ordinary shareholders

752

(6,955)

(579)

392

(4,441)

Net interest margin

2.13%

2.18%

2.04%

2.12%

2.19%

Average interest earning assets

422,337m

399,598m

430,902m

430,962m

401,548m

Cost:income ratio (3)

79.0%

129.0%

111.5%

67.5%

230.2%

Cost:income ratio - adjusted (1,2,3)

58.2%

66.0%

73.6%

55.6%

66.3%

Earnings per share

- basic

6.3p

(59.5p)

(4.9p)

3.3p

(37.7p)

- basic fully diluted

6.3p

(59.5p)

(4.9p)

3.3p

(37.7p)

- adjusted basic (1,2)

25.2p

5.2p

3.0p

5.9p

7.0p

- adjusted fully diluted (1,2,4)

25.2p

5.2p

3.0p

5.9p

7.0p

Return on tangible equity

2.2%

(17.9%)

(6.7%)

4.5%

(48.2%)

Return on tangible equity - adjusted (1,2)

8.8%

1.6%

4.0%

8.2%

8.6%

Average tangible equity

34,053m

38,791m

34,403m

34,465m

36,855m

Average number of ordinary shares

outstanding during the period (millions)

- basic

11,867

11,692

11,944

11,886

11,766

- fully diluted (4)

11,936

11,743

12,003

11,943

11,846

Period ended

31 December

30 September

31 December

Balance sheet related key metrics and ratios

2017

2017

2016

Total assets

738.1bn

751.8bn

798.7bn

Funded assets

577.2bn

580.0bn

551.7bn

Loans and advances to customers (excludes reverse repos)

323.2bn

324.7bn

323.0bn

Customer deposits (excludes repos)

367.0bn

359.9bn

353.9bn

Liquidity coverage ratio (LCR)

152%

147%

123%

Liquidity portfolio

186bn

177bn

164bn

Net stable funding ratio (NSFR)

132%

126%

121%

Loan:deposit ratio

88%

90%

91%

Risk elements in lending

8.9bn

9.0bn

10.3bn

Impairment provisions

3.8bn

3.9bn

4.5bn

Short-term wholesale funding

18bn

21bn

14bn

Wholesale funding

70bn

69bn

59bn

Common Equity Tier 1 (CET1) ratio

15.9%

15.5%

13.4%

Total capital ratio

21.3%

20.6%

19.2%

Risk-weighted assets (RWAs)

200.9bn

210.6bn

228.2bn

CRR leverage ratio

5.3%

5.3%

5.1%

UK leverage ratio

6.1%

6.0%

5.6%

Tangible net asset value (TNAV) per ordinary share

294p

299p

296p

Tangible net asset value (TNAV) per ordinary share - fully diluted

292p

298p

294p

Tangible equity

35,164m

35,621m

34,982m

Number of ordinary shares in issue (millions)

11,965

11,905

11,823

Number of ordinary shares in issue (millions) - fully diluted (4,5)

12,031

11,950

11,906

Notes:

(1)

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

(2)

Excluding restructuring costs and litigation and conduct costs.

(3)

Operating lease depreciation included in income (year ended 31 December 2017 - 142 million, year ended December 2016 - 152 million, Q4 2017 - 35 million, Q3 2017 - 35 million; Q4 2016 - 37 million).

(4)

Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for Q4 2017 were 59 million shares and for the twelve months ended 31 December 2017 were 69 million shares (year ended 31 December 2016 51 million shares; Q3 2017 - 57 million shares; Q4 2016 - 80 million shares) and as at 31 December 2017 were 66 million shares (30 September 2017 - 45 million shares, 31 December 2016 - 83 million shares)

(5)

Includes 16 million treasury shares (30 September 2017 - 17 million shares; 31 December 2016 - 39 million shares).

Business performance summary

Personal & Business Banking

UK Personal & Business Banking (UK PBB)

UK PBB now includes the business previously described as Williams and Glyn. Adjusted operating profit of 3,084 million was 18.4% higher than in 2016, including a 185 million debt sale gain. Income increased by 5.7% to 6,477 million supported by a 5.9% increase in net loans and advances, which more than offset margin contraction. Adjusted operating expenses were 7.1% lower than 2016 reflecting reduced headcount and lower back-office operations costs. Adjusted return on equity increased to 30.7% in 2017 from 25.1% in 2016. There are a range of variables that could impact near to medium term returns, including RWA inflation as a result of a change in Bank of England mortgage risk weighting.

Gross new mortgage lending was 31.0 billion, with market share of new mortgages at approximately 12%, supporting growth in stock share to approximately 10%. Mortgage approval share in Q4 2017 decreased to approximately 12%, from around 14% in Q3 2017, and mortgage new business margins were 14 basis points lower in the quarter, in part reflecting intense price competition in the market. UK PBB continues to invest in its digital offering and now has 5.5 million customers regularly using its mobile app, 20% higher than December 2016, and in 2017 was the first bank to launch a paperless mortgage journey.

Ulster Bank RoI

Ulster Bank RoI reported an adjusted operating profit of 109 million and an adjusted return on equity of 3.6% in 2017. Adjusted income decreased by 8 million, or 1.1%, primarily reflecting a reduction in income on free funds, partially offset by one-off items, higher lending income and reduced funding costs. Gross new lending increased by 3.4% from 2.5 billion in 2016 to 2.6 billion. Further cost efficiencies have been achieved, with adjusted expenses reducing by 43 million in 2017. Ulster Bank RoI was amongst the first banks in Ireland to introduce Apple Pay and Android Pay and now over 70% of our customers are actively using our digital proposition, increased from 58% of our active customer base in 2016. We continue to reposition capital, with REILs down by 9.8% to 3.7 billion, representing 15.9 % of gross customer loans, compared with 17.5% in 2016.

Commercial & Private Banking

Commercial Banking

Commercial Banking includes selected assets from the former Capital Resolution business from 1 October 2017. Adjusted operating profit of 1,308 million was 2.7% higher than 2016 and adjusted return on equity remained broadly stable at 8.2%. Income increased by 2.0% due to increased volumes in targeted segments and deposit re-pricing benefits. Adjusted operating expenses reduced by 6.3% reflecting operating model simplification and productivity improvements, including a 16.4% reduction in front office headcount. Commercial Banking net impairment losses of 362 million increased by 156 million , reflecting a small number of single name impairments.

Adjusting for transfers(1), net lending decreased by 4.9 billion in 2017, as growth in targeted segments has been more than offset by active management of the lending book, achieving gross RWA reductions of 12.5 billion. With the successful launch of our entrepreneur accelerator hub in London we now have 12 business accelerators throughout the UK. Across these hubs, over 3,800 start ups have benefitted from our support, which has helped them raise 255 million of investment while creating over 8,000 jobs.

Private Banking

Private Banking now includes the Collective Investment Funds business transferred from UK PBB on 1 October 2017. Adjusted operating profit increased by 78 million, or 52.3%, to 227 million and adjusted return on equity increased to 11.3% from 7.8% . Adjusting for transfers, income increased by 12 million due to higher lending volumes and an 8 million gain on a property sale, partially offset by margin pressure. A 12.9% reduction in adjusted operating expenses was supported by an 11.8% reduction in front office headcount. Net loans and advances increased by 10.7% to 13.5 billion and assets under management increased by 14.4%, adjusting for transfers(2). We continue to focus on delivering the best customer experience, including investing in digital by launching Coutts Invest and an enhanced mobile experience, and we were awarded Best Private Bank in the UK at the Global Private Banking Awards 2017.

For notes refer to the following page.

Business performance summary

RBS International

RBSI reported an adjusted operating profit of 184 million, 5.6% lower than 2016. Income increased by 4.0% driven by increased lending and deposit volumes and re-pricing actions on the deposit book. Adjusted operating expenses increased by 19.5% reflecting increased operational costs associated with becoming a non ring-fenced bank. Despit e this, adjusted return on equity remained robust at 12.6%. RWAs of 5.1 billion reduced by 4.4 billion compared with 2016 reflecting the benefit of receiving regulatory approval for RBSI to adopt an advanced internal ratings based approach on the wholesale corporate book.

NatWest Markets

Following the closure of the former Capital Resolution business in Q4 2017, NatWest Markets now includes legacy run-off assets alongside its core businesses. An operating loss of 977 million was reported in 2017, including a profit of 41 million in the core business. Adjusted operating loss of 264 million, compared with 1,231 million in 2016. Adjusted income in the core business increased by 9.5% to 1,665 million, largely driven by Rates as the business navigated markets well. Legacy disposal losses, other adjustments and impairments of 513 million were incurred in 2017, compared with 825 million in 2016. Adjusted operating expenses reduced by 26.7% reflecting a significant reduction in the legacy business, as it moved towards closure, and cost reductions in the core business. RWAs decreased by 15.3 billion, adjusting for transfers, to 52.9 billion primarily reflecting legacy business reductions. At the end of 2017 the legacy business within NatWest Markets had RWAs of 14.0 billion, excluding RBS's stake in Alawwal Bank, a reduction of 10.9 billion, adjusting for transfers(3), over the course of the year.

Notes:

(1)

Shipping and other activities which were formerly in Capital Resolution, were transferred from NatWest Markets on 1 October 2017, including net loans and advances to customers of 2.6 billion and RWAs of 2.1 billion. Commercial Banking transferred whole business securitisations and relevant financial institution's (RFI) to NatWest Markets during December 2017, including net loans and advances to customers of 0.8 billion and RWAs of 0.6 billion. Comparatives were not re-presented for these transfers.

(2)

UK PBB Collective Investment Funds (CIFL) business was transferred from UK PBB on 1 October 2017, including total income in Q4 2017 of 11 million and assets under management of 3.3 billion. Private Banking transferred Coutts Crown Dependency (CCD) to NatWest Markets during Q4 2017, including total income of 2 million and assets under management of 1.3 billion. Comparatives were not re-presented for these transfers.

(3)

Shipping and other activities which were formerly in Capital Resolution, were transferred to Commercial Banking on 1 October 2017, including RWAs of 2.1 billion. Whole business securitisations and relevant financial institutions (RFI) were transferred from Commercial Banking during December 2017, including RWAs of 0.6 billion. Comparatives were not re-presented for these transfers.

(4)

Transfers include 0.4 billion loans and advances transferred from Commercial Banking to UK PBB during 2017 to better align Business banking customers. Comparatives were not re-presented for these transfers

Outlook

2018 Outlook (1)

We reiterate our medium term outlook on both return on tangible equity and cost:income ratio. We also now intend to accelerate the transformation of the bank which necessitates increased investment and innovation spend together with additional restructuring costs. As a result operating costs, excluding restructuring and litigation and conduct costs, will reduce compared with 2017, but the rate of cost reduction will be materially lower than in 2017. We expect to incur restructuring charges of around 2.5 billion across 2018 to 2019 cumulatively, of which c.0.3 billion relates to the completion of the State Aid remedy and reintegration of the former Williams & Glyn (W&G) business into UK PBB. This is compared to previous guidance of around 1 billion excluding the impact of W&G, with around two thirds of the remaining c.1.2 billion increase being driven by costs associated with the accelerated transformation.

RBS continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment and manage both conduct-related investigations and litigation, including relating to RMBS. Substantial additional charges and costs may be recognised in the coming quarters.

With the introduction of IFRS9, impairments are expected to be more volatile and we continue to remain mindful of potential downside risks, particularly from single name and sector driven events. The consensus view of Brexit suggests a weaker UK economy in the short to medium term. With the current high level of UK household debt and real wage compression, any increases in unemployment and interest rates present a threat to retail impairment rates. In wholesale portfolios further softening of GDP growth would be expected to impact credit losses negatively. We retain our guidance that through the cycle losses would be in the range of 30-40bps.

By the end of 2018, we expect bank RWAs to be lower by 5-10 billion. This is despite model uplifts in Commercial Banking in 2018 which are expected to drive some RWA inflation. The majority of the gross RWA reductions will be within NatWest Markets legacy assets, including the benefit of the anticipated merger between Alawwal Bank and Saudi British Bank, and Commercial Banking.

RBS Group capital and funding issuance plans for 2018 focus on issuing 4-6 billion MREL-compliant securities. We do not currently anticipate the need for either AT1 or Tier 2 issuances. As in 2017, we will continue to target other funding markets to diversify our funding structure. In support of the ring-fencing requirements and to build up RBS Plc (to be renamed NatWest Markets Plc) as a standalone non ring-fenced bank, we anticipate issuing 2-4 billion of senior unsecured issuance from this entity in addition to continued reliance on short term funding.

