Interim Management Statement - Part 5 of 6

Companies

NATWEST GROUP (NWG)

UK 100

Latest directors dealings

15 minutes ago Prudential
1 hour ago CC Japan Income & Growth Trust
1 hour ago Blackrock Frontiers Investment Trust
1 hour ago Sunda Energy
1 hour ago Avon Technologies plc

All directors dealings today

	31 March 2012	31 December 2011
Risk-weighted assets (RWAs) by risk	£bn	£bn

Credit risk	332.9	344.3
Counterparty risk	56.8	61.9
Market risk	61.0	64.0
Operational risk	45.8	37.9

	496.5	508.1
Asset Protection Scheme (APS) relief	(62.2)	(69.1)

	434.3	439.0

Risk asset ratios	%	%

Core Tier 1	10.8	10.6
Tier 1	13.2	13.0
Total	14.0	13.8

·	RWAs excluding the effect of APS relief fell by £11.6 billion, largely reflecting the impact of large corporate portfolio deleveraging on credit risk RWAs in UK Corporate and International Banking and continued risk reduction in Non-Core.

·	The decreases in counterparty risk (£5.1 billion) and market risk (£3.0 billion) RWAs were primarily in the Markets portfolios in Core and Non-Core.

·	Operational risk RWAs, which are based on Group income for the three prior years, increased by £7.9 billion as 2008, when the Group recorded a substantial reduction in income, dropped out of the calculation.

·	APS RWA relief declined by £6.9 billion, principally reflecting the £11.0 billion decrease in covered assets to £120.8 billion at 31 March 2012, mainly due to maturities, repayments and run-off.

·	The Core Tier 1 APS benefit declined marginally from 90bp to 85bp at 31 March 2012.

	31 March 2012 £m	31 December 2011 £m

Shareholders' equity (excluding non-controlling interests)
Shareholders' equity per balance sheet	73,416	74,819
Preference shares - equity	(4,313)	(4,313)
Other equity instruments	(431)	(431)
	68,672	70,075

Non-controlling interests
Non-controlling interests per balance sheet	1,215	1,234
Non-controlling preference shares	(548)	(548)
Other adjustments to non-controlling interests for regulatory purposes	(259)	(259)
	408	427

Regulatory adjustments and deductions
Own credit	(845)	(2,634)
Unrealised losses on AFS debt securities	547	1,065
Unrealised gains on AFS equity shares	(108)	(108)
Cash flow hedging reserve	(921)	(879)
Other adjustments for regulatory purposes	630	571
Goodwill and other intangible assets	(14,771)	(14,858)
50% excess of expected losses over impairment provisions (net of tax)	(2,791)	(2,536)
50% of securitisation positions	(1,530)	(2,019)
50% of APS first loss	(2,489)	(2,763)
	(22,278)	(24,161)

Core Tier 1 capital	46,802	46,341

Other Tier 1 capital
Preference shares - equity	4,313	4,313
Preference shares - debt	1,064	1,094
Innovative/hybrid Tier 1 securities	4,557	4,667
	9,934	10,074

Tier 1 deductions
50% of material holdings	(300)	(340)
Tax on excess of expected losses over impairment provisions	906	915
	606	575

Total Tier 1 capital	57,342	56,990

	31 March 2012 £m	31 December 2011 £m

Qualifying Tier 2 capital
Undated subordinated debt	1,817	1,838
Dated subordinated debt - net of amortisation	13,561	14,527
Unrealised gains on AFS equity shares	108	108
Collectively assessed impairment provisions	571	635
Non-controlling Tier 2 capital	11	11
	16,068	17,119

Tier 2 deductions
50% of securitisation positions	(1,530)	(2,019)
50% excess of expected losses over impairment provisions	(3,697)	(3,451)
50% of material holdings	(300)	(340)
50% of APS first loss	(2,489)	(2,763)
	(8,016)	(8,573)

Total Tier 2 capital	8,052	8,546

Supervisory deductions
Unconsolidated investments
- Direct Line Group	(4,130)	(4,354)
- Other investments	(248)	(239)
Other deductions	(212)	(235)
	(4,590)	(4,828)

