Interim Management Statement - Part 2 of 2

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NATWEST GROUP (NWG)

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Capital and leverage ratios	2
CRR capital estimate	2
CRR leverage estimate	6
Credit risk	8
Loans and related credit metrics	8
Loans, REIL, provisions and impairments	8
Sector and geographical regional analyses	8
REIL flow statement	14
Impairment provisions flow statement	16
Impairment charge analysis	19
Ulster Bank Group (Core and Non-Core)	20
Debt securities: AFS reserves by issuer	22

	30 September 2013			31 December 2012
	Current	Transitional	Full	Current	Transitional	Full
	basis	basis	basis	basis	basis	basis

Common Equity Tier (CET) 1 capital	£47.5bn	£53.1bn	£41.1bn	£47.3bn	£54.0bn	£37.9bn
RWAs	£410.0bn	£452.5bn	£452.5bn	£459.6bn	£494.6bn	£494.6bn
CET1 ratio	11.6%	11.7%	9.1%	10.3%	10.9%	7.7%

Capital and leverage ratios (continued)
	30 September 2013			31 December 2012
	Current	Transitional	Full	Current	Transitional	Full
	basis	basis	basis	basis	basis	basis
	£m	£m	£m	£m	£m	£m

CET1 capital: instruments and reserves
Capital instruments and related share premium
- ordinary shares	31,794	31,794	31,794	30,864	30,864	30,864
- B shares (1)	510	510	510	510	510	-
Retained earnings including current period loss	10,144	10,144	10,144	10,596	10,596	10,596
Accumulated other comprehensive income	25,220	25,220	25,220	26,160	26,160	26,160
Less innovative issues moved to Additional Tier 1 (AT1)	(979)	(979)	(979)	(431)	(431)	(431)
capital	(979)	(979)	(979)	(431)	(431)	(431)
Less preference shares moved to AT1 capital	(4,313)	(4,313)	(4,313)	(4,313)	(4,313)	(4,313)

Non-controlling interests per accounting balance sheet	462	370	-	2,318	2,318	2,318
Less innovative issues moved to AT1 capital	-	-	-	(548)	(548)	(548)
Less minority interest deconsolidated	-	-	-	(1,367)	(1,367)	(1,770)
Minority interests allowable	462	370	-	403	403	-

CET1 (before regulatory adjustments)	62,838	62,746	62,376	63,789	63,789	62,876

CET1: regulatory adjustments
Additional value adjustments (2)	-	(1,150)	(1,150)	-	(310)	(310)
Intangible assets (net of related tax liability)	(13,742)	(2,744)	(13,720)	(13,545)	-	(13,956)
Deferred tax assets (3)	-	(229)	(2,289)	-	(323)	(3,231)
Cash flow hedges - fair value	(447)	(447)	(447)	(1,666)	(1,666)	(1,666)
Excess of expected loss over impairment provisions (4)	(1,801)	(819)	(4,094)	(1,904)	-	(6,154)
Own credit adjustments on fair valued liabilities (5)	762	729	598	691	691	493
Defined benefit pension fund assets	667	(143)	(143)	913	(144)	(144)
Securitisation positions	(889)	-	-	(1,107)	-	-
Unrealised gains and losses	252	202	-	346	346	-
Of which:
- unrealised losses on AFS debt securities	358	287	-	409	409	-
- unrealised gains on AFS equity shares	(106)	(85)	-	(63)	(63)	-
Other adjustments for regulatory purposes	(115)	(61)	(61)	(197)	-	-
Qualifying exceeding AT1 capital (6)	-	(4,958)	-	-	(8,420)	-

CET1 (total regulatory adjustments)	(15,313)	(9,620)	(21,306)	(16,469)	(9,826)	(24,968)

CET1 capital	47,525	53,126	41,070	47,320	53,963	37,908

Capital and leverage ratios (continued)
	30 September 2013			31 December 2012
	Current	Transitional	Full	Current	Transitional	Full
	basis	basis	basis	basis	basis	basis
	£m	£m	£m	£m	£m	£m

AT1 capital: instruments
Capital instruments and related share premium	5,074	-	-	5,075	-	-
Qualifying Tier 1 capital and related share premium	4,196	4,409	-	4,125	4,571	-
subject to phase out from AT1 capital	4,196	4,409	-	4,125	4,571	-
Qualifying Tier 1 capital included in consolidated AT1
capital issued by subsidiaries and held by third parties	292	3,247	-	292	4,042	-

AT1 capital (before regulatory adjustments)	9,562	7,656	-	9,492	8,613	-

AT1: regulatory adjustments
Deductions from AT1 capital during the transition	-	(12,614)	-	-	(17,033)	-
- intangible assets	-	(10,976)	-	-	(13,956)	-
- excess of expected loss over impairment provisions	-	(1,638)	-	-	(3,077)	-
Other Basel II regulatory adjustments	(457)	-	-	323	-	-

AT1 (total regulatory adjustments)	(457)	(12,614)	-	323	(17,033)	-

AT1 capital	9,105	(4,958)	-	9,815	(8,420)	-

Qualifying deductions exceeding AT1 capital (6)	-	4,958	-	-	8,420	-

Tier 1 capital (7)	56,630	53,126	41,070	57,135	53,963	37,908

Tier 2 capital: instruments and provisions
Capital instruments and related share premium	13,999	-	-	15,614	-	-
Qualifying items and related share premium	-	1,006	5,025	-	2,774	7,292
Qualifying own funds instruments issued by
subsidiaries and held by third parties	-	12,080	9,362	-	12,605	5,185
Unrealised gains on AFS equity shares	106	-	-	63	-	-
Credit risk adjustments (8)	386	-	-	399	399	399

Tier 2 capital (before regulatory adjustments)	14,491	13,086	14,387	16,076	15,778	12,876