In the near to medium term, we would expect the Bank to maintain a CET1 ratio in excess of our 13% target given a range of variables that are likely to impact us over the coming years. These include:

potential final costs of a resolution with the US Department of Justice;

future potential pension contributions and the interplay with capital buffers for the bank for investment risk being run in the pension plan;

RWA inflation as a result of IFRS 16, Bank of England mortgage floors and Basel 3 amendments;

expected increased and pro-cyclical impairment volatility as a result of IFRS 9; and

the collective impact of these items on our stress test results

We remain committed to restarting capital distributions when permitted, with resolution with the US Department of Justice being a key milestone to enable this.

Note:

(1)

The targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors

described in this document and in the "Risk Factors" on pages 372 to 402 of the 2017 Annual Report and Accounts. These statements constitute forward looking

statements, refer to Forward Looking Statements on pages 46 and 47 of this announcement.

Outlook

Medium term outlook

We retain our target of achieving a sub 50% cost:income ratio and above 12% return on equity by 2020.

While we expect operating costs to reduce each year from 2018 to 2020, given the increased level of investment and innovation spend expected over the coming years we are no longer guiding to an absolute 2020 cost base.

The NatWest Markets segment balance sheet as at end 2017 is broadly similar to the expected target balance sheet of NatWest Markets Plc (currently RBS Plc) after the ring-fence transfer schemes to be carried out during 2018. In preparation for the UK ring-fencing regime, the previously reported operating segments were realigned in Q4 2017 and a number of business transfers completed. These changes included the NatWest Markets segment absorbing the former Capital Resolution segment (other than for certain shipping and portfolio assets). Notwithstanding a planned capital reduction exercise in July 2018, by 2020 this entity is targeting a capital base with a consolidated end state CET1 ratio of 14%, a leverage ratio greater than 4% and a total capital ratio of at least twice the CET1 ratio, including the benefit of downstreamed internal MREL. By 2020, NatWest Markets targets a RWA position of c.35 billion including legacy assets, with the legacy assets generating minimal associated income, and an overall cost base of around 1 billion.

Trading update

Overall, RBS has had a positive start to 2018.

2017 RBS performance summary

Customer

In 2017 we made it our goal to significantly increase NPS or maintain number one in our chosen customer segments. This strategy was implemented to support the overall aim of being the number one bank for customer service, trust and advocacy by 2020.

We use independent surveys to track the progress we are making to achieve our goals in each of our markets and to also measure our customers' experience.

To measure advocacy, customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating 'extremely likely' and 0 indicating 'not at all likely'. Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. The net-promoter score (NPS) is established by subtracting the proportion of detractors from the proportion of promoters.

We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).

Our Commercial Banking NPS has remained stable during 2017 and remains ahead of its main competitors. In England & Wales, NPS for NatWest Personal Banking has also remained stable and we have met our target for customer trust. In Scotland, while we have not met our target for customer trust for Royal Bank of Scotland, it has increased strongly year on year. We do recognise that significant work is required to improve our customer experience and we continue our work to resolve the ongoing reputational and legacy issues.

Q4 2016

Q3 2017

Q4 2017

NPS: Personal Banking

NatWest (England & Wales)(1)

13

12

12

Royal Bank of Scotland (Scotland)(1)

(4)

(13)

(6)

Ulster Bank (Northern Ireland)(2)

(16)

(4)

(5)

Ulster Bank (Republic of Ireland) (2)

(7)

(6)

(7)

NPS: Business Banking

NatWest (England & Wales)(3)

(2)

(10)

(7)

Royal Bank of Scotland (Scotland) (3)

(5)

(14)

(15)

NPS: Commercial Banking (4)

20

21

21

Trust (5)

NatWest (England & Wales)

55%

59%

57%

Royal Bank of Scotland (Scotland)

13%

22%

27%

Notes:

(1)

Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3361) Royal Bank of Scotland (Scotland) (440). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?" Base: Claimed main banked current account customers.

(2)

Source: Coyne Research 12 month rolling data. Latest base sizes: Ulster Bank NI (294) Ulster Bank RoI (275) Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely".

(3)

Source: Charterhouse Research Business Banking Survey, YE Q4 2017. Based on interviews with businesses with an annual turnover up to 2 million. Latest base sizes: NatWest England & Wales (1245), RBS Scotland (437). Question: "How likely would you be to recommend (bank)". Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

(4)

Source: Charterhouse Research Business Banking Survey, YE Q4 2017. Commercial 2m+ in GB (RBSG sample size, excluding don't knows: (904). Question: "How likely would you be to recommend (bank)". Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

(5)

Source: Populus. Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest,

England & Wales (948), RBS Scotland (203).

Chief Executive's message

Putting the past behind us. Investing for the future

In 2017 we continued to make good progress in building a simpler, safer and more customer focused bank. I am pleased to report to shareholders that the bank made an operating profit before tax of 2,239 million in 2017, and for the first time in ten years we have delivered a bottom Iine profit of 752 million.

We have achieved profitability through delivering on the strategic plan that was set out in 2014. The first part of this plan was focused on building financial strength by reducing risk and building a more sustainable cost base. So far, we have reduced our risk-weighted assets by 228 billion and today can report a Common Equity Tier 1 ratio of 15.9% up from 8.6% in 2013. Our financial strength is now much clearer. Over the same period we have reduced operating costs by 3.9 billion. We still have more to do on cost reduction, however this reflects the progress we have made in making the bank more efficient.

A clear indication of the outstanding progress we have made is that from the first quarter of 2018, we will no longer report adjusted financials.

At the same time as building financial strength, we have also made progress with the legacy of our past and improving our core bank. We have delivered on this by resolving a number of our litigation and conduct issues. This includes reaching settlements last year with FHFA in respect of our historical at Retail Mortgage Backed Securities (RMBS) activities and with claimants in relation to our 2008 Rights Issue. In 2017 we also continued to run down our legacy assets. The wind-up of our non-core division, Capital Resolution in 2017, was an important moment.

As part of the support we received in 2008 and 2009, the bank was mandated to meet certain requirements under a State Aid restructuring plan. In 2017, we received approval for an alternative remedies package, which replaced our original plan to divest of the business formally known as Williams & Glyn. This is a good solution, both for improving competition in the UK SME banking market, and for shareholders.

With this solution in place and currently being implemented, the number of legacy issues the bank faces has reduced. However, we have one major legacy issue that we have yet to resolve which is with the US Department of Justice. The timing of the resolution of this issue is not in our control.

The bank has received significant media attention for its treatment of some small business customers between 2008 and 2013. To those customers who did not receive the experience they should have done while in GRG we have apologised. We accept that we got a lot wrong in how we treated customers in GRG during the crisis. However, these were complex and subjective cases with each case having unique facts about what was the right thing to do. The bank welcomes the FCA's confirmation that the most serious allegations made against the bank have not been upheld and that the steps the bank announced in November 2016 to put things right for customers are appropriate.

We have made significant progress in improving our culture since then.

Today this bank is a simpler and safer organisation, with colleagues now fully focused on our customers.

I want to thank our colleagues for their commitment and resolve during what has been a difficult chapter in the bank's history. Our most recent colleague survey, Our View, reported the highest engagement levels in ten years. We also recently won the 'Employee Engagement Company of the Year' at the UK Employee Engagement Awards. This shows that our culture is improving. This bank is now more open, less hierarchical and more focused on our customers. Our colleagues serve and support millions of customers across the UK and Republic of Ireland every day, it is vital to our success that they feel engaged and motivated.

Chief Executive's message

Investing to transform our business

When I started as CEO in 2014 the bank was far too complex. We operated in 38 countries, with over 5,000 systems supporting hundreds of different products. In our credit card business alone we offered 55 different card designs, as the organisation had grown we had added complexity which distracted us from our key stakeholder, the customer. Our customers want a bank which protects their safety and security, and is also responsive to their needs.

Today we have exited 26 countries and now have a more focused product set, underpinned by almost half the number of systems we previously had. Simplification will continue to be a key focus for the organisation in 2018. We are going through all of our end-to-end customer processes to ensure they are fit for purpose.

Our mortgage application journey is experienced by thousands of customers every day. With one of our strategic aims being to grow in this market, the benefits of simplification and automation in this area are vast. Given this, in 2017 NatWest was the first UK bank to offer paperless mortgages. Customers can now apply for a completely digital mortgage which uses the latest technology to securely share and verify documents online. With this new proposition, mortgage offers can now be made within 11 days, down from 23 days before. The process also eliminates close to 4.3 million sheets of paper a year, reducing our impact on the environment.

The opportunities created by greater simplification and automation, in terms of improved controls, cost reduction and a better customer experience, are significant for this bank.

As well as transforming our processes and products, in 2017 we continued to reap the benefits of refocusing our main customer-facing brands. With each now speaking to a unique constituency of customers, we are better placed to differentiate ourselves from our competitors. With NatWest for England and Wales, Royal Bank of Scotland, for Scotland and Ulster Bank for the island of Ireland - we truly are a bank of brands in the UK and the Republic of Ireland.

Customer driven change

Listening and responding to our customers is helping us to get closer to meeting our goal to be No.1. In light of this we have continued with the roll out of Closed Loop Feedback in 2017. Today, within 24 hours of an interaction taking place, customers can provide specific, actionable feedback directly to the teams that serve them, empowering colleagues to listen, learn from and act on what our customers are telling us. With our complaints volumes down 9% on the previous year, and our Net Promoter scores improving in half of our chosen customer segments, we continue to see the benefits of customer driven change in this bank. We still have a lot of work to do to meet our 2020 ambition of being the number one bank for customer service, trust and advocacy.

Listening to our customers is not only reducing complaints, it's also driving product and service improvements. In our commercial bank for instance, in response to customers' demand for greater speed and efficiency, we have developed self service account opening. Through this channel more than 90% of our new to bank commercial customers are able to initiate account openings themselves and, crucially, are doing it 30 minutes faster than if they used telephony. Customers told us this was a pain point for them and we have responded.

Listening to our customers and investing to simplifying our processes is helping us build a bank which is lower cost, and competitive in our target markets - improving outcomes for both customers and shareholders.

We are committed to running the bank as a more sustainable business, serving today's customers in a way that also helps future generations. As technological, social and environmental changes shape the world, it's important to stay connected with evolving customer needs, our shareholders and the wider expectations of society. One of the ways in which we are doing this is through our Board-level stakeholder engagement programme where we proactively listen, learn and engage with our stakeholders to improve the way we do business.

Chief Executive's message

Supporting the UK economy

While transforming the bank, we have continued to support the UK economy. In 2017 we extended 33.9 billion in new mortgage lending, helping grow our mortgage market share for the fifth consecutive year. We continue to target growth in our mortgage market share in 2018.

We are also the biggest supporter of UK business. Our commercial bank grew lending in our target markets, this commitment supported both recognised household names and fledgling start-ups. Our commitment to business goes beyond simple financing, our Entrepreneurial Spark programme continued to grow in 2017 and has supported over 3,800 new businesses since 2012 with award-winning facilities and an outstanding support network. Our work is also being recognised externally. In 2017 NatWest was awarded Best Business Bank in the UK by the National Association of Commercial and Finance Brokers.

Throughout 2017 NatWest Markets has continued to deepen its customer relationships by providing global market access and innovative and tailored solutions. As well as increasing employee engagement and improving the control environment, the business has made material progress to realise cost and operating efficiencies.

Responding to technological change

The financial services industry is going through one of the most significant periods of change we have seen in many years, and we are responding.

Like other industries, the digital revolution has naturally led to lower footfall in our branches. Branch transactions are down 40% on 2013, as increasingly our customers prefer the convenience and ease of digital banking. Given this we have made some difficult, but necessary, decisions around the scale of our branch network in 2017. This does not mean we are not supporting our customers. In fact we are providing customers more ways to bank than ever before, be that through a visit to their local Post Office, a visit from one of our 39 mobile branches, which visit over 600 towns and villages on a weekly basis, meeting one of our 100 community bankers, a digital appointment with one of our video bankers, logging on to internet banking platform, or banking on the go with our market leading mobile app. Our customers have never had as many channels through which to undertake their banking.