Total regulatory capital	60,804	60,708

Movement in Core Tier 1 capital	31 March 2012 £m

At beginning of the quarter	46,341
Attributable profit net of movements in fair value of own debt	265
Foreign currency reserves	(548)
Decrease in non-controlling interests	(19)
Decrease in capital deductions including APS first loss	508
Decrease in goodwill and other intangible assets	87
Other movements	168

At end of the quarter	46,802

	Credit risk	Counterparty risk	Market risk	Operational risk	Gross RWAs
31 March 2012	£bn	£bn	£bn	£bn	£bn

UK Retail	40.4	-	-	7.8	48.2
UK Corporate	68.3	-	-	8.6	76.9
Wealth	10.9	-	0.1	1.9	12.9
International Banking	37.0	-	-	4.8	41.8
Ulster Bank	35.9	0.7	0.1	1.7	38.4
US Retail & Commercial	52.8	0.9	-	4.9	58.6

Retail & Commercial	245.3	1.6	0.2	29.7	276.8
Markets	15.0	36.5	48.4	15.7	115.6
Other	9.0	0.2	-	1.8	11.0

Core	269.3	38.3	48.6	47.2	403.4
Non-Core	60.6	18.5	12.4	(1.6)	89.9

Group before RFS Holdings MI	329.9	56.8	61.0	45.6	493.3
RFS Holdings MI	3.0	-	-	0.2	3.2

Group	332.9	56.8	61.0	45.8	496.5
APS relief	(53.9)	(8.3)	-	-	(62.2)

Net RWAs	279.0	48.5	61.0	45.8	434.3

31 December 2011

UK Retail	41.1	-	-	7.3	48.4
UK Corporate	71.2	-	-	8.1	79.3
Wealth	10.9	-	0.1	1.9	12.9
International Banking	38.9	-	-	4.3	43.2
Ulster Bank	33.6	0.6	0.3	1.8	36.3
US Retail & Commercial	53.6	1.0	-	4.7	59.3

Retail & Commercial	249.3	1.6	0.4	28.1	279.4
Markets	16.7	39.9	50.6	13.1	120.3
Other	9.8	0.2	-	2.0	12.0

Core	275.8	41.7	51.0	43.2	411.7
Non-Core	65.6	20.2	13.0	(5.5)	93.3

Group before RFS Holdings MI	341.4	61.9	64.0	37.7	505.0
RFS Holdings MI	2.9	-	-	0.2	3.1

Group	344.3	61.9	64.0	37.9	508.1
APS relief	(59.6)	(9.5)	-	-	(69.1)

Net RWAs	284.7	52.4	64.0	37.9	439.0

·	Short-term wholesale funding excluding derivative collateral declined by £22.7 billion to £79.7 billion, 8% of the funded balance sheet, meeting the Group's medium-term target of less than 10%.

·	In light of continued economic uncertainty, the Group has taken a prudent view and maintained a liquidity portfolio of £152.7 billion which is nearly twice short-term wholesale funding. This includes £69.5 billion of central bank cash balances, more than 2.5 times the Group's outstanding commercial paper and certificates of deposit.

·	UK Retail deposits, both current and savings accounts, grew strongly, up 2% in Q1 2012. This growth was offset by a seasonal drop-off in deposits across other divisions. As a result, Group customer deposits decreased by 1%.

·	The Group loan:deposit ratio improved due to deleveraging and stood at 106% at 31 March 2012 compared with 108% at 31 December 2011 and 116% at 31 March 2011.

	31 March 2012		31 December 2011
	£m	%	£m	%

Deposits by banks
- derivative cash collateral	29,390	4.4	31,807	4.6
- other deposits	36,428	5.5	37,307	5.3

	65,818	9.9	69,114	9.9

Debt securities in issue
- conduit asset backed commercial paper (ABCP)	9,354	1.4	11,164	1.6
- other commercial paper (CP)	3,253	0.5	5,310	0.8
- certificates of deposit (CDs)	14,575	2.2	16,367	2.4
- medium-term notes (MTNs)	90,674	13.6	105,709	15.2
- covered bonds	10,107	1.5	9,107	1.3
- securitisations	14,980	2.2	14,964	2.1

	142,943	21.4	162,621	23.4
Subordinated liabilities	25,513	3.9	26,319	3.8

Notes issued	168,456	25.3	188,940	27.2

Wholesale funding	234,274	35.2	258,054	37.1

Customer deposits
- cash collateral	8,829	1.3	9,242	1.4
- other deposits	423,659	63.5	427,511	61.5