Tier 2 regulatory adjustments
Residual amounts deducted during the transition
- excess of expected loss over impairment provisions	-	(1,637)	-	-	(3,077)	-
Other Basel II regulatory adjustments	(4,239)	-	-	(3,924)	-	-

Tier 2 (total regulatory adjustments)	(4,239)	(1,637)	-	(3,924)	(3,077)	-

Tier 2 capital	10,252	11,449	14,387	12,152	12,701	12,876

Total deductions	(248)	-	-	(2,487)	-	-

Total capital	66,634	64,575	55,457	66,800	66,664	50,784

	CET1	Tier 2	Total
	£m	£m	£m

At 1 January 2013	37,908	12,876	50,784
Attributable loss net of movements in fair value of own credit	(188)	-	(188)
Share capital and reserve movements in respect of employee share schemes	256	-	256
Ordinary shares issued	205	-	205
Nominal value of B shares	510	-	510
Available-for-sale reserve	(94)	-	(94)
Foreign exchange reserve	110	243	353
Increase in goodwill and intangibles	236	-	236
Deferred tax assets (DTAs)	942	-	942
Excess of expected loss over impairment provisions	2,060	-	2,060
Grandfathered instruments under CRR text	-	3,096	3,096
Dated subordinated debt issues	-	652	652
Dated subordinated debt maturities, redemptions and amortisation	-	(2,293)	(2,293)
Additional value adjustments (AVA)	(840)	-	(840)
Other movements	(35)	(187)	(222)

At 30 September 2013	41,070	14,387	55,457

General:
Estimates, including RWAs, are based on the current interpretation, expectations, and understanding of the proposed CRR requirements, anticipated compliance with all necessary enhancements to model calibration and other refinements, as well as further regulatory clarity and implementation guidance from the UK and EU authorities. The actual CRR impact may differ from these estimates due to the finalisation of the technical standards and interpretive issues.
Capital base:
(1)	Includes the nominal value of B shares (£0.5 billion) on the assumption that RBS will be privatised in the future and that they will count as permanent equity in some form by the end of 2017.
(2)	The AVA, arising from the application of the prudent valuation requirements to all assets measured at fair value, has been included in full in year one of transition in line with the guidance from the PRA and uses methodology discussed with the PRA pending the issue of the final RTS by the European Banking Authority.
(3)	The PRA requires firms to take a CET1 deduction in year one of transition equal to 10% of the DTAs which do not relate to temporary differences. The netting of deferred tax liabilities against DTAs reflects our interpretation of the final CRR text.
(4)	In our current interpretation of the CRR final rules, we have assumed that incurred CVA will be counted as eligible provisions in the determination of the deduction for expected losses.
(5)	The own credit risk adjustment for derivative liabilities (the debit valuation adjustment) is assumed to transition on the same basis as other regulatory changes (20% in year one of transition).
(6)	Where the deductions from AT1 capital exceed AT1 capital, the excess is deducted from CET1 capital. The excess of AT1 deductions over AT1 capital in year 1 transition is due to the application of the current rules to the transitional amounts.
(7)	Should the draft RTS relating to maturity restrictions on hedging be implemented without amendment, the full CRR CET1 capital position would reduce by c.£1.5 billion for insignificant investments based on our estimate of current positions. The Group has already announced its intention to exit the equities businesses as part of Markets strategy; this will reduce positions to the extent that no deduction will be required. However there could be a modest short-term impact on the Group's transitional ratio.
(8)	Based on our current interpretations of the final draft of the RTS on credit risk adjustments, issued in July 2013, the Group's standardised latent provision has been reclassified to specific provision and is therefore no longer included in Tier 2 capital.
Risk-weighted assets:
(1)	Current securitisation positions are shown as RWAs risk weighted at 1,250%.
(2)	RWA uplifts include the impact of credit valuation adjustments and asset valuation correlation on banks and central counterparties.
(3)	RWAs assume implementation of the full internal model method suite, that existing waivers will continue and includes methodology changes that take effect immediately on CRR implementation.
(4)	Non-financial counterparties and sovereigns that meet the eligibility criteria under CRR are exempt from the CVA volatility charges.
(5)	The CRR final text includes a reduction in the risk weight relating to SMEs.

●	Tier 1 capital as set out in the final CRR text; and

●	Exposure measure calculated using the final CRR text as well as the December 2010 Basel III text; further specificity being sourced from the instructions in the July 2012 Quantitative Impact Study and the related Frequently Asked Questions.

	30 September 2013				31 December 2012
Leverage ratio		Tier 1	Leverage			Tier 1	Leverage
	Exposure	capital		Leverage	Exposure	capital		Leverage
	£bn	£bn		%	£bn	£bn		%

Assets/equity basis:
Tier 1 leverage ratio	792.0	56.6	14x	7.1	856.9	57.1	15x	6.7
Tangible equity leverage ratio (1)	792.0	48.6	16x	6.1	856.9	49.8	17x	5.8

CRR basis:
Transitional measure	1,133.1	53.1	21x	4.7	1,205.2	54.0	22x	4.5
Full end point measure	1,131.0	41.1	28x	3.6	1,202.3	37.9	32x	3.1
Adjusted end point measure (2)	1,131.0	50.6	22x	4.5	1,202.3	48.0	25x	4.0

Basel III basis:
Transitional measure	1,172.5	53.1	22x	4.5	1,225.8	54.0	23x	4.4
Full end point measure	1,170.4	41.1	29x	3.5	1,222.9	37.9	32x	3.1
Adjusted end point measure (2)	1,170.4	50.6	23x	4.3	1,222.9	48.0	25x	3.9

(1)	Tangible equity leverage ratio is total tangible equity divided by total tangible assets (after netting derivatives).
(2)	Adjusted Tier 1 capital includes grandfathered ineligible capital instruments.

