Interim Management Statement - Part 5 of 10 | Company Announcement

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	31 March 2011	31 December 2010
Risk-weighted assets (RWAs)	£bn	£bn

Credit risk	367.9	385.9
Counterparty risk	62.8	68.1
Market risk	69.5	80.0
Operational risk	37.9	37.1

	538.1	571.1
Benefit of Asset Protection Scheme	(98.4)	(105.6)

	439.7	465.5

Risk asset ratio	%	%

Core Tier 1	11.2	10.7
Tier 1	13.5	12.9
Total	14.5	14.0

·	Credit and counterparty RWAs fell by £23.3 billion principally driven by asset run-off, disposals and restructurings, and a reclassification of certain trades in Non-Core.

·	Market risk decreased by £10.5 billion reflecting a lower event risk charge and reductions in VaR.

·	The reduction in APS RWA benefit reflects the run-off of covered assets.

·	The benefit of the APS to the Core Tier 1 was 1.3% compared with 1.2% at 31 December 2010.

	31 March 2011	31 December 2010
Composition of regulatory capital	£m	£m

Tier 1
Ordinary and B shareholders' equity	69,332	70,388
Non-controlling interests	1,710	1,719
Adjustments for:
- goodwill and other intangible assets - continuing businesses	(14,409)	(14,448)
- unrealised losses on available-for-sale (AFS) debt securities	2,125	2,061
- reserves arising on revaluation of property and unrealised gains on AFS equities	(62)	(25)
- reallocation of preference shares and innovative securities	(548)	(548)
- other regulatory adjustments*	(379)	(1,097)
Less excess of expected losses over provisions net of tax	(2,385)	(1,900)
Less securitisation positions	(2,410)	(2,321)
Less APS first loss	(3,936)	(4,225)

Core Tier 1 capital	49,038	49,604
Preference shares	5,380	5,410
Innovative Tier 1 securities	4,561	4,662
Tax on the excess of expected losses over provisions	860	758
Less material holdings	(291)	(310)

Total Tier 1 capital	59,548	60,124

Tier 2
Reserves arising on revaluation of property and unrealised gains on AFS equities	62	25
Collective impairment provisions	750	778
Perpetual subordinated debt	1,845	1,852
Term subordinated debt	16,334	16,745
Non-controlling and other interests in Tier 2 capital	11	11
Less excess of expected losses over provisions	(3,245)	(2,658)
Less securitisation positions	(2,410)	(2,321)
Less material holdings	(291)	(310)
Less APS first loss	(3,936)	(4,225)

Total Tier 2 capital	9,120	9,897

Supervisory deductions
Unconsolidated investments
- RBS Insurance	(3,988)	(3,962)
- other investments	(330)	(318)
Other deductions	(422)	(452)

Deductions from total capital	(4,740)	(4,732)

Total regulatory capital	63,928	65,289

* Includes reduction for own liabilities carried at fair value	(863)	(1,182)

Movement in Core Tier 1 capital	£m

At 1 January 2011	49,604
Attributable loss net of movement in fair value of own debt	(209)
Foreign currency reserves	(384)
Issue of ordinary shares	31
Increase in capital deductions including APS first loss	(285)
Other movements	281

At 31 March 2011	49,038

Interim Management Statement - Part 5 of 10

Companies

UK 100

Latest directors dealings

	Credit risk	Counterparty risk	Market risk	Operational risk	Gross total	APS relief	Net total
31 March 2011	£bn	£bn	£bn	£bn	£bn	£bn	£bn

UK Retail	43.0	-	-	7.3	50.3	(11.4)	38.9
UK Corporate	72.6	-	-	6.7	79.3	(21.5)	57.8
Wealth	10.6	-	0.1	1.9	12.6	-	12.6
Global Transaction Services	13.3	-	-	4.9	18.2	-	18.2
Ulster Bank	29.4	0.4	0.1	1.8	31.7	(7.4)	24.3
US Retail & Commercial	48.4	0.8	-	4.4	53.6	-	53.6

Retail & Commercial	217.3	1.2	0.2	27.0	245.7	(40.3)	205.4
Global Banking & Markets	51.0	32.0	48.0	15.5	146.5	(11.1)	135.4
Other	13.3	0.5	-	0.7	14.5	-	14.5

Core	281.6	33.7	48.2	43.2	406.7	(51.4)	355.3
Non-Core	83.6	29.1	21.3	(5.5)	128.5	(47.0)	81.5

Group before RFS MI	365.2	62.8	69.5	37.7	535.2	(98.4)	436.8
RFS MI	2.7	-	-	0.2	2.9	-	2.9