Total customer deposits	432,488	64.8	436,753	62.9

Total funding	666,762	100.0	694,807	100.0

Disposal group deposits included above
- banks	83		1
- customers	22,281		22,610

	22,364		22,611

	31 March 2012	31 December 2011
Short-term wholesale funding (STWF) (1)	£bn	£bn

Bank deposits	32.7	32.9
Notes issued (2)	47.0	69.5

STWF excluding derivative collateral	79.7	102.4
Derivative collateral	29.4	31.8

STWF including derivative collateral	109.1	134.2

Interbank funding excluding derivative collateral (3)
- bank deposits	36.4	37.3
- bank loans	(19.7)	(24.3)

Net interbank funding	16.7	13.0

(1)	Short-term balances denote those with a residual maturity of less than one year and includes longer-term instruments that mature within twelve months of the reporting date.
(2)	See page 97 for details.
(3)	Deposits and loans include all maturities.

·	Short-term wholesale funding excluding derivative collateral declined by £22.7 billion from £102.4 billion to £79.7 billion, primarily due to the maturity of £15.6 billion of notes issued under the UK Government Credit Guarantee Scheme (CGS). The remaining CGS notes of £5.7 billion will be repaid by May 2012.

·	Commercial paper and certificates of deposit declined by £5.7 billion in the quarter and this trend is expected to continue in light of the Group's funding strategy.

·	The Group continues to actively diversify its wholesale funding sources through access to both the secured and unsecured wholesale debt markets. During the quarter, the Group raised £2.3 billion of net term wholesale funding. It is not anticipated that there will be any further need to access the public debt markets for term wholesale funding during the remainder of 2012 due to the continuing deleveraging of the Group's balance sheet, growth in deposit balances and robust liquidity and funding position. The Group will continue to monitor market conditions and may selectively take advantage of opportunities in order to bring forward any future term wholesale funding refinancing needs where such issuance would improve the Group's overall wholesale funding costs.

·	To further diversify its funding sources, the Group issued its first sterling denominated covered bond of £1 billion with a 12 year maturity and a US$1.2 billion credit card securitisation.

·	The Group accessed €10 billion from the European Central Bank's long-term refinancing operation facility to extend the term of the facilities funding euro denominated assets.

	Debt securities in issue
	Conduit ABCP	Other CP and CDs	MTNs	Covered bonds	Securitisations	Total	Subordinated liabilities	Total notes issued	Total notes issued
	£m	£m	£m	£m	£m	£m	£m	£m	%

31 March 2012
Less than 1 year	9,354	17,532	19,686	-	22	46,594	454	47,048	28
1-3 years	-	290	30,795	2,787	1,231	35,103	4,693	39,796	24
3-5 years	-	1	16,416	3,666	-	20,083	4,998	25,081	15
More than 5 years	-	5	23,777	3,654	13,727	41,163	15,368	56,531	33

	9,354	17,828	90,674	10,107	14,980	142,943	25,513	168,456	100

31 December 2011
Less than 1 year	11,164	21,396	36,302	-	27	68,889	624	69,513	37
1-3 years	-	278	26,595	2,760	479	30,112	3,338	33,450	18
3-5 years	-	2	16,627	3,673	-	20,302	7,232	27,534	14
More than 5 years	-	1	26,185	2,674	14,458	43,318	15,125	58,443	31

	11,164	21,677	105,709	9,107	14,964	162,621	26,319	188,940	100

	Quarter ended
	31 March 2012	31 December 2011
	£m	£m

Public
- secured	1,784	3,223
Private
- unsecured	1,676	911
- secured	-	500

Gross issuance	3,460	4,634
Buybacks	(1,129)	(1,270)

Net issuance	2,331	3,364

	31 March 2012		31 December 2011
	Quarterly average	Period end	Quarterly average	Period end
	£m	£m	£m	£m

Cash and balances at central banks	91,287	69,489	89,377	69,932
Treasury bills	-	-	444	-
Central and local government bonds (1)
- AAA rated governments and US agencies	19,085	29,639	30,421	29,632
- AA- to AA+ rated governments (2)	8,924	14,903	5,056	14,102
- governments rated below AA	797	544	1,011	955
- local government	3,980	2,933	4,517	4,302