(1)	Under the Basel III view, the balance sheet value is reduced for allowable netting under the Basel II framework (excluding cross-product netting) which mainly relates to cash positions under a master netting agreement. In the CRR calculation, the balance sheet value is replaced with the related regulatory exposure value which has netting of both cash positions and related collateral of securities financing transactions (SFTs).
(2)	Regulatory deductions: to ensure consistency between the numerator and the denominator, items that are deducted from capital are also deducted from total assets (comprising goodwill and intangibles, £13.7 billion (31 December 2012 - £13.5 billion), deferred tax assets, £2.3 billion (31 December 2012 - £3.2 billion), additional valuation adjustments, £1.2 billion (31 December 2012 - £0.3 billion) and cash flow hedge reserves, £0.5 billion (31 December 2012 - £1.7 billion)). Other adjustments reflect the difference between the scope of the regulatory consolidation and the consolidation for financial reporting.
(3)	Potential future exposure on derivatives: the regulatory add-on which is calculated by assigning percentages based on the type of instrument and the residual maturity of the contract to the nominal amounts or underlying values of derivative contracts.
(4)	Undrawn commitments represent regulatory add-ons relating to off-balance sheet undrawn commitments based on a 10% credit conversion factor (CCF) for unconditionally cancellable commitments and 100% of other commitments. Off-balance sheet items comprise:

	UK	UK	International	US Retail &
	Retail	Corporate	Banking	Commercial	Markets	Other	Total
30 September 2013	£bn	£bn	£bn	£bn	£bn	£bn	£bn

Unconditionally cancellable items	3.1	0.5	0.7	1.8	-	0.2	6.3
Other contingents and commitments	9.9	34.5	96.2	16.9	9.7	12.6	179.8

	13.0	35.0	96.9	18.7	9.7	12.8	186.1

31 December 2012

Unconditionally cancellable items	3.0	0.5	0.8	1.8	-	0.6	6.7
Other contingents and commitments	9.3	33.9	102.6	15.6	12.3	7.1	180.8

	12.3	34.4	103.4	17.4	12.3	7.7	187.5

					Credit metrics
30 September 2013					REIL as a	Provisions	Provisions	Impairment	Amounts
		Gross			% of gross	as a %	as a % of	charge	written-off
		loans	REIL	Provisions	loans	of REIL	gross loans	YTD	YTD
		£m	£m	£m	%	%	%	£m	£m

Government (1)		8,404	-	-	-	-	-	-	-
Finance		36,439	430	237	1.2	55	0.7	(33)	12
Personal	- mortgages	148,553	6,237	1,870	4.2	30	1.3	323	319
	- unsecured	27,780	2,497	2,025	9.0	81	7.3	356	666
Property		64,983	21,245	10,323	32.7	49	15.9	1,540	1,076
Construction		7,017	1,340	667	19.1	50	9.5	140	122
Manufacturing		22,185	737	483	3.3	66	2.2	95	84
Finance leases (2)		14,501	280	190	1.9	68	1.3	2	103
Retail, wholesale and repairs		21,601	1,231	656	5.7	53	3.0	111	105
Transport and storage		17,777	1,211	278	6.8	23	1.6	95	154
Health, education and leisure		16,718	1,391	651	8.3	47	3.9	194	73
Hotels and restaurants		7,555	1,537	666	20.3	43	8.8	43	108
Utilities		5,770	260	109	4.5	42	1.9	59	1
Other		30,123	1,894	999	6.3	53	3.3	148	290
Latent		-	-	2,198	-	-	-	217	-

		429,406	40,290	21,352	9.4	53	5.0	3,290	3,113

of which:
UK
- residential mortgages		110,120	2,028	411	1.8	20	0.4	57	113
- personal lending		16,778	2,138	1,829	12.7	86	10.9	246	530
- property		47,500	10,401	4,185	21.9	40	8.8	793	741
- construction		5,767	967	478	16.8	49	8.3	119	121
- other		116,709	3,765	2,383	3.2	63	2.0	222	433
Europe
- residential mortgages		17,745	3,217	1,311	18.1	41	7.4	177	14
- personal lending		1,168	147	142	12.6	97	12.2	16	20
- property		13,493	10,558	5,993	78.2	57	44.4	755	316
- construction		910	331	174	36.4	53	19.1	14	-
- other		22,583	4,585	3,276	20.3	71	14.5	633	420
US
- residential mortgages		20,374	966	142	4.7	15	0.7	90	191
- personal lending		8,730	211	53	2.4	25	0.6	93	115
- property		3,539	106	26	3.0	25	0.7	(6)	19
- construction		309	34	7	11.0	21	2.3	7	1
- other		28,985	336	661	1.2	197	2.3	67	64
RoW
- residential mortgages		314	26	6	8.3	23	1.9	(1)	1
- personal lending		1,104	1	1	0.1	100	0.1	1	1
- property		451	180	119	39.9	66	26.4	(2)	-
- construction		31	8	8	25.8	100	25.8	-	-
- other		12,796	285	147	2.2	52	1.1	9	13

		429,406	40,290	21,352	9.4	53	5.0	3,290	3,113

Banks		28,349	76	69	0.3	91	0.2	(9)	40

Credit risk: Sector and geographical regional analyses - Group (continued)

					Credit metrics
31 December 2012					REIL as a	Provisions	Provisions	Impairment	Amounts
		Gross			% of gross	as a %	as a % of	charge	written-off
		loans	REIL	Provisions	loans	of REIL	gross loans	YTD	YTD
		£m	£m	£m	%	%	%	£m	£m