For the first time we now have more active mobile users than users online, a clear indication of the direction of travel of our customers' banking preferences.

Our ambition is for the standard of service we provide to always be outstanding, no matter how our customers choose to interact with us. In 2018 our branches will increasingly focus providing specialised expertise and advice as well as on helping customers tap into the wealth of ease and efficiency they can experience through using our digital channels.

In our commercial bank, we are supporting customers shift to mobile through building our online service Bankline service into an app. Currently, 90,000 commercial customers are active on Bankline. In the future we expect this to move increasingly to mobile. In 2018, we will also launch Bankline mobile for our larger commercial customers. This new service will act as a companion to our current Bankline on-line technology. Initially, customers will be able to view transactions and send payments with biometric approval. In the coming quarters we will further expand the scope of what Bankline Mobile offers.

Chief Executive's message

Embracing the latest in digital innovation

We know that we cannot stand still on innovation as our competitors certainly are not. Over the last few years we have invested in building our partnerships and scouting networks across the globe to ensure we are at the cutting edge of technology. We have developed some excellent partnerships and one area we have advanced significantly in is Artificial Intelligence (AI).

By harnessing the latest in computer learning and speech recognition, in partnership with IBM, we have built an AI chatbot, called Cora. Cora is helping our customers with many of their most common queries. Crucially Cora is available 24/7, has no 'wait-time' to serve a customer and can handle an unlimited number of queries at the same time. Since Q1 2017 Cora has handled over four hundred thousand conversations responding to over two hundred different questions.

In partnership with Soul Machines, we are investing now to build an evolution of Cora for 2018, giving her a visual avatar acting as the interface with our customers. Initial trials are proving a success with customers telling us that using Cora made them less concerned about converting to our other digital channels. While many customers felt empowered to be more direct in their questioning of Cora, as they felt much safer and more secure with her.

Through digital innovation we will serve customers more efficiently, be more responsive to their needs and at the same reduce costs in the business and build a more solid control environment.

Looking forward

In the past our legacy has dominated our corporate story. In 2017 our financial strength improved and we continued to put the past behind us. We are entering a new phase of transforming the core bank through technology innovation and end-to-end process re-engineering. Our future will be high tech and high touch, which means lower cost, high quality digital services with human expertise available when required.

Conclusion

I would like to thank shareholders for their continued support. We welcome the indication in the Chancellor's budget statement about the potential to restart share sales during the fiscal year 2018/2019, again this is a further proof of the progress we have made.

We recognise our responsibility towards the society we serve and operate in. It is only by supporting our customers and communities to succeed that we will be become a more sustainable bank. I, together with my management team, view this as a core part of our ambition to be No.1 for customer service, trust and advocacy.

As the number of our legacy issues reduces, and our business performance improves, the investment case for this bank is clearer, and the prospect of us rewarding our shareholders is getting closer.

Analysis of results

Summary consolidated income statement for the period ended 31 December 2017

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

Net interest income

8,987

8,708

2,211

2,304

2,208

Own credit adjustments

(69)

180

9

(5)

(114)

(Loss)/gain on redemption of own debt

(7)

(126)

-

-

1

Strategic disposals

347

164

191

-

-

Other non-interest income

3,875

3,664

646

858

1,121

Non-interest income

4,146

3,882

846

853

1,008

Total income

13,133

12,590

3,057

3,157

3,216

Litigation and conduct costs

(1,285)

(5,868)

(764)

(125)

(4,128)

Restructuring costs

(1,565)

(2,106)

(531)

(244)

(1,007)

Other expenses

(7,551)

(8,220)

(2,111)

(1,774)

(2,219)

Operating expenses

(10,401)

(16,194)

(3,406)

(2,143)

(7,354)

Profit/(loss) before impairment (losses)/releases

2,732

(3,604)

(349)

1,014

(4,138)

Impairment (losses)/releases

(493)

(478)

(234)

(143)

75

Operating profit/(loss) before tax

2,239

(4,082)

(583)

871

(4,063)

Tax (charge)/credit

(824)

(1,166)

168

(265)

(244)

Profit/(loss) for the period

1,415

(5,248)

(415)

606

(4,307)

Attributable to:

Non-controlling interests

35

10

14

(8)

(27)

Other owners

628

504

150

222

161

Dividend access share

-

1,193

-

-

-

Ordinary shareholders

752

(6,955)

(579)

392

(4,441)

Total income

Statutory total income

13,133

12,590

3,057

3,157

3,216

Adjusted for

Own credit adjustments

69

(180)

(9)

5

114

Loss/(gain) on redemption of own debt

7

126

-

-

(1)

Strategic disposals

(347)

(164)

(191)

-

-

Adjusted total income

12,862

12,372

2,857

3,162

3,329

Notable items within adjusted total income

IFRS volatility in Central items (1)

2

(510)

(173)

21

308

UK PBB debt sale gain

185

19

9

168

15

Commercial Banking disposal gain/(loss)

6

-

(46)

52

-

FX (losses)/gains in Central items

(183)

446

(8)

(67)

140

NatWest Markets legacy business disposal losses

(712)

(491)

(163)

(446)

(325)

Analysis of results

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

Net interest income

m

m

m

m

m

Net interest income

RBS

8,987

8,708

2,211

2,304

2,208

- UK Personal & Business Banking

5,130

4,945

1,272

1,294

1,263

- Ulster Bank RoI

421

409

111

104

105

- Commercial Banking

2,286

2,143

575

570

542

- Private Banking

464

449

122

116

111

- RBS International

325

303

81

83

77

- NatWest Markets

203

343

38

99

73

- Central items & other

158

116

12

38

37

Average interest earning assets (IEA)

RBS

422,337

399,598

430,902

430,962

401,548

- UK Personal & Business Banking

179,453

166,778

182,614

181,131

172,849

- Ulster Bank RoI

25,214

25,193

25,056

26,073

26,259

- Commercial Banking

131,177

121,677

130,055

130,047

128,174

- Private Banking

18,799

16,887

19,796

19,242

17,679

- RBS International

23,930

22,254

24,062

23,667

22,793

- NatWest Markets

31,231

37,856

27,442

32,592

33,780

- Central items & other

12,533

8,953

21,877

18,210

14

Yields, spreads and margins of the banking business

Gross yield on interest-earning assets of the

banking business (1,2)

2.57%

2.80%

2.49%

2.55%

2.72%

Cost of interest-bearing liabilities of banking business (1)

(0.69%)

(0.94%)

(0.76%)

(0.66%)

(0.82%)

Interest spread of the banking business (1,3)

1.88%

1.86%

1.73%

1.89%

1.90%

Benefit from interest-free funds

0.25%

0.32%

0.31%

0.23%

0.29%

Net interest margin (4)

RBS

2.13%

2.18%

2.04%

2.12%

2.19%

- UK Personal & Business Banking

2.86%

2.97%

2.76%

2.83%

2.91%

- Ulster Bank RoI

1.67%

1.62%

1.76%

1.58%

1.59%

- Commercial Banking

1.74%

1.76%

1.75%

1.74%

1.68%

- Private Banking

2.47%

2.66%

2.44%

2.39%

2.50%

- RBS International

1.36%

1.36%

1.34%

1.39%

1.34%

- NatWest Markets

0.65%

0.91%

0.55%

1.24%

0.86%

Third party customer rates (5)

Third party asset rates

- UK Personal & Business Banking

3.47%

3.83%

3.38%

3.45%

3.64%

- Ulster Bank RoI (6)

2.38%

2.19%

2.47%

2.29%

2.20%

- Commercial Banking

2.73%

2.77%

2.77%

2.68%

2.65%

- Private Banking

2.71%

2.90%

2.76%

2.67%

2.76%

- RBS International

2.71%

3.04%

2.59%

2.77%

2.93%

Third party customer funding rate

- UK Personal & Business Banking

(0.16%)

(0.45%)

(0.21%)

(0.15%)

(0.28%)

- Ulster Bank RoI (6)

(0.31%)

(0.50%)

(0.24%)

(0.28%)

(0.42%)

- Commercial Banking

(0.15%)

(0.33%)

(0.20%)

(0.10%)

(0.27%)

- Private Banking

(0.09%)

(0.18%)

(0.11%)

(0.10%)

(0.12%)

- RBS International

(0.02%)

(0.14%)

(0.03%)

(0.01%)

(0.08%)

Notes:

(1)

For the purpose of calculating gross yields and interest spread, both interest receivable and payable has decreased by 182 million (2016 - 76 million) and by 55 million for Q4 2017 (Q4 2016 - 20 million) in respect of negative interest.

(2)

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

(3)

Interest spread is the difference between the gross yield and interest paid on average interest-bearing liabilities as a percentage of average interest-bearing liabilities.

(4)

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

(5)

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

(6)

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

Analysis of results

2017 compared with 2016

?

Net interest income of 8,987 million increased by 279 million compared with 2016. The movement was principally driven by higher mortgage volumes in UK PBB, up 185 million or 3.7%, and deposit re-pricing benefits in Commercial Banking, up 143 million or 6.7%, partially offset by planned balance sheet reductions in NatWest Markets.

?

The net interest margin (NIM) was 2.13% for 2017, 5 basis points lower than 2016 reflecting increased liquidity, mix impacts and competitive pressures on margin.

?

UK PBB NIM of 2.86% was 11 basis points lower than 2016 reflecting lower mortgage margins, asset mix and reduced current account hedge yield, partially offset by savings re-pricing benefits from actions taken in 2016 and following the Q4 2017 base rate increase.

?

Ulster Bank RoI NIM increased by 5 basis points to 1.67% driven by a combination of improved deposit and loan margins, one-off income adjustments and successful deleveraging measures in 2016 which have reduced the concentration of low yielding loans.

?

Commercial Banking NIM decreased by 2 basis points as active re-pricing of assets and deposits has been more than offset by asset margin pressure in a low rate environment.

?

Private Banking NIM decreased by 19 basis points to 2.47% reflecting the competitive market and low rate environment, partially offset by higher funding benefits on deposits following the Q4 2017 base rate increase.

?

RBSI NIM remained stable at 1.36% as active re-pricing of deposits has been offset by the low rate environment.

?

Structural hedges of 129 billion generated a benefit of 1.3 billion through net interest income for the year.

Q4 2017 compared with Q3 2017

?

Net interest income of 2,211 million decreased by 93 million compared with Q3 2017 principally driven by one-off income releases in Q3 2017 relating to NatWest Markets.

?

NIM for Q4 2017 was 2.04%, 8 basis points lower than Q3 2017 driven by one-off income releases in Q3 2017 and a Q4 2017 charge in UK PBB associated with an annual review of mortgage customer repayment behaviour. Excluding the impact of one-off adjustments, NIM was broadly stable.

Q4 2017 compared with Q4 2016

?

Net interest income of 2,211 million remained broadly stable compared with Q4 2016 as higher volumes and re-pricing benefits have been offset by planned balance sheet reductions in NatWest Markets.

?

NIM was 2.04% for Q4 2017, 15 basis points lower than Q4 2016 reflecting increased liquidity, mix impacts and competitive pressures on margin.

?

Average interest earning assets increased by 29,354 million, or 7.3%, compared with Q4 2016 reflecting increased asset volumes in UK PBB, 5.6% higher, and a 21,863 million increase in Central items associated with a build-up in liquidity.

Analysis of results

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

Operating expenses

m

m

m

m

m

Statutory operating expenses

10,401

16,194

3,406

2,143

7,354

Adjusted for

Litigation and conduct costs

(1,285)

(5,868)

(764)

(125)

(4,128)

Restructuring costs

(1,565)

(2,106)

(531)

(244)

(1,007)

Adjusted operating expenses

7,551

8,220

2,111

1,774

2,219

Notable items within adjusted operating expenses

VAT recovery in Central items

86

227

6

29

-

Notable items within restructuring costs

Property exit costs

(303)

-

(100)

14

-

Employee numbers (FTE-thousands)

71.2

77.8

71.2

73.6

77.8

Year ended

31 December

31 December

2017

2016

UK Bank levy segmental allocations

m

m

UK Personal & Business Banking

33

34

Ulster Bank RoI

1

3

Commercial Banking

91

90

Private Banking

18

19

RBS International

14

19

NatWest Markets

28

35

Central items

30

(10)

Total UK Bank levy

215

190

Analysis of results

2017 compared with 2016

?