	32,786	48,019	41,005	48,991
Other assets (3)
- AAA rated	26,435	24,243	25,083	25,202
- below AAA rated and other high quality assets	9,194	10,972	11,400	11,205

	35,629	35,215	36,483	36,407

Total liquidity portfolio	159,702	152,723	167,309	155,330

	31 March 2012			31 December 2011
	Core	Non-Core	Total	Core	Non-Core	Total
	£m	£m	£m	£m	£m	£m

Central and local government	8,577	1,397	9,974	8,359	1,383	9,742
Finance	42,035	3,442	45,477	46,452	3,229	49,681
Residential mortgages	139,784	3,438	143,222	138,509	5,102	143,611
Personal lending	31,209	1,297	32,506	31,067	1,556	32,623
Property	38,355	36,346	74,701	38,704	38,064	76,768
Construction	6,065	2,434	8,499	6,781	2,672	9,453
Manufacturing	22,587	4,207	26,794	23,201	4,931	28,132
Service industries and business activities
- retail, wholesale and repairs	20,528	1,981	22,509	21,314	2,339	23,653
- transport and storage	15,760	4,525	20,285	16,454	5,477	21,931
- health, education and recreation	13,294	1,304	14,598	13,273	1,419	14,692
- hotels and restaurants	7,072	1,013	8,085	7,143	1,161	8,304
- utilities	6,355	1,777	8,132	6,543	1,849	8,392
- other	23,660	3,663	27,323	24,228	3,772	28,000
Agriculture, forestry and fishing	3,497	83	3,580	3,471	129	3,600
Finance leases and instalment credit	8,534	5,596	14,130	8,440	6,059	14,499
Interest accruals	551	116	667	675	116	791

Gross loans	387,863	72,619	460,482	394,614	79,258	473,872
Loan impairment provisions	(8,663)	(11,413)	(20,076)	(8,292)	(11,468)	(19,760)

Net loans	379,200	61,206	440,406	386,322	67,790	454,112

Gross loans including disposal groups	407,178	73,364	480,542	414,063	80,005	494,068
Loan impairment provisions including disposal groups	(9,443)	(11,429)	(20,872)	(9,065)	(11,486)	(20,551)

Net loans including disposal groups	397,735	61,935	459,670	404,998	68,519	473,517

·	Gross loans and advances excluding disposal groups decreased by £13.4 billion primarily driven by the managed run-off of Non-Core, which contracted by 8%. Other than UK Retail, lending declined in all Core businesses, most notably International Banking and Markets, reflecting both management action and weak customer demand.

·	Despite a challenging environment, UK Retail lending to customers was up £1.8 billion as the business continues to focus on building its franchise.

·	In International Banking, the portfolio loan book decreased by £4.7 billion across various sectors, reflecting capital management discipline and accelerated repayments.

·	Markets' lending decreased by £2.6 billion, mainly to non-bank financial institutions reflecting lower collateral requirements.

·	Property and construction lending decreased by £3.0 billion, principally due to Non-Core run-off and disposals.

	31 March 2012			31 December 2011
	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m

Impaired loans (1)	15,007	23,023	38,030	15,306	23,441	38,747
Accruing loans past due 90 days or more (2)	1,323	447	1,770	1,556	542	2,098

Total REIL	16,330	23,470	39,800	16,862	23,983	40,845

REIL including disposal groups			41,330			42,394

REIL as a % of gross loans and advances (3)	4.3%	32.2%	8.6%	4.4%	30.1%	8.6%
Provisions as a % of REIL	54%	49%	51%	50%	48%	49%

(1)	All loans against which an impairment provision is held.
(2)	Loans where an impairment event has taken place but no impairment provision recognised. This category is used for fully collateralised non-revolving credit facilities.
(3)	Includes disposal groups and excludes reverse repos.

(1)	Includes FSA eligible government bonds of £30.5 billion at 31 March 2012 (31 December 2011 - £36.7 billion).
(2)	Includes AAA rated US government guaranteed and US government sponsored agencies.
(3)	Includes assets eligible for discounting at central banks.

·	The liquidity portfolio has consistently covered STWF by a wide margin. The £152.7 billion liquidity portfolio equates to 16% of the funded balance sheet and covers STWF by 1.9 times.