Government (1)		9,853	-	-	-	-	-	-	-
Finance		42,198	592	317	1.4	54	0.8	145	380
Personal	- mortgages	149,625	6,549	1,824	4.4	28	1.2	948	461
	- unsecured	32,212	2,903	2,409	9.0	83	7.5	631	793
Property		72,219	21,223	9,859	29.4	46	13.7	2,212	1,080
Construction		8,049	1,483	640	18.4	43	8.0	94	182
Manufacturing		23,787	755	357	3.2	47	1.5	134	203
Finance leases (2)		13,609	442	294	3.2	67	2.2	44	263
Retail, wholesale and repairs		21,936	1,143	644	5.2	56	2.9	230	176
Transport and storage		18,341	834	336	4.5	40	1.8	289	102
Health, education and leisure		16,705	1,190	521	7.1	44	3.1	144	100
Hotels and restaurants		7,877	1,597	726	20.3	45	9.2	176	102
Utilities		6,631	118	21	1.8	18	0.3	(4)	-
Other		30,057	2,177	1,240	7.2	57	4.1	323	395
Latent		-	-	1,960	-	-	-	(74)	-

		453,099	41,006	21,148	9.1	52	4.7	5,292	4,237

of which:
UK
- residential mortgages		109,530	2,440	457	2.2	19	0.4	122	32
- personal lending		20,498	2,477	2,152	12.1	87	10.5	479	610
- property		53,730	10,521	3,944	19.6	37	7.3	964	490
- construction		6,507	1,165	483	17.9	41	7.4	100	158
- other		122,029	3,729	2,611	3.1	70	2.1	674	823
Europe
- residential mortgages		17,836	3,092	1,151	17.3	37	6.5	526	50
- personal lending		1,905	226	208	11.9	92	10.9	38	13
- property		14,634	10,347	5,766	70.7	56	39.4	1,264	441
- construction		1,132	289	146	25.5	51	12.9	(11)	12
- other		27,424	4,451	2,996	16.2	67	10.9	817	539
US
- residential mortgages		21,929	990	208	4.5	21	0.9	298	377
- personal lending		8,748	199	48	2.3	24	0.5	109	162
- property		3,343	170	29	5.1	17	0.9	(11)	83
- construction		388	8	1	2.1	13	0.3	-	12
- other		29,354	352	630	1.2	179	2.1	(86)	149
RoW
- residential mortgages		330	27	8	8.2	30	2.4	2	2
- personal lending		1,061	1	1	0.1	100	0.1	5	8
- property		512	185	120	36.1	65	23.4	(5)	66
- construction		22	21	10	95.5	48	45.5	5	-
- other		12,187	316	179	2.6	57	1.5	2	210

		453,099	41,006	21,148	9.1	52	4.7	5,292	4,237

Banks		31,394	134	114	0.4	85	0.4	23	29

(1)	Includes central and local government.
(2)	Includes instalment credit.
(3)	The Core and Non-Core split for 31 December 2012 excludes balances in relation to Direct Line Group (loans to customers of £881 million and loans to banks of £2,036 million).
(4)	For a description of the Group's early problem debt identification and problem debt management refer to pages 172 to 180 of the Group's 2012 Annual Report and Accounts.

Credit risk (continued)

REIL flow statement
REIL are stated without giving effect to any security held that could reduce the eventual loss should it occur or to any provisions marked.

	UK	UK	Wealth	International	Ulster	US Retail &	Markets	Central	Core		Total
	Retail	Corporate	Wealth	Banking	Bank	Commercial	Markets	items	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2013	4,569	5,452	248	422	7,533	1,146	396	-	19,766	21,374	41,140
Currency translation and other adjustments	-	12	4	(10)	162	3	4	-	175	313	488
Disposal of subsidiaries	-	-	-	-	-	-	-	-	-	(90)	(90)
Additions	973	3,476	92	298	2,103	212	13	1	7,168	2,438	9,606
Transfers (1)	(396)	400	(5)	135	-	-	-	-	134	-	134
Transfers to performing book	-	(45)	(3)	(21)	-	-	-	-	(69)	(81)	(150)
Repayments	(737)	(2,673)	(60)	(65)	(1,109)	(70)	(26)	-	(4,740)	(2,869)	(7,609)
Amounts written-off	(609)	(603)	(15)	(239)	(154)	(217)	(46)	-	(1,883)	(1,270)	(3,153)

At 30 September 2013	3,800	6,019	261	520	8,535	1,074	341	1	20,551	19,815	40,366

At 1 January 2012	4,599	5,001	211	1,632	5,523	1,007	414	-	18,387	24,007	42,394
Currency translation and other adjustments	54	5	(1)	(45)	(267)	(43)	(10)	-	(307)	(715)	(1,022)
Additions	1,174	3,036	92	156	3,025	391	39	-	7,913	4,405	12,318
Transfers (1)	(12)	31	(7)	(69)	-	-	-	-	(57)	51	(6)
Transfers to performing book	-	(109)	(8)	(661)	-	-	(9)	-	(787)	(793)	(1,580)
Repayments	(780)	(2,083)	(33)	(94)	(1,201)	-	(18)	-	(4,209)	(3,548)	(7,757)
Amounts written-off	(472)	(389)	(11)	(220)	(44)	(298)	(23)	-	(1,457)	(1,388)	(2,845)

At 30 September 2012	4,563	5,492	243	699	7,036	1,057	393	-	19,483	22,019	41,502

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

Credit risk: Impairment provisions flow statement (continued)

	UK	UK	Wealth	International	Ulster	US	Total	Markets	Total	Non-Core	Group
	Retail	Corporate	Wealth	Banking	Bank	R&C (1)	R&C (1)	Markets	Core	Non-Core	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2012	2,679	2,061	81	851	2,749	455	8,876	311	9,187	11,487	20,674
Currency translation and other adjustments	13	116	1	(63)	(129)	46	(16)	4	(12)	(520)	(532)
Amounts written-off	(472)	(389)	(11)	(220)	(44)	(298)	(1,434)	(23)	(1,457)	(1,388)	(2,845)
Recoveries of amounts
previously written-off	82	10	-	7	-	60	159	2	161	84	245
Charged to income statement
- continuing operations	436	604	30	74	1,046	64	2,254	12	2,266	1,647	3,913
Unwind of discount (2)	(68)	(44)	(2)	(5)	(58)	-	(177)	-	(177)	(195)	(372)