Total operating expenses of 10,401 million were 5,793 million, or 35.8%, lower than 2016 reflecting a 4,583 million reduction in litigation and conduct costs, a 669 million, or 8.1%, reduction in adjusted operating expenses and a 541 million reduction in restructuring costs.

?

Excluding VAT recoveries, adjusted operating expenses have reduced by 810 million for the year, ahead of our 750 million targeted reduction, with approximately 45% of the cost reduction delivered across PBB, CPB, RBSI and the NatWest Markets core business, adjusting for transfers.

?

Staff costs of 3,923 million were 559 million, or 12.5%, lower than 2016 underpinned by a 6,600, or 8.5%, reduction in FTEs.

?

Restructuring costs of 1,565 million included: a 303 million charge relating to the reduction in our property portfolio; a 319 million charge in NatWest Markets principally relating to the run-down and closure of the legacy business; 221 million relating to the business previously described as Williams & Glyn; 194 million in respect of implementing ring-fencing requirements; and a 73 million net settlement relating to the RBS Netherlands pension scheme.

?

Litigation and conduct costs of 1,285 million included: additional charges in respect of settlement with Federal Housing Finance Agency (FHFA) and the California State Attorney General and additional RMBS related provisions in the US; a further provision in relation to settling the 2008 rights issue shareholder litigation; an additional 175 million PPI provision; and a 169 million provision in Ulster Bank RoI for customer remediation and project costs relating to tracker mortgages and other legacy business issues.

Q4 2017 compared with Q3 2017

?

Total operating expenses of 3,406 million were 1,263 million higher than Q3 2017 reflecting a 639 million increase in litigation and conduct costs, a 337 million increase in adjusted operating expenses and a 287 million increase in restructuring costs.

?

Adjusted operating expenses of 2,111 million were 337 million higher than Q3 2017 reflecting the UK bank levy charge of 215 million, the non-repeat of 55 million of VAT and other releases in Q3 2016 and the timing of innovation and marketing spend in the quarter.

?

Restructuring costs of 531 million included: a 97 million charge relating to the reduction in our property portfolio; a 129 million charge in NatWest Markets including costs relating to the run-down and closure of the legacy business and back office restructuring activity in the core business; 147 million relating to the business previously described as Williams & Glyn; and 59 million in respect of implementing ring-fencing requirements.

?

Litigation and conduct costs of 764 million included: 442 million of additional US RMBS related provisions ; an additional 175 million PPI provision and a 135 million provision in Ulster Bank RoI for customer remediation and project costs relating to tracker mortgages and other legacy business issues.

Q4 2017 compared with Q4 2016

?

Total operating expenses of 3,406 million were 3,948 million lower than Q4 2016 reflecting a 3,364 million reduction in litigation and conduct costs, a 476 million reduction in restructuring costs and a 108 million reduction in adjusted operating expenses.

?

Adjusted operating expenses of 2,111 million were 108 million, or 4.9%, lower than Q4 2016 reflecting cost efficiencies and reduced headcount.

Analysis of results

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

Impairment (releases)/losses

m

m

m

m

m

Impairment losses

493

478

234

143

(75)

Notable items within impairment losses

Ulster Bank RoI impairment losses/(releases)

60

(113)

81

(10)

(47)

Commercial Banking impairment losses

362

206

117

151

83

NatWest Markets impairment (releases)/losses

(174)

253

(26)

(71)

(130)

31 December

30 September

31 December

Credit metrics

2017

2017

2016

Gross customer loans

326,998m

328,504m

327,478m

Loan impairment provisions

3,814m

3,854m

4,455m

Risk elements in lending (REIL)

8,904m

9,019m

10,310m

Provisions as a % of REIL

43%

43%

43%

REIL as a % of gross customer loans

2.7%

2.7%

3.1%

Provisions as a % of gross customer loans

1.2%

1.2%

1.4%

2017 compared with 2016

?

A net impairment loss of 493 million, 15 basis points of gross customer loans, compared with 478 million in 2016.

?

UK PBB reported a net impairment charge of 235 million, or 14 basis points of gross customer loans, reflecting continued benign credit conditions.

?

Ulster Bank RoI reported a net impairment loss of 68 million compared with a 138 million release in 2016. The charge for the year included a provision relating to a change in the non performing loan strategy to allow for further portfolio sales whilst 2016 included gains arising from the impact of asset disposals.

?

Commercial Banking net impairment losses of 362 million were 156 million higher than 2016, reflecting a small number of single name impairments.

?

NatWest Markets net impairment release of 174 million compared with a net impairment loss of 253 million in 2016 and mainly comprised releases relating to the legacy business .

?

REIL reduced by 1,406 million during 2017 to 8,904 million principally reflecting reductions in NatWest Markets, as legacy portfolios are run-down, and reductions across UK PBB and Ulster Bank RoI. REIL represented 2.7% of gross customer loans, compared with 3.1% in 2016.

Q4 2017 compared with Q3 2017

?

A net impairment loss of 234 million, or 29 basis points of gross customer loans, compared with 143 million in Q3 2017.

?

Ulster Bank RoI reported a net impairment charge of 92 million, compared with a release of 11 million in Q3 2017, which included a provision relating to a change in the non performing loan strategy to allow for further portfolio sales .

?

Commercial Banking net impairment losses of 117 million were 34 million lower than Q3 2017.

Q4 2017 compared with Q4 2016

?

A net impairment loss of 234 million, compared with a net impairment release of 75 million in Q4 2016.

Analysis of results

End-point CRR basis

31 December

30 September

31 December

2017

2017

2016

Risk asset ratios

%

%

%

CET1

15.9

15.5

13.4

Tier 1

17.9

17.4

15.2

Total

21.3

20.6

19.2

Capital

Tangible equity

35,164

35,621

34,982

Expected loss less impairment provisions

(1,286)

(1,197)

(1,371)

Prudential valuation adjustment

(496)

(459)

(532)

Deferred tax assets

(849)

(865)

(906)

Own credit adjustments

(90)

(110)

(304)

Pension fund assets

(287)

(185)

(208)

Cash flow hedging reserve

(227)

(298)

(1,030)

Other adjustments for regulatory purposes

28

51

(8)

Total deductions

(3,207)

(3,063)

(4,359)

CET1 capital

31,957

32,558

30,623

AT1 capital

4,041

4,041

4,041

Tier 1 capital

35,998

36,599

34,664

Tier 2 capital

6,765

6,841

9,161

Total regulatory capital

42,763

43,440

43,825

Risk-weighted assets

Credit risk

- non-counterparty

144,700

154,400

162,200

- counterparty

15,400

16,000

22,900

Market risk

17,000

16,400

17,400

Operational risk

23,800

23,800

25,700

Total RWAs

200,900

210,600

228,200

Leverage (1)

Cash and balances at central banks

98,300

88,200

74,200

Derivatives

160,800

171,700

247,000

Loans and advances

339,400

341,500

340,300

Reverse repos

40,700

36,700

41,800

Other assets

98,900

113,700

95,400

Total assets

738,100

751,800

798,700

Derivatives

- netting and variation margin

(161,700)

169,500

(241,700)

- potential future exposures

49,400

54,100

65,300

Securities financing transactions gross up

2,300

2,300

2,300

Undrawn commitments

53,100

52,600

58,600

Regulatory deductions and other adjustments

(2,100)

200

100

CRR Leverage exposure

679,100

691,500

683,300

CRR leverage ratio%

5.3

5.3

5.1

UK leverage exposure (2)

587,100

609,400

614,600

UK leverage ratio% (2)

6.1

6.0

5.6

Notes:

(1)

Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

(2)

Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.

Segment performance

Year ended 31 December 2017

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

other

RBS

m

m

m

m

m

m

m

m

Income statement

Net interest income

5,130

421

2,286

464

325

203

158

8,987

Other non-interest income

1,347

186

1,198

214

64

887

(21)

3,875

Total income - adjusted (2)

6,477

607

3,484

678

389

1,090

137

12,862

Own credit adjustments

-

(3)

-

-

-

(66)

-

(69)

Loss on redemption of own debt

-

-

-

-

-

-

(7)

(7)

Strategic disposals

-

-

-

-

-

26

321

347

Total income

6,477

604

3,484

678

389

1,050

451

13,133

Direct expenses - staff costs

(773)

(191)

(467)

(145)

(61)

(677)

(1,609)

(3,923)

- other costs

(259)

(66)

(232)

(32)

(25)

(287)

(2,727)

(3,628)

Indirect expenses

(2,126)

(194)

(1,115)

(268)

(116)

(564)

4,383

-

Operating expenses - adjusted (4)

(3,158)

(451)

(1,814)

(445)

(202)

(1,528)

47

(7,551)

Restructuring costs - direct

(79)

(27)

(48)

(20)

(5)

(319)

(1,067)

(1,565)

- indirect

(382)

(29)

(119)

(25)

(4)

(117)

676

-

Litigation and conduct costs

(210)

(169)

(33)

(39)

(8)

(237)

(589)

(1,285)

Operating expenses

(3,829)

(676)

(2,014)

(529)

(219)

(2,201)

(933)

(10,401)

Operating profit/(loss) before impairment (losses)/releases

2,648

(72)

1,470

149

170

(1,151)

(482)

2,732

Impairment (losses)/releases

(235)

(60)

(362)

(6)

(3)

174

(1)

(493)

Operating profit/(loss)

2,413

(132)

1,108

143

167

(977)

(483)

2,239

Operating profit/(loss) - adjusted (2,4)

3,084

96

1,308

227

184

(264)

183

4,818

Additional information

Return on equity (5)

23.7%

(5.0%)

6.6%

6.4%

11.2%

(9.0%)

nm

2.2%

Return on equity - adjusted (2,4,5)

30.7%

3.6%

8.2%

11.3%

12.6%

(3.7%)

nm

8.8%

Cost:income ratio (3)

59.1%

111.9%

56.0%

78.0%

56.3%

nm

nm

79.0%

Cost:income ratio - adjusted (2,3,4)

48.8%

74.3%

50.0%

65.6%

51.9%

140.2%

nm

58.2%

Total assets (bn)

190.6

24.6

149.5

20.3

25.9

277.9

49.3

738.1

Funded assets (bn) (6)

190.6

24.5

149.5

20.3

25.9

118.7

47.7

577.2

Net loans and advances to customers (bn)

161.7

19.5

97.0

13.5

8.7

22.7

0.1

323.2

Risk elements in lending (bn)

2.0

3.3

3.2

0.1

0.1

0.3

(0.1)

8.9

Impairment provisions (bn)

(1.3)

(1.1)

(1.2)

-

-

(0.2)

-

(3.8)

Customer deposits (bn)

180.6

17.5

98.0

26.9

29.0

14.8

0.2

367.0

Risk-weighted assets (RWAs) (bn)

43.0

18.0

71.8

9.1

5.1

52.9

1.0

200.9

RWA equivalent (bn) (5)

46.7

18.9

76.8

9.1

5.2

56.4

1.1

214.2

Employee numbers (FTEs - thousands) (7)

19.8

2.7

4.6

1.5

1.6

5.7

35.3

71.2

For the notes to this table refer to page 23. nm = not meaningful

Segment performance

Quarter ended 31 December 2017

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

other

RBS

m

m

m

m

m

m

m

m

Income statement

Net interest income

1,272

111

575

122

81

38

12

2,211

Other non-interest income

276

50

231

69

16

127

(123)

646

Total income adjusted (2)

1,548

161

806

191

97

165

(111)

2,857

Own credit adjustments

-

-

-

-

-

9

-

9

Strategic disposals

-

-

-

-

-

26

165

191

Total income

1,548

161

806

191

97

200

54

3,057

Direct expenses - staff costs

(189)

(45)

(109)

(35)

(25)

(153)

(372)

(928)

- other costs

(73)

(25)

(66)

(14)

(15)

(83)

(907)

(1,183)

Indirect expenses

(554)

(45)

(344)

(78)

(23)

(154)

1,198

-

Operating expenses - adjusted (4)

(816)

(115)

(519)

(127)

(63)

(390)

(81)

(2,111)

Restructuring costs - direct

(55)

(2)

(6)

(19)

(3)

(129)

(317)

(531)

- indirect

(198)

(2)

(23)

(9)

-

(13)

245

-

Litigation and conduct costs

(197)

(135)

(27)

(39)

-

(51)

(315)