·	The cash and balances at central banks of £69.5 billion are more than 2.5 times the amount of commercial paper and certificates of deposit outstanding at 31 March 2012.

	Loan:deposit ratio		Customer funding gap
	Group	Core	Group
	%	%	£bn

31 March 2012	106	93	27
31 December 2011	108	94	37
30 September 2011	112	95	52
30 June 2011	114	96	60
31 March 2011	116	96	67

·	The Group's loan:deposit ratio improved by 2% to 106% in the first quarter, driven by the continuing run-off of Non-Core and accelerated deleveraging in International Banking. It improved 10 percentage points from 116% in Q1 2011.

·	The Core loan:deposit ratio improved 100 basis points to 93%.

	31 March 2012		31 December 2011
		ASF (1)		ASF (1)	Weighting
	£bn	£bn	£bn	£bn	%

Equity	75	75	76	76	100
Wholesale funding > 1 year	125	125	124	124	100
Wholesale funding < 1 year	109	-	134	-	-
Derivatives	447	-	524	-	-
Repurchase agreements	129	-	129	-	-
Deposits
- Retail and SME - more stable	230	207	227	204	90
- Retail and SME - less stable	30	24	31	25	80
- Other	173	87	179	89	50
Other (2)	85	-	83	-	-

Total liabilities and equity	1,403	518	1,507	518

Cash	82	-	79	-	-
Inter-bank lending	36	-	44	-	-
Debt securities > 1 year
- central and local governments AAA to AA-	70	3	77	4	5
- other eligible bonds	64	13	73	15	20
- other bonds	20	20	14	14	100
Debt securities < 1 year	42	-	45	-	-
Derivatives	453	-	530	-	-
Reverse repurchase agreements	91	-	101	-	-
Customer loans and advances > 1 year
- residential mortgages	145	94	145	94	65
- other	167	167	173	173	100
Customer loans and advances < 1 year
- retail loans	19	16	19	16	85
- other	129	65	137	69	50
Other (3)	85	85	70	70	100

Total assets	1,403	463	1,507	455
Undrawn commitments	237	12	240	12	5

Total assets and undrawn commitments	1,640	475	1,747	467

Net stable funding ratio		109%		111%

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

·	The NSFR remained broadly stable at 109% despite an £8 billion increase in term assets.

·	Equity and long-term wholesale funding remained unchanged in the quarter resulting in available stable funding being maintained at £518 billion.

·	Term assets increased by £8 billion in the quarter reflecting an increase in the seasonal settlement balances (£16 billion) and higher ineligible debt securities (£6 billion) due to some eurozone country downgrades. This was partially offset by reductions in both customer loans and advances (£10 billion) and eligible debt securities (£3 billion).

·	Whilst overall Group REIL remained relatively stable at 8.6% of gross loans, provision coverage increased to 51% from 49%.

·	Core REIL declined marginally and provision coverage increased to 54% from 50% which included increased coverage in Ulster Bank to 53% from 50%.

·	The increase in Non-Core's REIL to gross loans ratio to 32.2% from 30.1% reflects a contraction in gross loans (8%), due to the continuing progress in managing down the Non-Core portfolio.

	Impaired loans			Other loans (1)			REIL
	Core	Non- Core	Total	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2012	15,306	23,441	38,747	1,556	542	2,098	16,862	23,983	40,845
Currency translation and other adjustments	(31)	(136)	(167)	10	(6)	4	(21)	(142)	(163)
Additions	1,627	981	2,608	637	74	711	2,264	1,055	3,319
Transfers	(92)	17	(75)	(10)	(22)	(32)	(102)	(5)	(107)
Disposals and restructurings	(597)	(123)	(720)	(93)	(6)	(99)	(690)	(129)	(819)
Repayments	(801)	(717)	(1,518)	(777)	(135)	(912)	(1,578)	(852)	(2,430)
Amounts written-off	(405)	(440)	(845)	-	-	-	(405)	(440)	(845)

At 31 March 2012	15,007	23,023	38,030	1,323	447	1,770	16,330	23,470	39,800

·	REIL decreased by £1 billion, or 3% in the quarter, split equally between Core and Non-Core. Transfers to the performing book and disposals (£0.8 billion), debt repayments (£2.4 billion) and write-offs (£0.8 billion) were partially offset by additions (£3.3 billion).