At 30 September 2012	2,670	2,358	99	644	3,564	327	9,662	306	9,968	11,115	21,083

Individually assessed
- banks	-	-	2	7	-	-	9	108	117	1	118
- customers	-	963	84	474	1,298	54	2,873	188	3,061	9,953	13,014
Collectively assessed	2,458	1,094	-	2	1,752	128	5,434	-	5,434	648	6,082
Latent	212	301	13	161	514	145	1,346	10	1,356	513	1,869

	2,670	2,358	99	644	3,564	327	9,662	306	9,968	11,115	21,083

Credit risk: Impairment provisions flow statement (continued)

	Non-Core (by donating division)
	UK	International	Ulster	US	Other	Total
	Corporate	Banking	Bank	R&C (1)	Other	Total
	£m	£m	£m	£m	£m	£m

At 1 January 2013	1,167	2,815	6,933	257	28	11,200
Currency translation and other adjustments	(9)	26	125	(21)	(3)	118
Disposal of subsidiaries	-	-	(77)	-	-	(77)
Amounts written-off	(324)	(561)	(245)	(136)	(4)	(1,270)
Recoveries of amounts previously written-off	7	20	-	32	2	61
Charged to income statement
- continuing operations	181	309	829	120	-	1,439
Unwind of discount (2)	(13)	(38)	(100)	-	-	(151)

At 30 September 2013	1,009	2,571	7,465	252	23	11,320

Individually assessed
- banks	-	1	-	-	-	1
- customers	619	2,358	6,873	29	6	9,885
Collectively assessed	335	-	168	36	15	554
Latent	55	212	424	187	2	880

	1,009	2,571	7,465	252	23	11,320

At 1 January 2012	1,633	3,027	6,363	416	48	11,487
Currency translation and other adjustments	(130)	(70)	(214)	(80)	(26)	(520)
Amounts written-off	(383)	(657)	(84)	(250)	(14)	(1,388)
Recoveries of amounts previously written-off	14	12	-	54	4	84
Charged to income statement
- continuing operations	185	705	619	133	5	1,647
Unwind of discount (2)	(32)	(30)	(132)	-	(1)	(195)

At 30 September 2012	1,287	2,987	6,552	273	16	11,115

Individually assessed
- banks	-	1	-	-	-	1
- customers	819	2,751	6,360	23	-	9,953
Collectively assessed	410	26	89	107	16	648

Credit risk: Impairment charge analysis (continued)
Nine months ended 30 September 2013	Non-Core (by donating division)
	UK	International	Ulster	US	Other	Total
	Corporate	Banking	Bank	R&C	Other	Total
	£m	£m	£m	£m	£m	£m

Individually assessed	175	308	621	2	-	1,106
Collectively assessed	9	-	15	47	-	71
Latent loss	(3)	1	193	71	-	262

Loans to customers	181	309	829	120	-	1,439
Securities	-	(27)	-	-	-	(27)

Charge to income statement	181	282	829	120	-	1,412

Nine months ended 30 September 2012

Individually assessed	166	705	616	(29)	(1)	1,457
Collectively assessed	56	-	9	175	7	247
Latent loss	(37)	-	(6)	(13)	(1)	(57)

Loans to customers	185	705	619	133	5	1,647
Securities	-	(127)	-	-	-	(127)

Charge to income statement	185	578	619	133	5	1,520

				Credit metrics
		REIL	Provisions	REIL as a	Provisions	Provisions	Impairment	Amounts
	Gross			% of gross	as a % of	as a % of	charge	written-off
	loans			loans	REIL	gross loans	YTD	YTD
Sector analysis	£m	£m	£m	%	%	%	£m	£m

30 September 2013
Core
Mortgages	19,227	3,297	1,729	17.1	52	9.0	211	21
Commercial real estate
- investment	3,577	2,079	780	58.1	38	21.8	201	23
- development	716	448	225	62.6	50	31.4	38	4
Other corporate	7,130	2,513	1,552	35.2	62	21.8	237	76
Other lending	1,244	198	193	15.9	97	15.5	20	30

	31,894	8,535	4,479	26.8	52	14.0	707	154

Non-Core
Commercial real estate
- investment	3,378	3,107	1,566	92.0	50	46.4	158	23
- development	7,191	7,018	5,104	97.6	73	71.0	599	207
Other corporate	1,525	1,267	795	83.1	63	52.1	66	6

	12,094	11,392	7,465	94.2	66	61.7	823	236

Ulster Bank Group
Mortgages	19,227	3,297	1,729	17.1	52	9.0	211	21
Commercial real estate
- investment	6,955	5,186	2,346	74.6	45	33.7	359	46
- development	7,907	7,466	5,329	94.4	71	67.4	637	211
Other corporate	8,655	3,780	2,347	43.7	62	27.1	303	82
Other lending	1,244	198	193	15.9	97	15.5	20	30

	43,988	19,927	11,944	45.3	60	27.2	1,530	390

Credit risk: REIL flow statement (continued)
	Non-Core (by donating division)
	UK	International	Ulster	US Retail &	Other	Total
	Corporate	Banking	Bank	Commercial	Other	Total
	£m	£m	£m	£m	£m	£m

At 1 January 2013	2,622	6,907	11,399	418	28	21,374
Currency translation and other adjustments	(2)	87	237	5	(14)	313
Disposal of subsidiaries	-	-	(90)	-	-	(90)
Additions	1,020	683	666	64	5	2,438
Transfers to performing book	(4)	(75)	(2)	-	-	(81)
Repayments	(1,043)	(1,219)	(573)	(32)	(2)	(2,869)
Amounts written-off	(324)	(561)	(245)	(136)	(4)	(1,270)