(764)

Operating expenses

(1,266)

(254)

(575)

(194)

(66)

(583)

(468)

(3,406)

Operating profit/(loss) before impairment (losses)/releases

282

(93)

231

(3)

31

(383)

(414)

(349)

Impairment (losses)/releases

(60)

(81)

(117)

(2)

-

26

-

(234)

Operating profit/(loss)

222

(174)

114

(5)

31

(357)

(414)

(583)

Operating profit/(loss) - adjusted (2,4)

672

(35)

170

62

34

(199)

(192)

512

Additional information

Return on equity (5)

7.8%

(26.5%)

1.3%

(2.9%)

9.2%

(14.0%)

nm

(6.7%)

Return on equity - adjusted (2,4,5)

26.2%

(5.3%)

3.1%

12.1%

10.4%

(8.7%)

nm

4.0%

Cost:income ratio (6)

81.8%

157.8%

70.0%

101.6%

68.0%

nm

nm

111.5%

Cost:income ratio - adjusted (2,3,4)

52.7%

71.4%

62.8%

66.5%

64.9%

nm

nm

73.6%

Total assets (bn)

190.6

24.6

149.5

20.3

25.9

277.9

49.3

738.1

Funded assets (bn) (6)

190.6

24.5

149.5

20.3

25.9

118.7

47.7

577.2

Net loans and advances to customers (bn)

161.7

19.5

97.0

13.5

8.7

22.7

0.1

323.2

Risk elements in lending (bn)

2.0

3.3

3.2

0.1

0.1

0.3

(0.1)

8.9

Impairment provisions (bn)

(1.3)

(1.1)

(1.2)

-

-

(0.2)

-

(3.8)

Customer deposits (bn)

180.6

17.5

98.0

26.9

29.0

14.8

0.2

367.0

Risk-weighted assets (RWAs) (bn)

43.0

18.0

71.8

9.1

5.1

52.9

1.0

200.9

RWA equivalent (bn) (5)

46.7

18.9

76.8

9.1

5.2

56.4

1.1

214.2

Employee numbers (FTEs - thousands) (7)

19.8

2.7

4.6

1.5

1.6

5.7

35.3

71.2

For the notes to this table refer to page 23. nm = not meaningful.

Segment performance

Year ended 31 December 2016

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

other (1)

RBS

m

m

m

m

m

m

m

m

Income statement

Net interest income

4,945

409

2,143

449

303

343

116

8,708

Other non-interest income

1,182

164

1,272

208

71

763

4

3,664

Total income - adjusted (2)

6,127

573

3,415

657

374

1,106

120

12,372

Own credit adjustments

-

3

-

-

-

187

(10)

180

Loss on redemption of own debt

-

-

-

-

-

-

(126)

(126)

Strategic disposals

-

-

-

-

-

(81)

245

164

Total income

6,127

576

3,415

657

374

1,212

229

12,590

Direct expenses - staff costs

(832)

(207)

(522)

(154)

(45)

(358)

(2,364)

(4,482)

- other costs

(320)

(55)

(235)

(44)

(17)

(119)

(2,948)

(3,738)

Indirect expenses

(2,246)

(195)

(1,179)

(313)

(107)

(1,607)

5,647

-

Operating expenses - adjusted (4)

(3,398)

(457)

(1,936)

(511)

(169)

(2,084)

335

(8,220)

Restructuring costs - direct

(46)

(38)

(25)

(7)

(2)

(75)

(1,913)

(2,106)

- indirect

(198)

(2)

(83)

(30)

(3)

(115)

431

-

Litigation and conduct costs

(634)

(172)

(423)

(1)

-

(550)

(4,088)

(5,868)

Operating expenses

(4,276)

(669)

(2,467)

(549)

(174)

(2,824)

(5,235)

(16,194)

Operating profit/(loss) before impairment (losses)/releases

1,851

(93)

948

108

200

(1,612)

(5,006)

(3,604)

Impairment (losses)/releases

(125)

113

(206)

3

(10)

(253)

-

(478)

Operating profit/(loss)

1,726

20

742

111

190

(1,865)

(5,006)

(4,082)

Operating profit/(loss) - adjusted (2,4)

2,604

229

1,273

149

195

(1,231)

455

3,674

Additional information

Return on equity (5)

16.2%

0.7%

4.1%

5.6%

13.8%

(12.5%)

nm

(17.9%)

Return on equity - adjusted (2,4,5)

25.1%

8.4%

8.4%

7.8%

14.2%

(8.7%)

nm

1.6%

Cost:income ratio (3)

69.8%

116.1%

71.0%

83.6%

46.5%

nm

nm

129.0%

Cost:income ratio - adjusted (2,3,4)

55.5%

79.8%

54.8%

77.8%

45.2%

188.4%

nm

66.0%

Total assets (bn)

181.4

24.1

150.5

18.6

23.4

372.5

28.2

798.7

Funded assets (bn) (6)

181.4

24.0

150.5

18.5

23.4

128.5

25.4

551.7

Net loans and advances to customers (bn)

152.7

18.9

100.1

12.2

8.8

30.2

0.1

323.0

Risk elements in lending (bn)

2.4

3.5

1.9

0.1

0.1

2.3

-

10.3

Impairment provisions (bn)

(1.5)

(1.2)

(0.8)

-

-

(0.8)

(0.2)

(4.5)

Customer deposits (bn)

170.0

16.1

97.9

26.6

25.2

17.9

0.2

353.9

Risk-weighted assets (RWAs) (bn)

42.3

18.1

78.5

8.6

9.5

69.7

1.5

228.2

RWA equivalent (bn) (5)

45.8

19.5

82.6

8.6

9.5

74.7

1.7

242.4

Employee numbers (FTEs - thousands)

21.6

3.1

5.5

1.7

0.8

1.6

43.5

77.8

For the notes to this table please refer to page 23. nm = not meaningful.

Segment performance

Quarter ended 30 September 2017

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

other

RBS

m

m

m

m

m

m

m

m

Income statement

Net interest income

1,294

104

570

116

83

99

38

2,304

Other non-interest income

463

46

358

50

14

(74)

1

858

Total income - adjusted (2)

1,757

150

928

166

97

25

39

3,162

Own credit adjustments

-

-

-

-

-

(5)

-

(5)

Total income

1,757

150

928

166

97

20

39

3,157

Direct expenses - staff costs

(191)

(50)

(113)

(36)

(13)

(163)

(388)

(954)

- other costs

(55)

(17)

(55)

(6)

(3)

(72)

(612)

(820)

Indirect expenses

(525)

(52)

(252)

(58)

(33)

(132)

1,052

-

Operating expenses - adjusted (4)

(771)

(119)

(420)

(100)

(49)

(367)

52

(1,774)

Restructuring costs - direct

(1)

(1)

(2)

(1)

(2)

(29)

(208)

(244)

- indirect

(47)

(8)

(19)

(2)

-

(28)

104

-

Litigation and conduct costs

-

(1)

(2)

-

(8)

(102)

(12)

(125)

Operating expenses

(819)

(129)

(443)

(103)

(59)

(526)

(64)

(2,143)

Operating profit/(loss) before impairment (losses)/releases

938

21

485

63

38

(506)

(25)

1,014

Impairment (losses)/releases

(78)

10

(151)

3

2

71

-

(143)

Operating profit/(loss)

860

31

334

66

40

(435)

(25)

871

Operating profit/(loss) - adjusted (2,4)

908

41

357

69

50

(271)

91

1,245

Additional information

Return on equity (5)

34.2%

4.6%

8.6%

13.2%

10.4%

(15.4%)

nm

4.5%

Return on equity - adjusted (2,4,5)

36.2%

6.1%

9.3%

13.8%

13.6%

(10.3%)

nm

8.2%

Cost:income ratio (3)

46.6%

86.0%

45.7%

62.0%

60.8%

nm

nm

67.5%

Cost:income ratio - adjusted (2,3,4)

43.9%

79.3%

43.1%

60.2%

50.5%

nm

nm

55.6%

Total assets (bn)

190.1

25.1

147.3

19.9

24.3

305.0

40.1

751.8

Funded assets (bn) (6)

190.1

25.1

147.3

19.9

24.3

134.9

38.4

580.0

Net loans and advances to customers (bn)

160.8

19.5

96.6

13.3

9.3

25.1

0.1

324.7

Risk elements in lending (bn)

2.0

3.4

1.7

0.1

0.1

1.6

0.1

9.0

Impairment provisions (bn)

(1.3)

(1.1)

(0.8)

-

-

(0.5)

(0.2)

(3.9)

Customer deposits (bn)

178.6

17.3

98.2

27.0

24.9

13.7

0.2

359.9

Risk-weighted assets (RWAs) (bn)

43.3

17.9

74.6

9.2

9.6

54.9

1.1

210.6

RWA equivalent (bn) (5)

47.0

18.9

77.4

9.2

9.6

59.1

1.3

222.5

Employee numbers (FTEs - thousands) (7)

20.5

2.8

4.9

1.6

0.8

6.0

37.0

73.6

For the notes to this table refer to page 23. nm = not meaningful.

Segment performance

Quarter ended 31 December 2016

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

other

RBS

m

m

m

m

m

m

m

m

Income statement

Net interest income

1,263

105

542

111

77

73

37

2,208

Other non-interest income

293

32

325

50

19

(44)

446

1,121

Total income - adjusted (2)

1,556

137

867

161

96

29

483

3,329

Own credit adjustments

-

-

-

-

-

(37)

(77)

(114)

Gain on redemption of own debt

-

-

-

-

-

-

1

1

Total income

1,556

137

867

161

96

(8)

407

3,216

Direct expenses - staff costs

(196)

(57)

(130)

(39)

(12)

(87)

(504)

(1,025)

- other costs

(76)

(23)

(69)

(12)

(4)

(10)

(1,000)

(1,194)

Indirect expenses

(602)

(65)

(357)

(95)

(45)

(417)

1,581

-

Operating expenses - adjusted (4)

(874)

(145)

(556)

(146)

(61)

(514)

77

(2,219)

Restructuring costs - direct

(1)

(6)

(12)

(6)

(1)

(24)

(957)

(1,007)

- indirect

(50)

2

(34)

(8)

(1)

(30)

121

-

Litigation and conduct costs

(214)

(77)

(407)

1

(1)

(581)

(2,849)

(4,128)

Operating expenses

(1,139)

(226)

(1,009)

(159)

(64)

(1,149)

(3,608)

(7,354)

Operating profit/(loss) before impairment (losses)/releases

417

(89)

(142)

2

32

(1,157)

(3,201)

(4,138)

Impairment (losses)/releases

(27)

47

(83)

8

1

130

(1)

75

Operating profit/(loss)

390

(42)

(225)

10

33

(1,027)

(3,202)

(4,063)

Operating profit/(loss) - adjusted (2,4)

655

39

228

23

36

(355)

559

1,185

Additional information

Return on equity (5)

15.1%

(5.8%)

(9.1%)

1.6%

8.8%

(27.0%)

nm

(48.2%)

Return on equity - adjusted (2,4,5)

26.2%

5.4%

5.3%

4.5%

9.8%

(10.3%)

nm

8.6%

Cost:income ratio (3)

73.2%

165.0%

117.1%

98.8%

66.7%

nm

nm

230.2%

Cost:income ratio - adjusted (2,3,4)

56.2%

105.8%

62.6%

90.7%

63.5%

nm

nm

66.3%

Total assets (bn)

181.4

24.1

150.5

18.6

23.4

372.5

28.2

798.7

Funded assets (bn) (6)

181.4

24.0

150.5

18.5

23.4

128.5

25.4

551.7

Net loans and advances to customers (bn)

152.7

18.9

100.1

12.2

8.8

30.2

0.1

323.0

Risk elements in lending (bn)

2.4

3.5

1.9

0.1

0.1

2.3

-

10.3

Impairment provisions (bn)

(1.5)

(1.2)

(0.8)

-

-

(0.8)

(0.2)

(4.5)

Customer deposits (bn)

170.0

16.1

97.9

26.6

25.2

17.9

0.2

353.9

Risk-weighted assets (RWAs) (bn)

42.3

18.1

78.5

8.6

9.5

69.7

1.5

228.2

RWA equivalent (bn) (5)

45.8

19.5

82.6

8.6

9.5

74.7

1.7

242.4

Employee numbers (FTEs - thousands)

21.6

3.1

5.5

1.7

0.8

1.6

43.5

77.8

Notes:

(1)

Central items include unallocated transactions which principally comprise volatile items under IFRS and balances in relation to international private banking for Q1 2016.