·	Ulster Bank (Core and Non-Core) REIL increased by £0.4 billion largely reflecting the challenging market conditions.

	Gross loans to banks	Gross loans to customers	REIL	Provisions	REIL as a % of gross loans to customers	Provisions as a % of REIL	Impairment charge	Amounts written-off
31 March 2012	£m	£m	£m	£m	%	%	£m	£m

UK Retail	942	105,196	4,120	2,364	3.9	57	155	155
UK Corporate	926	97,702	3,929	1,698	4.0	43	176	98
Wealth	2,028	16,967	228	87	1.3	38	10	3
International Banking	4,045	53,060	873	845	1.6	97	35	31
Ulster Bank	1,555	33,932	5,874	3,101	17.3	53	394	14
US Retail & Commercial	185	50,949	910	391	1.8	43	16	87

Retail & Commercial	9,681	357,806	15,934	8,486	4.5	53	786	388
Markets	21,963	28,848	396	311	1.4	79	10	17
Direct Line Group and other	4,129	1,209	-	-	-	-	-	-

Core	35,773	387,863	16,330	8,797	4.2	54	796	405
Non-Core	426	72,619	23,470	11,414	32.3	49	499	440

Group	36,199	460,482	39,800	20,211	8.6	51	1,295	845

Total including disposal groups	36,311	480,542	41,330	21,007	8.6	51	1,295	845

31 December 2011

UK Retail	628	103,377	4,087	2,344	4.0	57	191	165
UK Corporate	806	98,563	3,988	1,623	4.0	41	236	156
Wealth	2,422	16,913	211	81	1.2	38	13	3
International Banking	3,411	57,728	1,632	851	2.8	52	56	20
Ulster Bank	2,079	34,052	5,523	2,749	16.2	50	327	61
US Retail & Commercial	208	51,562	1,007	455	2.0	45	53	105

Retail & Commercial	9,554	362,195	16,448	8,103	4.5	49	876	510
Markets	29,991	31,490	414	311	1.3	75	48	16
Direct Line Group and other	3,829	929	-	-	-	-	-	-

Core	43,374	394,614	16,862	8,414	4.3	50	924	526
Non-Core	619	79,258	23,983	11,469	30.3	48	730	981

Group	43,993	473,872	40,845	19,883	8.6	49	1,654	1,507

Total including disposal groups	44,080	494,068	42,394	20,674	8.6	49	1,654	1,507

31 March 2011

UK Retail	448	110,045	4,641	2,652	4.2	57	194	274
UK Corporate	101	114,840	4,618	1,929	4.0	42	107	107
Wealth	2,200	16,475	214	64	1.3	30	5	5
International Banking	3,822	63,320	1,531	802	2.4	52	(6)	19
Ulster Bank	2,689	37,167	4,638	2,111	12.5	46	461	11
US Retail & Commercial	186	46,960	972	499	2.1	51	84	96

Retail & Commercial	9,446	388,807	16,614	8,057	4.3	48	845	512
Markets	46,931	22,473	404	359	1.8	89	7	2
Direct Line Group and other	2,057	1,217	-	-	-	-	-	-

Core	58,434	412,497	17,018	8,416	4.1	49	852	514
Non-Core	999	100,779	24,023	10,842	23.8	45	1,046	438

Group	59,433	513,276	41,041	19,258	8.0	47	1,898	952

Total including disposal groups	60,046	516,886	41,087	19,289	7.9	47	1,898	952

·	Group customer provisions remained relatively stable, although coverage of loans increased from 4.2% to 4.4%.

·	Impairment provisions increased by £0.3 billion in the quarter predominately in Ulster Bank Core where continued elevated impairment charges on mortgages more than offset write-offs.

·	Non-Core provisions remained at 2011 year end levels, with Ulster Bank contributing approximately 60% of the total, provision coverage increased to 15.7% from 14.4%.

(1)	Sovereign debt impairment and related interest rate hedge adjustments.
(2)	Customer loan impairment charge as a percentage of gross customer loans including disposal groups and excluding reverse repurchase agreements.