At 30 September 2013	2,269	5,822	11,392	319	13	19,815

At 1 January 2012	3,685	8,051	11,675	486	110	24,007
Currency translation and other adjustments	(69)	(109)	(439)	(17)	(81)	(715)
Additions	1,135	1,678	1,450	131	11	4,405
Transfers (1)	8	43	-	-	-	51
Transfers to performing book	(140)	(653)	-	-	-	(793)
Repayments	(1,307)	(902)	(1,339)	-	-	(3,548)
Amounts written-off	(383)	(659)	(84)	(250)	(12)	(1,388)

At 30 September 2012	2,929	7,449	11,263	350	28	22,019

Credit risk (continued)

Impairment provisions flow statement
The movement in loan impairment provisions by division is shown in the table below.

	UK	UK	Wealth	International	Ulster	US	Total	Markets	Central	Total	Non-Core	Group
	Retail	Corporate	Wealth	Banking	Bank	R&C (1)	R&C (1)	Markets	items	Core	Non-Core	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2013	2,629	2,432	109	391	3,910	285	9,756	305	1	10,062	11,200	21,262
Currency translation and other adjustments	-	11	-	(12)	80	23	102	6	1	109	118	227
Disposal of subsidiaries	-	-	-	-	-	-	-	-	-	-	(77)	(77)
Amounts written-off	(609)	(603)	(15)	(239)	(154)	(217)	(1,837)	(46)	-	(1,883)	(1,270)	(3,153)
Recoveries of amounts
previously written-off	34	10	-	13	1	70	128	2	-	130	61	191
Charged to income statement
- continuing operations	251	529	8	182	707	105	1,782	(4)	64	1,842	1,439	3,281
Unwind of discount (2)	(58)	(31)	(2)	(3)	(65)	-	(159)	-	-	(159)	(151)	(310)

At 30 September 2013	2,247	2,348	100	332	4,479	266	9,772	263	66	10,101	11,320	21,421

Individually assessed
- banks	-	-	-	7	-	-	7	61	-	68	1	69
- customers	-	967	87	207	1,438	62	2,761	193	66	3,020	9,885	12,905
Collectively assessed	2,079	1,077	-	-	2,436	103	5,695	-	-	5,695	554	6,249
Latent	168	304	13	118	605	101	1,309	9	-	1,318	880	2,198

	2,247	2,348	100	332	4,479	266	9,772	263	66	10,101	11,320	21,421

Credit risk (continued)

Impairment charge analysis
The table below analyses the impairment charge for loans and securities.

Nine months ended 30 September 2013	UK	UK	Wealth	International	Ulster	US	Total	Markets	Central	Total	Non-Core	Group
	Retail	Corporate	Wealth	Banking	Bank	R&C	R&C	Markets	items	Core	Non-Core	Group
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

Individually assessed	-	349	9	181	329	9	877	5	64	946	1,106	2,052
Collectively assessed	273	173	-	-	373	131	950	-	-	950	71	1,021
Latent loss	(22)	7	(1)	1	5	(35)	(45)	-	-	(45)	262	217

Loans to customers	251	529	8	182	707	105	1,782	5	64	1,851	1,439	3,290
Loans to banks	-	-	-	-	-	-	-	(9)	-	(9)	-	(9)
Securities	-	-	-	-	-	5	5	62	(1)	66	(27)	39

Charge to income statement	251	529	8	182	707	110	1,787	58	63	1,908	1,412	3,320

Nine months ended 30 September 2012

Individually assessed	-	390	27	50	396	18	881	12	1	894	1,457	2,351
Collectively assessed	430	245	-	-	592	177	1,444	-	-	1,444	247	1,691
Latent loss	6	(31)	3	-	58	(131)	(95)	-	(1)	(96)	(57)	(153)

Loans to customers	436	604	30	50	1,046	64	2,230	12	-	2,242	1,647	3,889
Loans to banks	-	-	-	24	-	-	24	-	-	24	-	24
Securities	-	-	-	-	-	4	4	3	32	39	(127)	(88)

Charge to income statement	436	604	30	74	1,046	68	2,258	15	32	2,305	1,520	3,825

Credit risk: Ulster Bank Group (Core and Non-Core) (continued)

				Credit metrics
		REIL	Provisions	REIL as a	Provisions	Provisions	Impairment	Amounts
	Gross			% of gross	as a % of	as a % of	charge	written-off
	loans			loans	REIL	gross loans	YTD	YTD
Sector analysis	£m	£m	£m	%	%	%	£m	£m

31 December 2012
Core
Mortgages	19,162	3,147	1,525	16.4	48	8.0	646	22
Commercial real estate
- investment	3,575	1,551	593	43.4	38	16.6	221	-
- development	729	369	197	50.6	53	27.0	55	2
Other corporate	7,772	2,259	1,394	29.1	62	17.9	389	15
Other lending	1,414	207	201	14.6	97	14.2	53	33

	32,652	7,533	3,910	23.1	52	12.0	1,364	72

Non-Core
Commercial real estate
- investment	3,383	2,800	1,433	82.8	51	42.4	288	15
- development	7,607	7,286	4,720	95.8	65	62.0	611	103
Other corporate	1,570	1,230	711	78.3	58	45.3	77	23

	12,560	11,316	6,864	90.1	61	54.6	976	141

Ulster Bank Group
Mortgages	19,162	3,147	1,525	16.4	48	8.0	646	22
Commercial real estate
- investment	6,958	4,351	2,026	62.5	47	29.1	509	15
- development	8,336	7,655	4,917	91.8	64	59.0	666	105
Other corporate	9,342	3,489	2,105	37.3	60	22.5	466	38
Other lending	1,414	207	201	14.6	97	14.2	53	33

	45,212	18,849	10,774	41.7	57	23.8	2,340	213

·	Ulster Bank Group's impairment charge for the nine months ended 30 September 2013 of £1.5 billion (year ended 31 December 2012 - £2.3 billion) was driven by a combination of new defaulting customers and higher charges on existing defaulted cases.