Group	367.9	62.8	69.5	37.9	538.1	(98.4)	439.7

31 December 2010

UK Retail	41.7	-	-	7.1	48.8	(12.4)	36.4
UK Corporate	74.8	-	-	6.6	81.4	(22.9)	58.5
Wealth	10.4	-	0.1	2.0	12.5	-	12.5
Global Transaction Services	13.7	-	-	4.6	18.3	-	18.3
Ulster Bank	29.2	0.5	0.1	1.8	31.6	(7.9)	23.7
US Retail & Commercial	52.0	0.9	-	4.1	57.0	-	57.0

Retail & Commercial	221.8	1.4	0.2	26.2	249.6	(43.2)	206.4
Global Banking & Markets	53.5	34.5	44.7	14.2	146.9	(11.5)	135.4
Other	16.4	0.4	0.2	1.0	18.0	-	18.0

Core	291.7	36.3	45.1	41.4	414.5	(54.7)	359.8
Non-Core	91.3	31.8	34.9	(4.3)	153.7	(50.9)	102.8

Group before RFS MI	383.0	68.1	80.0	37.1	568.2	(105.6)	462.6
RFS MI	2.9	-	-	-	2.9	-	2.9

Group	385.9	68.1	80.0	37.1	571.1	(105.6)	465.5

	31 March 2011		31 December 2010
	£m	%	£m	%

Deposits by banks
- central banks	13,773	1.9	11,612	1.6
- cash collateral	23,594	3.2	28,074	3.8
- other	26,462	3.6	26,365	3.6

	63,829	8.7	66,051	9.0

Debt securities in issue
- commercial paper	24,216	3.3	26,235	3.5
- certificates of deposits	35,967	4.9	37,855	5.1
- medium-term notes and other bonds	130,230	17.7	131,026	17.7
- covered bonds	6,850	0.9	4,100	0.6
- other securitisations	18,705	2.6	19,156	2.6

	215,968	29.4	218,372	29.5

Subordinated liabilities	26,515	3.6	27,053	3.6

Total wholesale funding	306,312	41.7	311,476	42.1

Customer deposits
- cash collateral	8,673	1.2	10,433	1.4
- other	419,801	57.1	418,166	56.5

Total customer deposits	428,474	58.3	428,599	57.9

Total funding	734,786	100.0	740,075	100.0

	31 March 2011				31 December 2010
	Debt securities in issue	Subordinated liabilities	Total		Debt securities in issue	Subordinated liabilities	Total
	£m	£m	£m	%	£m	£m	£m	%

Less than 1 year	107,110	826	107,936	44.5	94,048	964	95,012	38.7
1-3 years	35,801	2,247	38,048	15.7	49,149	754	49,903	20.3
3-5 years	23,613	7,217	30,830	12.7	22,806	8,476	31,282	12.8
More than 5 years	49,444	16,225	65,669	27.1	52,369	16,859	69,228	28.2

	215,968	26,515	242,483	100.0	218,372	27,053	245,425	100.0

·	The proportion of funding from customer deposits, excluding cash collateral, improved marginally from 56.5% to 57.1%.

·	Short-term wholesale funding excluding derivative collateral increased from £129.4 billion to £144.7 billion during the first quarter of 2011 due to the inclusion of £15.6 billion of medium-term notes issued under the Credit Guarantee Scheme which will mature in Q1 2012. Short-term wholesale instruments (excluding repos and cash collateral) declined by £1.6 billion in Q1 2011.

	Quarter ended					Year ended 31 December 2010
	31 March 2011	31 December 2010	30 September 2010	30 June 2010	31 March 2010	Year ended 31 December 2010
	£m	£m	£m	£m	£m	£m

Public
- unsecured	3,277	775	6,254	1,882	3,976	12,887
- secured	2,652	1,725	5,286	1,030	-	8,041
Private
- unsecured	4,251	4,623	6,299	2,370	4,158	17,450

Gross issuance	10,180	7,123	17,839	5,282	8,134	38,378

Currency

GBP	483	4.7	264	3.7
EUR	4,069	40.0	3,935	55.2
USD	3,310	32.5	1,280	18.0
Other	2,318	22.8	1,644	23.1

	10,180	100.0	7,123	100.0

·	Term issuances in Q1 2011 were £10.2 billion, including £2.7 billion of euro denominated covered bonds, of which £0.9 billion had original maturity of 7 years and the balance had original maturity of 5 years.