·	Group loan impairment losses of £1.3 billion fell by £0.4 billion or 22%, driven by lower individual charges in Non-Core and improvement across Retail & Commercial businesses, with the exception of Ulster Bank. Ulster Bank continues to face challenging credit conditions.

·	Total Ulster Bank Group impairments were £0.7 billion compared with £0.6 billion in Q4 2011, primarily due to further deterioration in asset quality in the Core residential mortgage portfolio.

·	The Group's customer loan impairment charge as a percentage of customer loans and advances was 1.1% compared with 1.3% in Q4 2011 and 1.5% in Q1 2011.

·	In Q1 2012, as part of private sector involvement in the Greek government bail-out, the vast majority of the Group's available-for-sale portfolio of Greek government debt was exchanged for Greek government debt and European Financial Stability Facility notes. The Greek government debt received in the exchange was sold. During April 2012, the remaining Greek government debt that had not been exchanged in Q1 2012 was exchanged and the bonds received were also sold.

	Central and local government			Banks	Other financial institutions	Corporate	Total	Of which ABS
	UK	US	Other	Banks	Other financial institutions	Corporate	Total	Of which ABS
31 March 2012	£m	£m	£m	£m	£m	£m	£m	£m

Held-for-trading	6,855	17,079	37,552	2,986	24,726	3,052	92,250	22,422
Designated as at fair value	1	-	132	97	581	7	818	556
Available-for-sale	11,871	20,547	20,012	12,214	30,509	2,228	97,381	38,759
Loans and receivables	10	-	4	368	4,638	462	5,482	4,630

Long positions	18,737	37,626	57,700	15,665	60,454	5,749	195,931	66,367

- Of which US agencies	-	4,778	-	-	27,221	-	31,999	30,185

Short positions (HFT)	(2,133)	(8,855)	(18,613)	(1,997)	(2,125)	(903)	(34,626)	(213)

Available-for-sale
Gross unrealised gains	1,141	1,083	1,071	88	658	93	4,134	747
Gross unrealised losses	-	-	(63)	(603)	(1,601)	(9)	(2,276)	(2,179)

31 December 2011

Held-for-trading	9,004	19,636	36,928	3,400	23,160	2,948	95,076	20,816
Designated as at fair value	1	-	127	53	457	9	647	558
Available-for-sale	13,436	20,848	25,552	13,175	31,752	2,535	107,298	40,735
Loans and receivables	10	-	1	312	5,259	477	6,059	5,200

Long positions	22,451	40,484	62,608	16,940	60,628	5,969	209,080	67,309

- Of which US agencies	-	4,896	-	-	25,924	-	30,820	28,558

Short positions (HFT)	(3,098)	(10,661)	(19,136)	(2,556)	(2,854)	(754)	(39,059)	(352)

Available-for-sale
Gross unrealised gains	1,428	1,311	1,180	52	913	94	4,978	1,001
Gross unrealised losses	-	-	(171)	(838)	(2,386)	(13)	(3,408)	(3,158)

·	Debt securities decreased by £13.1 billion or 6% in the first quarter, of which £9.9 billion were available-for-sale securities across the Group and £2.8 billion related to held-for-trading positions in Markets.

·	Held-for-trading: decreased by £2.8 billion primarily in government bonds. The decrease in UK and US central and local government long positions was due to disposals, along with an increase in netting opportunities. Other government bonds included £21.2 billion long and £13.4 billion short positions relating to eurozone countries, of which £5.0 billion and £5.3 billion respectively related to eurozone periphery countries. The increase in financial institutions mainly relates to US agency residential mortgage-backed securities, as markets picked up.

·	Available-for-sale: decreased by £9.9 billion, comprising £7.4 billion central and local government and £2.2 billion financial institutions. UK government bonds fell by £1.6 billion due to additional netting benefits (£1.1 billion) and a change in Direct Line Group investment strategy. Disposals from the RBS N.V. liquidity portfolio resulted in lower government bonds (£3.3 billion), primarily German and French. Non-Core disposals led to a £1.0 billion net reduction in ABS issued by non-bank financial institutions.

·	The decrease in AAA rated debt securities related to the downgrading of France and Austria to AA+ and a decrease in UK government debt securities. Additionally, certain Spanish covered bonds and the Dutch bond portfolio were downgraded during the quarter.