·	Provisions as a percentage of REIL increased from 57% at year end to 60%, principally reflecting additional provisions in Q3 in respect of the commercial real estate development portfolio.

·	REIL increased to £19.9 billion (31 December 2012 - £18.8 billion). This included new defaults of £2.8 billion and foreign exchange movements of £0.4 billion, offset by recoveries/cures of £1.7 billion and write-offs of £0.4 billion.

Credit risk (continued)

Debt securities: AFS reserves by issuer
The table below analyses available-for-sale (AFS) debt securities and related reserves, gross of tax.

	30 September 2013				31 December 2012
	UK	US	Other (1)	Total	UK	US	Other (1)	Total
	£m	£m	£m	£m	£m	£m	£m	£m

Government (2)	6,819	15,066	11,864	33,749	9,774	19,046	16,155	44,975
Banks	395	80	5,687	6,162	1,085	357	7,419	8,861
Other financial institutions	2,671	9,050	8,234	19,955	2,861	10,613	10,416	23,890
Corporate	26	70	84	180	1,318	719	1,130	3,167

Total	9,911	24,266	25,869	60,046	15,038	30,735	35,120	80,893

Of which ABS (3)	2,828	13,441	10,944	27,213	3,558	14,209	12,976	30,743

AFS reserves (gross)	172	178	(564)	(214)	667	763	(1,277)	153

(1)	Includes eurozone countries as detailed in the section on Country risk in the main announcement.
(2)	Includes central and local government.
(3)	Asset-backed securities

	Quarter ended
	30 September 2013			30 June 2013			30 September 2012
	Managed	One-off items	Statutory	Managed	One-off items	Statutory	Managed	One-off items	Statutory
	Managed	reallocation	Statutory	Managed	reallocation	Statutory	Managed	reallocation	Statutory
	£m	£m	£m	£m	£m	£m	£m	£m	£m

Interest receivable	4,207	-	4,207	4,281	-	4,281	4,456	-	4,456
Interest payable	(1,424)	(3)	(1,427)	(1,511)	(3)	(1,514)	(1,645)	(2)	(1,647)

Net interest income	2,783	(3)	2,780	2,770	(3)	2,767	2,811	(2)	2,809

Fees and commissions receivable	1,382	-	1,382	1,392	-	1,392	1,400	-	1,400
Fees and commissions payable	(238)	-	(238)	(250)	-	(250)	(209)	-	(209)
Income from trading activities	599	(155)	444	874	75	949	769	(435)	334
Gain/(loss) on redemption of own debt	-	13	13	-	242	242	-	(123)	(123)
Other operating income	368	(333)	35	661	59	720	787	(1,039)	(252)

Non-interest income	2,111	(475)	1,636	2,677	376	3,053	2,747	(1,597)	1,150

Total income	4,894	(478)	4,416	5,447	373	5,820	5,558	(1,599)	3,959

Staff costs	(1,758)	(137)	(1,895)	(1,764)	(76)	(1,840)	(1,882)	(105)	(1,987)
Premises and equipment	(540)	(4)	(544)	(526)	(22)	(548)	(510)	(40)	(550)
Other administrative expenses	(683)	(420)	(1,103)	(801)	(617)	(1,418)	(716)	(477)	(1,193)
Depreciation and amortisation	(305)	(33)	(338)	(308)	(41)	(349)	(365)	(56)	(421)

Operating expenses	(3,286)	(594)	(3,880)	(3,399)	(756)	(4,155)	(3,473)	(678)	(4,151)

Profit/(loss) before impairment losses	1,608	(1,072)	536	2,048	(383)	1,665	2,085	(2,277)	(192)
Impairment losses	(1,170)	-	(1,170)	(1,117)	-	(1,117)	(1,176)	-	(1,176)

Operating profit/(loss)	438	(1,072)	(634)	931	(383)	548	909	(2,277)	(1,368)

(1)	Reallocation of £155 million loss (Q2 2013 - £76 million gain; Q3 2012 - £435 million loss) to income from trading activities and £341 million loss (Q2 2013 - £51 million gain; Q3 2012 - £1,020 million loss) to other operating income.
(2)	Reallocation to income from trading activities.

	Nine months ended
	30 September 2013			30 September 2012
	Managed	One-off items	Statutory	Managed	One-off items	Statutory
	Managed	reallocation	Statutory	Managed	reallocation	Statutory
	£m	£m	£m	£m	£m	£m

Interest receivable	12,767	-	12,767	14,091	-	14,091
Interest payable	(4,542)	(8)	(4,550)	(5,450)	(12)	(5,462)

Net interest income	8,225	(8)	8,217	8,641	(12)	8,629

Fees and commissions receivable	4,090	-	4,090	4,335	-	4,335
Fees and commissions payable	(698)	-	(698)	(589)	-	(589)
Income from trading activities	2,489	19	2,508	2,962	(1,761)	1,201
Gain on redemption of own debt	-	204	204	-	454	454
Other operating income	1,396	(29)	1,367	1,894	(2,586)	(692)

Non-interest income	7,277	194	7,471	8,602	(3,893)	4,709

Total income	15,502	186	15,688	17,243	(3,905)	13,338

Staff costs	(5,343)	(279)	(5,622)	(5,998)	(534)	(6,532)
Premises and equipment	(1,619)	(29)	(1,648)	(1,572)	(68)	(1,640)
Other administrative expenses	(2,162)	(1,122)	(3,284)	(2,214)	(873)	(3,087)
Depreciation and amortisation	(942)	(132)	(1,074)	(1,122)	(182)	(1,304)

Operating expenses	(10,066)	(1,562)	(11,628)	(10,906)	(1,657)	(12,563)

Profit before impairment losses	5,436	(1,376)	4,060	6,337	(5,562)	775
Impairment losses	(3,320)	-	(3,320)	(3,825)	-	(3,825)

Operating profit/(loss)	2,116	(1,376)	740	2,512	(5,562)	(3,050)

(1)	Reallocation of £20 million gain (nine months ended 30 September 2012 - £1,715 million loss) to income from trading activities and £140 million loss (nine months ended 30 September 2012 - £2,714 million loss) to other operating income.
(2)	Reallocation to income from trading activities.