(2)

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

(3)

Operating lease depreciation included in income (year ended December 2017 - 142 million; Q4 2017 - 35 million; year ended 31 December 2016 - 152 million, Q3 2017 - 35 million and Q4 2016 - 37 million).

(4)

Excluding restructuring costs and litigation and conduct costs.

(5)

RBS's CET 1 target is 13% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by average notional equity allocated at different rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private Banking - 15% prior to Q1 2017), 16% (RBS International - 12% prior to November 2017) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). RBS's Return on equity is calculated using profit/(loss) for the period attributable to ordinary shareholders.

(6)

Funded assets exclude derivative assets.

(7)

On 1 January 2017 4.5 thousand employees on a FTE basis were transferred from Central items to NatWest Markets in preparation for ring-fencing. On 1 October 2017 0.8 thousand employees on a FTE basis were transferred from Central Items to RBS International, also in preparation for ring-fencing.

Segment performance

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

UK PBB

Personal advances

998

1,010

247

251

260

Personal deposits

841

732

198

207

184

Mortgages

2,641

2,560

657

674

658

Cards

743

653

145

310

159

Business banking

781

737

197

198

185

Commercial (1)

417

415

108

103

104

Other

56

20

(4)

14

6

Total

6,477

6,127

1,548

1,757

1,556

Ulster Bank RoI

Corporate

187

176

54

45

34

Retail

415

392

107

104

101

Other

2

8

-

1

2

Total

604

576

161

150

137

Commercial Banking

Commercial lending

1,880

1,875

404

515

503

Deposits

508

474

133

127

109

Asset and invoice finance

662

712

158

169

175

Other

434

354

111

117

80

Total

3,484

3,415

806

928

867

Private Banking

Investments

119

97

39

29

23

Banking

559

560

152

137

138

Total

678

657

191

166

161

RBS International

389

374

97

97

96

NatWest Markets

Rates

985

837

144

236

125

Currencies

470

551

102

112

157

Financing

456

344

99

119

89

Revenue share paid to other segments

(246)

(211)

(61)

(66)

(57)

Core income excluding OCA

1,665

1,521

284

401

314

Legacy

(575)

(415)

(119)

(376)

(285)

Total income - adjusted

1,090

1,106

165

25

29

Own credit adjustments

(66)

187

9

(5)

(37)

Strategic disposals

26

(81)

26

-

-

Total income

1,050

1,212

200

20

(8)

Central items & other

451

229

54

39

407

Total RBS

13,133

12,590

3,057

3,157

3,216

Notes:

(1)

Commercial income relating to business previously described as Williams & Glyn.

Segment performance

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

Impairment losses/(releases) by

2017

2016

2017

2017

2016

segment

m

m

m

m

m

UK PBB

Personal advances

167

105

40

47

46

Mortgages

(42)

(20)

(8)

(1)

(41)

Cards

82

36

23

26

21

Business banking

4

(11)

(6)

3

(3)

Commercial

24

15

11

3

4

Total

235

125

60

78

27

Ulster Bank RoI

Mortgages

72

29

83

(12)

(30)

Commercial real estate

Investment

(6)

(24)

(6)

(2)

(1)

Development

(3)

(20)

-

3

(1)

Other lending

(3)

(98)

4

1

(15)

Total

60

(113)

81

(10)

(47)

Commercial Banking

Commercial real estate

29

4

29

1

8

Asset and invoice finance

57

35

19

10

21

Private sector services (education,

health etc)

22

8

8

-

7

Banks & financial institutions

-

2

-

(1)

-

Wholesale and retail trade repairs

59

15

48

-

6

Hotels and restaurants

1

27

(1)

-

7

Manufacturing

5

3

-

1

1

Construction

187

18

35

152

13

Other

2

94

(21)

(12)

20

Total

362

206

117

151

83

Private Banking

6

(3)

2

(3)

(8)

RBS International

3

10

-

(2)

(1)

NatWest Markets

(174)

253

(26)

(71)

(130)

Central items & other

1

-

-

-

1

Total RBS

493

478

234

143

(75)

Segment Performance

31 December

30 September

31 December

2017

2017

2016

Loans and advances to customers (gross) by segment

bn

bn

bn

UK PBB

Personal advances

7.1

7.0

6.9

Mortgages

136.8

135.7

128.0

Cards

4.0

3.9

4.2

Business banking

6.8

6.9

6.3

Commercial

8.3

8.6

8.8

Total

163.0

162.1

154.2

Ulster Bank RoI

Mortgages

15.4

15.4

15.3

Commercial real estate

Investment

0.9

0.9

0.7

Development

0.1

0.1

0.2

Other lending

4.2

4.2

3.9

Total

20.6

20.6

20.1

Commercial Banking

Commercial real estate

15.4

15.7

16.9

Asset and invoice finance

16.1

15.0

14.1

Private sector services (education, health etc)

6.9

7.0

6.9

Banks & financial institutions

7.1

8.3

8.9

Wholesale and retail trade repairs

7.8

7.9

8.4

Hotels and restaurants

3.5

3.6

3.7

Manufacturing

5.6

5.8

6.6

Construction

2.0

2.1

2.1

Other

33.8

32.0

33.3

Total

98.2

97.4

100.9

Private Banking

Personal advances

2.3

2.2

2.3

Mortgages

8.2

8.0

7.0

Other

3.0

3.1

2.9

Total

13.5

13.3

12.2

RBS International

Corporate

5.7

6.6

6.2

Mortgages

2.7

2.7

2.6

Other

0.3

-

-

Total

8.7

9.3

8.8

NatWest Markets

22.9

25.6

31.0

Central items & other

0.1

0.3

0.3

31 December

30 September

31 December

2017

2017

2016

Analysis of NatWest Markets RWAs

bn

bn

bn

Total risk-weighted assets

52.9

54.9

69.7

Of which:

Core RWAs

32.3

31.8

35.2

Legacy RWAs ex Alawwal

14.0

16.1

26.6

Alawwal

6.6

7.0

7.9

Segment performance

UK Personal & Business Banking

2017 compared with 2016

?

Operating profit was 2,413 million compared with 1,726 million in 2016. The increase was driven by higher income, lower adjusted operating expenses and lower litigation and conduct charges, partially offset by higher restructuring costs, largely relating to the reduction in our property portfolio and costs associated with the business previously described as Williams & Glyn, and higher impairments. Return on equity increased to 23.7% from 16.2% in 2016.

?

Total income of 6,477 million was 350 million, or 5.7%, higher than 2016, principally reflecting strong balance growth, savings re-pricing benefits and a 185 million debt sale gain. Net interest margin declined by 11 basis points to 2.86% driven by lower mortgage margins, asset mix and reduced current account hedge yield, partially offset by savings re-pricing benefits from actions taken in 2016 and following the Q4 2017 base rate increase.

?

Adjusted operating expenses decreased by 240 million, or 7.1%, to 3,158 million compared with 2016 driven by a 59 million, or 7.1%, reduction in staff costs, with headcount down 8.3%, and a 181 million reduction in operational costs following process and productivity improvements in service operations and re-integration benefits in respect of the business previously described as Williams & Glyn(1). Adjusted cost:income ratio improved to 48.8% in 2017 compared with 55.5% in 2016.

?

The net impairment charge of 235 million, or 14 basis points of gross customer loans, reflected continued benign credit conditions. 2017 had lower recoveries partly as a result of the debt sales undertaken, compared with 2016. Defaults remained at very low levels across all portfolios compared to historic trends, although slightly higher than in 2016.

?

Net loans and advances increased by 9.0 billion, or 5.9%, to 161.7 billion as UK PBB continued to deliver support for both personal and business banking customers. Gross new mortgage lending in 2017 was 31.0 billion with market share of new mortgages at approximately 12%, resulting in stock share of approximately 10 % at 31 December 2017 compared with 9.7% at 31 December 2016 . Positive momentum continued across business banking lending, with net balances up 3.0% compared with 31 December 2016 , adjusting for transfers(3).

?

Customer deposits increased by 10.6 billion, or 6.2%, to 180.6 billion, driven by strong personal current account and business deposit growth.

?

UK PBB includes commercial income from the business previously described as Williams & Glyn of approximately 417 million, gross loans and advances of 8.3 billion and deposits of 14.3 billion. An estimated 70 million of the commercial income, 1.7 billion of gross loans and advances and 1.8 billion of deposits relates to mid-corporate customers not subject to the European Commission alternative remedies package. 120,000 of the remaining approximately 220,000 customers will be subject to the remedies package.

Q4 2017 compared with Q3 2017

?

Operating profit decreased by 638 million compared with Q3 2017 principally driven by higher restructuring and litigation and conduct costs and lower income, as Q3 2017 included a 168 million debt sale gain whilst Q4 2017 included a charge of 16 million following an annual review of mortgage customer repayment behaviour.

?

Gross new mortgage lending in the quarter was 8.0 billion with market share of new mortgages at approximately 12%. Mortgage approval share decreased to approximately 12%, from around 14% in Q3 2017, in part reflecting intense price competition in the market.

?

Net interest margin decreased by 7 basis points to 2.76% driven by the charge associated with the annual review of mortgage customer repayment behaviour, asset mix and lower mortgage new business margins, which were 14 basis points lower in the quarter as a result of intense market price competition. Current account hedge returns are now stable.

?

Adjusted operating expenses increased by 45 million principally due to the annual UK bank levy charge, 33 million, and other timing and seasonal factors.

?

An impairment charge of 60 million was 18 million lower than Q3 2017 mainly due to higher portfolio provision releases. Default levels remained stable.

Segment performance

Q4 2017 compared with Q4 2016

?

Operating profit decreased by 168 million compared with Q4 2016 primarily due to an increase in restructuring costs and lower impairment write backs, partially offset by lower litigation and conduct costs.

?

Net interest margin decreased 15 basis points driven by reduced mortgage margins and lower deposit hedge income, partially offset by savings re-pricing benefits and higher funding benefits on savings, following the base rate increase in Q4 2017.

?

Adjusted operating expenses decreased by 58 million, or 6.6%, to 816 million compared with Q4 2016 driven by a 51 million reduction in operational costs reflecting continued operations and re-integrations benefits in respect of the business previously described as Williams & Glyn. Staff costs were 7 million, or 3.6%, lower with headcount 8.3% lower.

Ulster Bank RoI

2017 compared with 2016

?

An operating loss of 151 million compared with a 24 million profit in 2016 primarily reflecting a 206 million increase in impairment losses, largely relating to a change in the non performing loan strategy to allow for further portfolio sales. Adjusted return on equity was 3.6% compared with 8.4% in 2016.

?

Adjusted income of 693 million was 8 million, or 1.1%, lower than 2016 primarily reflecting a 53 million reduction in income on free funds, partially offset by one off items, higher lending income and reduced funding costs. Net interest margin of 1.67% was 5 basis points higher than 2016 reflecting a combination of improved deposit and loan margins, one-off income adjustments and successful deleveraging measures in 2016 which have reduced the concentration of low yielding loans.

?

Adjusted operating expenses of 516 million were 7.7% lower than 2016 primarily due to continued progress in the delivery of cost saving initiatives, as evidenced by a 12.9% reduction in headcount, and lower pension costs.

Adjusted cost:income ratio of 74.3% compared with 79.8% in 2016.

?

A litigation and conduct provision of 192 million related to customer remediation and project costs associated with legacy business issues.

?

A net impairment loss of 68 million compared with a 138 million release in 2016. The movement was driven by a provision relating to a change in the non performing loan strategy to allow for further portfolio sales, gains associated with asset disposals in 2016 and refinements to the mortgage provision models in 2017. REILs were 3.7 billion, 9.8% lower than 2016 reflecting credit quality improvements.

?

Ulster Bank RoI gross new lending was 2.6 billion in 2017, up 3.4% compared with 2016.

?

RWAs of 20.2 billion reduced by 0.9 billion, or 4.3%, compared with 2016.

Q4 2017 compared with Q3 2017

?