·	The decrease in A to AA- debt securities related to the further downgrade of Italy to BBB+ and a decrease in Japanese debt securities.

·	Non-investment grade and unrated debt securities now account for 4% of the debt securities portfolio, down from 5% at the start of the year.

	31 March 2012				31 December 2011
	US	UK	Other (1)	Total	US	UK	Other (1)	Total
	£m	£m	£m	£m	£m	£m	£m	£m

Central and local Government	20,547	11,871	20,012	52,430	20,848	13,436	25,552	59,836
Banks	326	1,207	10,681	12,214	376	1,391	11,408	13,175
Other financial institutions	15,858	3,129	11,522	30,509	17,453	3,100	11,199	31,752
Corporate	191	1,060	977	2,228	131	1,105	1,299	2,535

Total	36,922	17,267	43,192	97,381	38,808	19,032	49,458	107,298

Of which ABS	18,547	3,848	16,364	38,759	20,256	3,659	16,820	40,735

AFS reserves (gross)	616	723	(1,315)	24	486	845	(1,815)	(484)

	Gross loans	REIL	Provisions	REIL as a % of gross loans	Provisions as a % of REIL	Provisions as a % of gross loans	Impairment charge	Amounts written-off
31 March 2012	£m	£m	£m	%	%	%	£m	£m

Core
Mortgages	19,814	2,449	1,144	12.4	47	5.8	215	6
Personal unsecured	1,317	203	188	15.4	93	14.3	11	7
Commercial real estate
- investment	3,835	976	448	25.4	46	11.7	40	-
- development	825	325	158	39.4	49	19.2	14	-
Other corporate	8,141	1,921	1,163	23.6	61	14.3	114	1

	33,932	5,874	3,101	17.3	53	9.1	394	14

Non-Core
Commercial real estate
- investment	3,719	3,010	1,429	80.9	47	38.4	84	-
- development	7,969	7,492	4,382	94.0	58	55.0	142	20
Other corporate	1,696	1,170	664	69.0	57	39.2	34	5

	13,384	11,672	6,475	87.2	55	48.4	260	25

Ulster Bank Group
Mortgages	19,814	2,449	1,144	12.4	47	5.8	215	6
Personal unsecured	1,317	203	188	15.4	93	14.3	11	7
Commercial real estate
- investment	7,554	3,986	1,877	52.8	47	24.8	124	-
- development	8,794	7,817	4,540	88.9	58	51.6	156	20
Other corporate	9,837	3,091	1,827	31.4	59	18.6	148	6

	47,316	17,546	9,576	37.1	55	20.2	654	39

31 December 2011

Core
Mortgages	20,020	2,184	945	10.9	43	4.7	133	7
Personal unsecured	1,533	201	184	13.1	92	12.0	11	6
Commercial real estate
- investment	3,882	1,014	413	26.1	41	10.6	51	-
- development	881	290	145	32.9	50	16.5	32	16
Other corporate	7,736	1,834	1,062	23.7	58	13.7	100	33

	34,052	5,523	2,749	16.2	50	8.1	327	62

Non-Core
Commercial real estate
- investment	3,860	2,916	1,364	75.5	47	35.3	151	-
- development	8,490	7,536	4,295	88.8	57	50.6	77	31
Other corporate	1,630	1,159	642	71.1	55	39.4	15	5

	13,980	11,611	6,301	83.1	54	45.1	243	36

Ulster Bank Group
Mortgages	20,020	2,184	945	10.9	43	4.7	133	7
Personal unsecured	1,533	201	184	13.1	92	12.0	11	6
Commercial real estate
- investment	7,742	3,930	1,777	50.8	45	23.0	202	-
- development	9,371	7,826	4,440	83.5	57	47.4	109	47
Other corporate	9,366	2,993	1,704	32.0	57	18.2	115	38

	48,032	17,134	9,050	35.7	53	18.8	570	98

LTV distribution calculated on a value basis	31 March 2012 £m	31 December 2011 £m

<= 70%	4,393	4,526
> 70% and <= 90%	2,275	2,501
> 90% and <= 110%	2,806	3,086
> 110% and <= 130%	2,850	3,072
> 130%	7,486	6,517

Total portfolio average LTV at quarter end	112.5%	106.1%

Average LTV on new originations during the year	69.8%	73.9%