	Net	Non-
	interest	interest	Total	Operating	Impairment	Operating
	income	income	income	expenses	losses	profit/(loss)
Quarter ended 30 September 2013	£m	£m	£m	£m	£m	£m

UK Retail	1,013	254	1,267	(668)	(82)	517
UK Corporate	725	387	1,112	(540)	(150)	422
Wealth	169	102	271	(210)	(1)	60
International Banking	166	288	454	(343)	(28)	83
Ulster Bank	154	60	214	(142)	(204)	(132)
US Retail & Commercial	493	263	756	(555)	(59)	142
Markets	41	793	834	(625)	1	210
Central items	65	40	105	(58)	(66)	(19)

Core	2,826	2,187	5,013	(3,141)	(589)	1,283
Non-Core (1)	(43)	(76)	(119)	(145)	(581)	(845)

Managed basis	2,783	2,111	4,894	(3,286)	(1,170)	438
Reconciling items
Own credit adjustments (2)	-	(496)	(496)	-	-	(496)
Payment Protection Insurance costs	-	-	-	(250)	-	(250)
Regulatory and legal actions	-	-	-	(99)	-	(99)
Integration and restructuring costs	-	-	-	(205)	-	(205)
Gain on redemption of own debt	-	13	13	-	-	13
Amortisation of purchased intangible assets	-	-	-	(39)	-	(39)
Strategic disposals	-	(7)	(7)	-	-	(7)
RFS Holdings minority interest	(3)	15	12	(1)	-	11

Statutory basis	2,780	1,636	4,416	(3,880)	(1,170)	(634)

(1)	Reallocation of £10 million between net interest income and non-interest income in respect of funding costs of rental assets, £9 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £1 million.
(2)	Comprises £155 million loss included in 'Income from trading activities' and £341 million loss included in 'Other operating income' on a statutory basis.

Segmental analysis (continued)
	Net	Non-
	interest	interest	Total	Operating	Impairment	Operating
	income	income	income	expenses	losses	profit/(loss)
Quarter ended 30 June 2013	£m	£m	£m	£m	£m	£m

UK Retail	987	225	1,212	(646)	(89)	477
UK Corporate	715	427	1,142	(553)	(194)	395
Wealth	162	110	272	(214)	(2)	56
International Banking	177	291	468	(327)	(99)	42
Ulster Bank	154	88	242	(144)	(263)	(165)
US Retail & Commercial	473	278	751	(545)	(32)	174
Markets (1)	25	797	822	(686)	(43)	93
Central items	58	207	265	(128)	3	140

Core	2,751	2,423	5,174	(3,243)	(719)	1,212
Non-Core (2)	19	254	273	(156)	(398)	(281)

Managed basis	2,770	2,677	5,447	(3,399)	(1,117)	931
Reconciling items
Own credit adjustments (3)	-	127	127	-	-	127
Payment Protection Insurance costs	-	-	-	(185)	-	(185)
Regulatory and legal actions	-	-	-	(385)	-	(385)
Integration and restructuring costs	-	-	-	(149)	-	(149)
Gain on redemption of own debt	-	242	242	-	-	242
Amortisation of purchased intangible assets	-	-	-	(38)	-	(38)
Strategic disposals	-	6	6	-	-	6
RFS Holdings minority interest	(3)	1	(2)	1	-	(1)

Statutory basis	2,767	3,053	5,820	(4,155)	(1,117)	548

(1)	Reallocation of £1 million between net interest income and non-interest income to record interest on financial assets and liabilities designated as at fair value through profit or loss.
(2)	Reallocation of £11 million between net interest income and non-interest income in respect of funding costs of rental assets, £10 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £1 million.
(3)	Comprises £76 million gain included in 'Income from trading activities' and £51 million gain included in 'Other operating income' on a statutory basis.

(1)	Reallocation of £3 million between net interest income and non-interest income in respect of funding costs of rental assets.
(2)	Reallocation of £7 million between net interest income and non-interest income in respect of funding costs of rental assets, £12 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £5 million.
(3)	Comprises £435 million loss included in 'Income from trading activities' and £1,020 million loss included in 'Other operating income' on a statutory basis.
(4)	Included in 'Income from trading activities' on a statutory basis.

(1)	Reallocation of £1 million between net interest income and non-interest income to record interest on financial assets and liabilities designated as at fair value through profit or loss.
(2)	Reallocation of £30 million between net interest income and non-interest income in respect of funding costs of rental assets, £28 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £2 million.
(3)	Comprises £20 million gain included in 'Income from trading activities' and £140 million loss included in 'Other operating income' on a statutory basis.

(1)	Reallocation of £9 million between net interest income and non-interest income in respect of funding costs of rental assets.
(2)	Reallocation of £5 million between net interest income and non-interest income to record interest on financial assets and liabilities designated as at fair value through profit or loss.
(3)	Reallocation of £96 million between net interest income and non-interest income in respect of funding costs of rental assets, £103 million, and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £7 million.
(4)	Comprises £1,715 million loss included in 'Income from trading activities' and £2,714 million loss included in 'Other operating income' on a statutory basis.
(5)	Included in 'Income from trading activities' on a statutory basis.