An operating loss of 199 million compared with a profit of 36 million in Q3 2017. An impairment charge of 92 million, compared with a release of 11 million in Q3 2017, included a provision for a change in the non performing loan strategy, partially offset by releases relating to improvements in the housing market. In addition Ulster Bank RoI recognised a 153 million conduct and litigation provision in Q4 2017 for customer remediation and project costs associated with legacy business issues.

?

Net interest margin increased by 18 basis points to 1.76% primarily driven by one off income gains in Q4 2017.

Q4 2017 compared with Q4 2016

?

An operating loss of 199 million was 145 million higher than Q4 2016 primarily due to a provision for a change in the non performing loan strategy and a 60 million increase in litigation and conduct costs, relating to legacy business issues.

?

Adjusted operating expenses reduced by 21.9% driven by one off charges in Q4 2016 and the benefit of transformation activity and lower pension costs.

Notes:

(1)

The business previously described as Williams & Glyn was integrated in to the reportable operating segment UK PBB in Q4 2017 and prior year comparatives re-presented.

(2)

UK PBB Collective Investment Funds (CIFL) business was transferred to Private Banking on 1 October 2017. CIFL Business transfer included total income of 33 million and total expenses of 9 million. Comparatives were not re-presented.

(3)

Transfers include 0.4 billion loans and advances transferred from Commercial Banking to UK PBB during 2017 to better align Business banking customers. Comparatives were not re-presented.

Segment performance

Commercial Banking

2017 compared with 2016

?

Operating profit of 1,108 million compared with 742 million in 2016, primarily reflecting a reduction in litigation and conduct costs. Adjusted operating profit of 1,308 million was 35 million, or 2.7%, higher than 2016 reflecting lower adjusted operating expenses and higher income, partially offset by higher impairments. A djusted return on equity remained broadly stable at 8.2%.

?

Total income increased by 69 million, or 2.0%, to 3,484 million primarily reflecting increased volumes in targeted segments and re-pricing benefits on deposits. Net interest margin decreased by 2 basis points as active re-pricing of assets and deposits has been more than offset by wider asset margin pressure in a low rate environment.

?

Adjusted operating expenses of 1,814 million were 122 million, or 6.3%, lower than 2016, reflecting operating model simplification and productivity improvements, including a 16.4% reduction in front office headcount, and a 25 million intangible asset write-down in 2016. Adjusted cost:income ratio improved to 50.0% compared with 54.8% in 2016.

?

Net impairment losses of 362 million were 156 million higher than 2016, reflecting a small number of single name impairments.

?

Adjusting for transfers(1), net loans and advances decreased by 4.9 billion to 97.0 billion, compared with 2016, as growth in targeted segments has been more than offset by active capital management of the lending book.

?

Adjusting for transfers(1), RWAs decreased by 8.2 billion, or 10.4%, to 71.8 billion compared with 2016 reflecting active capital management of the lending book, achieving 12.5 billion of gross RWA reductions.

Q4 2017 compared with Q3 2017

?

Operating profit of 114 million was 220 million lower than Q3 2017 principally reflecting increased operating expenses, largely due to the annual UK bank levy charge, 91 million, and lower income.

?

Total income decreased by 122 million to 806 million compared with Q3 2017 reflecting asset disposal and fair value losses of 46 million, compared with an asset disposal gain of 52 million in Q3 2017, and lower lending volumes.

?

Adjusting for transfers(1), RWAs decreased by 4.3 billion to 71.8 billion compared with Q3 2017 reflecting active capital management of the lending book.

Q4 2017 compared with Q4 2016

?

Operating profit of 114 million compared with a loss of 225 million in Q4 2016, primarily reflecting lower conduct and litigation costs.

?

Total income decreased by 61 million, or 7.0%, to 806 million compared with Q4 2016, principally reflecting asset disposal and fair value losses of 46 million and lower lending volumes. Net interest margin increased by 7 basis points to 1.75% primarily due to asset and deposit re-pricing activity.

?

Adjusted operating expenses decreased by 37 million, or 6.7%, to 519 million reflecting cost efficiencies and reduced headcount.

Note:

(1)

Shipping and other activities which were formerly in Capital Resolution, were transferred from NatWest Markets on 1 October 2017, including net loans and advances to

customers of 2.6 billion and RWAs of 2.1 billion. Commercial Banking transferred whole business securitisations and relevant financial institution's (RFI) to NatWest Markets

during December 2017, including net loans and advances to customers of 0.8 billion and RWAs of 0.6 billion. Comparatives were not re-presented for these transfers.

Segment performance

Private Banking

2017 compared with 2016

?

Operating profit increased by 32 million, or 28.8%, to 143 million compared with 2016 and return on equity increased from 5.6% to 6.4%. Adjusted operating profit of 227 million was 78 million, or 52.3%, higher than 2016 primarily reflecting lower adjusted operating expenses and higher income. A djusted return on equity increased to 11.3% from 7.8% in 2016.

?

Adjusting for transfers(1),total income increased by 12 million to 678 million due to increased lending volumes and an 8 million gain on a property sale, partially offset by ongoing margin pressure. Net interest margin fell 19 basis points to 2.47% reflecting the competitive market and low rate environment.

?

Adjusted operating expenses of 445 million decreased by 66 million, or 12.9%, compared with 2016 largely reflecting management actions to reduce costs, including an 11.8% reduction in front office headcount. Adjusted cost:income ratio improved to 65.6% compared with 77.8% in 2016.

?

Net loans and advances of 13.5 billion were 1.3 billion, or 10.7%, higher than 2016 principally driven by growth in mortgages.

?

Adjusting for transfers(1), assets under management were 2.4 billion, or 14.4%, higher than 2016 at 21.5 billion, reflecting both organic growth and favourable market conditions.

?

RWAs of 9.1 billion were 0.5 billion, or 5.8%, higher than 2016 primarily due to increased mortgage lending.

Q4 2017 compared with Q3 2017

?

An operating loss of 5 million in Q4 2017, compared with a profit of 66 million in Q3 2017, principally due to increased litigation and conduct costs and increased restructuring costs. Adjusted operating profit of 62 million decreased by 7 million compared with Q3 2017, primarily reflecting higher adjusted operating expenses partially offset by higher income.

?

Adjusting for transfers(1), total income increased by 16 million to 191 million, compared with Q3 2017, reflecting improved margins and an 8 million gain on a property sale. Net interest margin increased by 5 basis points to 2.44% due to re-pricing benefits and higher funding benefits on deposits following the Q4 2017 base rate increase.

?

Adjusted operating expenses increased by 27 million to 127 million principally due to the annual UK bank levy charge, 18 million.

Q4 2017 compared with Q4 2016

?

An operating loss of 5 million in Q4 2017 compared with a profit of 10 million in Q4 2016, reflecting increased litigation and conduct costs and increased restructuring costs, partially offset by increased income. Adjusted operating profit of 62 million was 39 million higher than Q4 2016 principally due to higher income and lower adjusted expenses.

?

Adjusting for transfers(1), total income increased by 21 million to 191 million compared with Q4 2016 reflecting higher lending volumes, re-pricing benefits and an 8 million gain on a property sale, partially offset by margin pressures.

?

Adjusted operating expenses decreased by 19 million, or 13.0%, to 127 million reflecting cost efficiencies and reduced headcount.

Note:

(1)

UK PBB Collective Investment Funds (CIFL) business was transferred from UK PBB on 1 October 2017, including total income in Q4 2017of 11 million and assets under management of 3.3 billion. Private Banking transferred Coutts Crown Dependencies (CCD) to RBS International during Q4 2017, including total income of 2 million and assets under management of 1.2 billion. Comparatives were not re-presented for these transfers.

Segment performance

RBS International

2017 compared with 2016

?

Operating profit of 167 million decreased by 23 million, or 12.1%, compared with 2016 and return on equity decreased to 11.2% from 13.8%, reflecting increased operational costs associated with the creation of a bank outside the ring-fence, partially offset by higher income. Adjusted r eturn on equity decreased to 12.6% from 14.2% in 2016 and adjusted cost:income ratio of 51.9% increased from 45.2% in 2016.

?

Total income increased by 15 million, or 4.0%, to 389 million driven by increased average lending balances in 2017 and re-pricing benefits on the deposit book.

?

Net loans and advances were broadly stable compared with 2016 and customer deposits increased by 3.8 billion to 29.0 billion primarily reflecting increased short term placements in the Funds sector.

?

RWAs of 5.1 billion reduced by 4.4 billion, or 46.3%, compared with 2016, reflecting the benefit of receiving the Advanced Internal Rating Based Waiver on the wholesale corporate book in November 2017, in advance of becoming a bank outside the ring-fence.

?

From 1st Jan 2018 RBS International will include the funds and trustee depositary business transferred from Commercial Banking, which generated around 150 million of income and 60 million of costs in 2017.

Q4 2017 compared with Q3 2017

?

Operating profit of 31 million was 9 million lower than Q3 2017 principally reflecting the Q4 2017 bank levy charge of 14 million.

?

RWAs were 5.1 billion, a decrease of 4.5 billion compared with Q3 2017 reflecting the benefit of receiving the Advanced Internal Rating Based Waiver on the wholesale corporate book in November 2017, in advance of becoming a bank outside the ring-fence.

Q4 2017 compared with Q4 2016

?

Adjusted operating expenses increased by 2 million, or 3.3%, to 63 million reflecting increased operational costs associated with the creation of a bank outside the ring-fence.

NatWest Markets

2017 compared with 2016

?

An operating loss of 977 million compared with 1,865 million in 2016. The core business operating profit increased by 427 million to 41 million reflecting lower litigation and conduct costs, lower adjusted costs and higher income, partially offset by increased restructuring costs reflecting back office restructuring activity. Adjusted operating loss of 264 million, compared with 1,231 million in 2016, reflecting lower adjusted costs and a net impairment release of 174 million in 2017, compared with a charge of 253 million in 2016.

?

Total income of 1,050 million compared with 1,212 million in 2016. In the core business, adjusted income increased by 144 million, or 9.5%, to 1,665 million, principally driven by Rates as the business navigated markets well despite a lower level of customer activity than in 2016, which benefited from favourable market conditions following the EU referendum.

?

Adjusted operating expenses of 1,528 million were 556 million, or 26.7%, lower than 2016. In the legacy business, adjusted operating expenses decreased significantly reflecting a 77.7% reduction in headcount as the business moved towards closure. In the core business, adjusted operating expenses reduced as the business continues to drive cost reductions. NatWest Markets adjusted costs, excluding costs associated with the legacy business, were 1,268 million compared to 1,320 million in 2016.

?

RWAs decreased by 15.3 billion, adjusting for transfers(1), to 52.9 billion primarily reflecting reductions in the legacy business. In the core business RWAs decreased by 3.1 billion to 32.3 billion reflecting lower counterparty credit risk through mitigation activities and business initiatives. A t the end of 2017 the legacy business within NatWest Markets had RWAs of 14.0 billion, excluding RBS's stake in Alawwal Bank, a reduction of 10.9 billion, adjusting for transfers(1), over the course of the year.

?

Funded assets fell to 118.7 billion, a reduction of 7.3 billion, adjusting for transfers(1), mainly reflecting disposal activity.

Note:

(1)

Shipping and other activities which were formerly in Capital Resolution, were transferred to Commercial Banking on 1 October 2017, including total funded assets of 3.3 billion, net loans and advances to customers of 2.6 billion, and RWAs of 2.1 billion. Whole business securitisations and relevant financial institutions (RFI) were transferred from Commercial Banking during December 2017, including net loans and advances to customers of 0.8 billion, and RWAs of 0.6 billion. Comparatives were not re-presented for these transfers.

Segment performance

Q4 2017 compared with Q3 2017

?

An operating loss of 357 million compared with 435 million in Q3 2017 reflecting higher income partially offset by higher restructuring costs. Adjusted income in the core business decreased by 117 million to 284 million, reflecting seasonally lower customer activity and more challenging market conditions in Q4 2017.

?

Adjusted operating expenses increased by 23 million to 390 million principally due to the annual UK bank levy charge, 28 million.

?

Adjusting for transfers(1), RWAs decreased by 0.5 billion to 52.9 billion and funded assets decreased by 13.7 billion to 118.7 billion principally reflecting ongoing reductions in the legacy business and seasonally lower balances in the core business.

Q4 2017 compared with Q4 2016

?

Adjusted income of 165 million was 136 million higher than Q4 2016 largely reflecting lower legacy business disposal losses. In the core business, adjusted income of 284 million was 30 million, or 9.6%, lower than Q4 2016 primarily due to lower levels of customer activity.