·	Issuances in Q1 2011 were £3.1 billion higher than in Q4 2010, of which £2.0 billion related to US dollar denominated instruments.

·	The Group issued a further £3.8 billion of term debt in April 2011.

	31 March 2011	31 December 2010
Liquidity portfolio	£m	£m

Cash and balances at central banks	58,936	53,661
Treasury bills	9,859	14,529
Central and local government bonds (1)
- AAA rated governments (2)	40,199	41,435
- AA- to AA+ rated governments	1,408	3,744
- governments rated below AA	1,052	1,029
- local government	4,771	5,672
	47,430	51,880
Unencumbered collateral (3)
- AAA rated	21,328	17,836
- below AAA rated and other high quality assets	13,637	16,693
	34,965	34,529

Total liquidity portfolio	151,190	154,599

(1)	Includes FSA eligible government bonds of £30.1 billion at 31 March 2011 (31 December 2010 - £34.7 billion).
(2)	Includes AAA rated US government guaranteed agencies.
(3)	Includes secured assets eligible for discounting at central banks, comprising loans and advances and debt securities.

·	The Group's liquidity portfolio was £151.2 billion, a decline of £3.4 billion from 31 December 2010.

·	The strategic target of £150 billion is unchanged.

·	The liquidity portfolio is actively managed and as such its composition varies over time. Actions initiated in March 2011 to alter the maturity and currency mix resulted in a higher proportion of cash and central bank balances at the end of the quarter.

	Quarter ended
	31 March 2011		31 December 2010
	£m	%	£m	%

Original maturity
1-2 years	438	4.3	433	6.1
2-3 years	184	1.8	618	8.6
3-4 years	2,474	24.3	697	9.8
4-5 years	248	2.5	290	4.1
5-10 years	5,001	49.1	2,321	32.6
> 10 years	1,835	18.0	2,764	38.8

	10,180	100.0	7,123	100.0

	31 March 2011		31 December 2010
		ASF (1)		ASF (1)	Weighting
	£bn	£bn	£bn	£bn	%

Equity	76	76	76	76	100
Wholesale funding > 1 year	138	138	154	154	100
Wholesale funding < 1 year	168	-	157	-	-
Derivatives	361	-	424	-	-
Repurchase agreements	130	-	115	-	-
Deposits
- Retail and SME - more stable	171	154	172	155	90
- Retail and SME - less stable	26	21	51	41	80
- Other	231	116	206	103	50
Other (2)	112	-	98	-	-

Total liabilities and equity	1,413	505	1,453	529

Cash	60	-	57	-	-
Inter bank lending	59	-	58	-	-
Debt securities > 1 year
- central and local governments AAA to AA-	83	4	89	4	5
- other eligible bonds	79	16	75	15	20
- other bonds	16	16	10	10	100
Debt securities < 1 year	53	-	43	-	-
Derivatives	361	-	427	-	-
Reverse repurchase agreements	106	-	95	-	-
Customer loans and advances > 1 year
- residential mortgages	143	93	145	94	65
- other	200	200	211	211	100
Customer loans and advances < 1 year
- retail loans	19	16	22	19	85
- other	132	66	125	63	50
Other (3)	102	102	96	96	100

Total assets	1,413	513	1,453	512

Undrawn commitments	255	13	267	13	5

Total assets and undrawn commitments	1,668	526	1,720	525

(1)	Available stable funding.
(2)	Deferred tax, insurance liabilities and other liabilities.
(3)	Prepayments, accrued income, deferred tax and other assets.

	31 March 2011	31 December 2010
	£m	£m

+ 100bp shift in yield curves	266	232
- 100bp shift in yield curves	(302)	(352)

	Loan to deposit ratio (1)		Customer funding gap (1)
	Group	Core	Group
	%	%	£bn

31 March 2011	115	96	66
31 December 2010	117	96	74
30 September 2010	126	101	107
30 June 2010	128	102	118
31 March 2010	131	102	131
31 December 2009	135	104	142

·	The Group's loan to deposit ratio improved by 200 basis points in Q1 2011 to 115%. The customer funding gap narrowed by £8 billion to £66 billion in Q1 2011, primarily due to a reduction in Non-Core customer loans.

·	The loan to deposit ratio for the Group's Core business at 31 March 2011 remained stable at 96%.

·	In aggregate, the Group's interest rate exposure continues to reflect a slight asset sensitive bias in Q1 2011.

·	There were no material actions taken to alter the position during the quarter. Certain assumptions used for modelling customer pricing have been modified to show greater opportunity for margin expansion as and when short-term interest rates begin to rise.