?

Legacy disposal losses, other adjustments and impairments decreased by 83 million to 112 million.

?

Adjusted expenses decreased by 124 million to 390 million driven by headcount reductions in the legacy business.

Central items

2017 compared with 2016

?

Central items not allocated represented a charge of 483 million in 2017, compared with a 5,006 million charge in 2016, and included litigation and conduct costs of 589 million, compared with 4,088 million in 2016. Treasury funding costs were a charge of 58 million, compared with a charge of 94 million in 2016. Restructuring costs in the year included 94 million relating to the former Williams & Glyn business, compared with 1,399 million in 2016. In addition to a VAT recovery of 86 million, compared with 227 million in 2016, a 156 million gain on the sale of Vocalink and a 135 million gain in relation to the sale of EuroClear(2).

Q4 2017 compared with Q3 2017

?

Central items not allocated represented a charge of 414 million in the quarter, compared with a 25 million charge in Q3 2017, and included litigation and conduct costs of 315 million, compared with 12 million in Q3 2017. Q4 2017 Treasury funding costs were a charge of 129 million, compared with 61 million in Q3 2017, and included a 173 million IFRS volatility charge.

Q4 2017 compared with Q4 2016

?

Central items not allocated represented a charge of 414 million in the quarter, compared with a 3,202 million charge in Q4 2016, and included litigation and conduct costs of 315 million, compared with 2,849 million in 2016. Q4 2017 Treasury funding costs were a charge of 129 million, compared with a gain of 465 million in Q4 2016, and included a 173 million IFRS volatility charge and an FX loss of 8 million, compared with a 308 million IFRS volatility gain and a 140 million FX gain in Q4 2016.

Note:

(1)

Shipping and other activities which were formerly in Capital Resolution, were transferred to Commercial Banking on 1 October 2017, including total funded assets of 3.3 billion, net loans and advances to customers of 2.6 billion, and RWAs of 2.1 billion. Whole business securitisations and relevant financial institutions (RFI) were transferred from Commercial Banking during December 2017, including net loans and advances to customers of 0.8 billion, and RWAs of 0.6 billion. Comparatives were not re-presented for these transfers.

(2)

The total gain in relation to the sale of Euroclear was 161 million, of which 135 million central items and 26 million NatWest Markets.

Condensed consolidated income statement for the period ended 31 December 2017

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

Interest receivable

11,034

11,258

2,754

2,818

2,770

Interest payable

(2,047)

(2,550)

(543)

(514)

(562)

Net interest income (1)

8,987

8,708

2,211

2,304

2,208

Fees and commissions receivable

3,338

3,340

846

826

821

Fees and commissions payable

(883)

(805)

(231)

(204)

(213)

Income from trading activities

634

974

(198)

(52)

590

(Loss)/gain on redemption of own debt

(7)

(126)

-

-

1

Other operating income

1,064

499

429

283

(191)

Non-interest income

4,146

3,882

846

853

1,008

Total income

13,133

12,590

3,057

3,157

3,216

Staff costs

(4,676)

(5,124)

(1,100)

(1,129)

(1,142)

Premises and equipment

(1,565)

(1,388)

(524)

(363)

(382)

Other administrative expenses

(3,323)

(8,745)

(1,587)

(528)

(5,511)

Depreciation and amortisation

(808)

(778)

(178)

(119)

(249)

Write down of other intangible assets

(29)

(159)

(17)

(4)

(70)

Operating expenses

(10,401)

(16,194)

(3,406)

(2,143)

(7,354)

Profit/(loss) before impairment

(losses)/releases

2,732

(3,604)

(349)

1,014

(4,138)

Impairment (losses)/releases

(493)

(478)

(234)

(143)

75

Operating profit/(loss) before tax

2,239

(4,082)

(583)

871

(4,063)

Tax (charge)/credit

(824)

(1,166)

168

(265)

(244)

Profit/(loss) for the period

1,415

(5,248)

(415)

606

(4,307)

Attributable to:

Non-controlling interests

35

10

14

(8)

(27)

Preference share and other dividends

628

504

150

222

161

Dividend access share

-

1,193

-

-

-

Ordinary shareholders

752

(6,955)

(579)

392

(4,441)

Earnings/(loss) per ordinary share (EPS)

Earnings/(loss) per ordinary share (2)

6.3p

(59.5p)

(4.9p)

3.3p

(37.7p)

Notes:

(1)

Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits is classed as interest receivable.

(2)

There is no dilutive impact in any period.

Condensed consolidated statement of comprehensive income for the period ended 31 December 2017

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

Profit/(loss) for the period

1,415

(5,248)

(415)

606

(4,307)

Items that do not qualify for reclassification

Gain/(loss) on remeasurement of retirement benefit schemes

90

(1,049)

116

-

(2)

Loss on fair value of credit in financial liabilities

designated at fair value through profit or loss

due to own credit risk

(126)

-

(19)

(30)

-

Tax

(10)

288

(5)

3

3

(46)

(761)

92

(27)

1

Items that do qualify for reclassification

Available-for-sale financial assets

26

(94)

(11)

8

68

Cash flow hedges

(1,069)

765

(86)

(372)

(750)

Currency translation

100

1,263

18

(21)

(13)

Tax

256

(106)

19

76

191

(687)

1,828

(60)

(309)

(504)

Other comprehensive (loss)/income after tax

(733)

1,067

32

(336)

(503)

Total comprehensive income/(loss) for the period

682

(4,181)

(383)

270

(4,810)

Total comprehensive income/(loss) is attributable to:

Non-controlling interests

52

121

22

(19)

(36)

Preference shareholders

234

260

79

70

68

Paid-in equity holders

394

244

71

152

93

Dividend access share

-

1,193

-

-

-

Ordinary shareholders

2

(5,999)

(555)

67

(4,935)

682

(4,181)

(383)

270

(4,810)

Condensed consolidated balance sheet as at 31 December 2017

31 December

30 September

31 December

2017

2017

2016

m

m

m

Assets

Cash and balances at central banks

98,337

88,210

74,250

Net loans and advances to banks

16,254

16,671

17,278

Reverse repurchase agreements and stock borrowing

13,997

12,905

12,860

Loans and advances to banks

30,251

29,576

30,138

Net loans and advances to customers

323,184

324,650

323,023

Reverse repurchase agreements and stock borrowing

26,735

23,767

28,927

Loans and advances to customers

349,919

348,417

351,950

Debt securities

78,933

87,860

72,522

Equity shares

450

507

703

Settlement balances

2,517

8,528

5,526

Derivatives

160,843

171,720

246,981

Intangible assets

6,543

6,484

6,480

Property, plant and equipment

4,602

4,777

4,590

Deferred tax

1,740

1,637

1,803

Prepayments, accrued income and other assets

3,921

4,046

3,713

Total assets

738,056

751,762

798,656

Liabilities

Bank deposits

39,479

36,186

33,317

Repurchase agreements and stock lending

7,419

7,047

5,239

Deposits by banks

46,898

43,233

38,556

Customer deposits

367,034

359,879

353,872

Repurchase agreements and stock lending

31,002

33,245

27,096

Customer accounts

398,036

393,124

380,968

Debt securities in issue

30,559

31,700

27,245

Settlement balances

2,844

9,094

3,645

Short positions

28,527

31,793

22,077

Derivatives

154,506

164,394

236,475

Provisions for liabilities and charges

7,757

7,109

12,836

Accruals and other liabilities

6,402

6,925

7,006

Retirement benefit liabilities

129

152

363

Deferred tax

583

516

662

Subordinated liabilities

12,722

14,248

19,419

Total liabilities

688,963

702,288

749,252

Equity

Non-controlling interests

763

746

795

Owners' equity*

Called up share capital

11,965

11,906

11,823

Reserves

36,365

36,822

36,786

Total equity

49,093

49,474

49,404

Total liabilities and equity

738,056

751,762

798,656

*Owners' equity attributable to:

Ordinary shareholders

41,707

42,105

41,462

Other equity owners

6,623

6,623

7,147

48,330

48,728

48,609

Condensed consolidated statement of changes in equity for the period ended 31 December 2017

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

Called-up share capital

At beginning of period

11,823

11,625

11,906

11,876

11,792

Ordinary shares issued

142

198

59

30

31

At end of period

11,965

11,823

11,965

11,906

11,823

Paid-in equity

At beginning of period

4,582

2,646

4,058

4,491

4,582

Redeemed/reclassified (1)

(524)

(110)

-

(433)

-

Additional Tier 1 capital (2)

-

2,046

-

-

-

At end of period

4,058

4,582

4,058

4,058

4,582

Share premium account

At beginning of period

25,693

25,425

739

-

25,663

Ordinary shares issued

235

268

92

47

30

Redemption of debt preference shares (5)

748

-

56

692

-

Capital reduction (3)

(25,789)

-

-

-

-

At end of period

887

25,693

887

739

25,693

Merger reserve

At the beginning and end of period

10,881

10,881

10,881

10,881

10,881

Available-for-sale reserve

At beginning of period

238

307

260

259

188

Unrealised gains

202

282

53

49

69

Realised gains

(176)

(376)

(64)

(41)

(1)

Tax

(9)

25

6

(7)

(18)

At end of period

255

238

255

260

238

Cash flow hedging reserve

At beginning of period

1,030

458

298

575

1,565

Amount recognised in equity

(277)

1,867

141

(178)

(471)

Amount transferred from equity to earnings

(792)

(1,102)

(227)

(194)

(279)

Tax

266

(193)

15

95

215

At end of period

227

1,030

227

298

1,030

Foreign exchange reserve

At beginning of period

2,888

1,674

2,962

2,984

2,898

Retranslation of net assets

111

1,470

13

(26)

(40)

Foreign currency (losses)/gains on hedges

of net assets

(6)

(278)

(2)

4

35

Tax

(1)

62

(2)

(12)

(6)

Recycled to profit or loss on disposal of businesses (4)

(22)

(40)

(1)

12

1

At end of period

2,970

2,888

2,970

2,962

2,888

Capital redemption reserve

At the beginning of period

4,542

4,542

-

-

4,542

Capital reduction (3)

(4,542)

-

-

-

-

At end of period

-

4,542

-

-

4,542

For the notes to this table refer to the notes on page 38.

Condensed consolidated statement of changes in equity for the period ended 31 December 2017

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

Retained earnings

At beginning of period

(12,936)

(4,020)

17,669

18,184

(8,500)

Profit/(loss) attributable to ordinary shareholders

and other equity owners

1,380

(5,258)

(429)

614

(4,280)

Equity preference dividends paid

(234)

(260)

(79)

(70)

(68)

Paid-in equity dividends paid, net of tax

(394)

(244)

(71)

(152)

(93)

Capital reduction (3)

30,331

-

-

-

-

Dividend access share dividend

-

(1,193)

-

-

-

Redemption of debt preference shares (5)

(748)

(56)

(692)

-

Redemption of equity preference shares (5)

-

(1,160)

-

-

-

Gain/(loss) on remeasurement of the retirement

benefit schemes

- gross

90

(1,049)

116

-

(2)

- tax

(28)

288

(8)

-

3

Changes in fair value of credit in financial liabilities

designated at fair value through profit or loss

- gross

(126)

-

(19)

(30)

-

- tax

18

-

3

3

-

Shares issued under employee share schemes

(5)

(10)

-

-

-

Share-based payments

- gross

(22)

(9)

4

8

4

Redemption/reclassification of paid-in equity

(196)

(21)

-

(196)

-

At end of period

17,130

(12,936)

17,130

17,669

(12,936)

Own shares held

At beginning of period

(132)

(107)

(45)

(45)

(136)

Shares utilised for employee share schemes

161

41

5

-

7

Own shares acquired

(72)

(66)

(3)

-

(3)

At end of period

(43)

(132)

(43)

(45)

(132)

Owners' equity at end of period

48,330

48,609

48,330

48,728

48,609

Condensed consolidated statement of changes in equity for the period ended 31 December 2017

Year ended

Quarter ended

31 December

31 December

31 December

30 September

31 December

2017

2016

2017

2017

2016

m

m

m

m

m

Non-controlling interests

At beginning of period

795

716

746

844

853

Currency translation adjustments and other

movements

17

111

8

(11)

(9)

Profit/(loss) attributable to non-controlling interests

35<