Interim Results 2010 - Part 5
Risk and capital management
Except as otherwise indicated by an asterix (*), the information in the Risk and capital management section on pages 78 to 143 has been reviewed by the Group's external auditors as part of the half year report.
Presentation of information
The disclosures in this section have been prepared to include only those business units of ABN AMRO that have been retained by RBS.
Overview*
Risk and capital management across the Group is based on the risk appetite set by the Board, which sets strategic direction, contributes to, and ultimately approves annual plans for each division and regularly reviews and monitors the Group's performance in relation to risk through monthly risk management reports and meetings.
The Group's 2009 accounts articulate the enhanced risk governance structure implemented to support execution of the Group's risk and capital management strategy. In the first half of 2010, the Group's risk appetite has been reviewed by the Board and the Group's strategic plans have been reassessed and are aligned to that appetite.
* not reviewed
Risk and capital management (continued)
Capital
The Group aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Group's regulatory capital resources calculated in accordance with FSA definitions are set out below.
|
|
30 June 2010 |
31 March 2010 |
31 December 2009 |
|
Composition of regulatory capital (proportional) |
£m |
£m |
£m |
|
|
|
|
|
|
Tier 1 |
|
|
|
|
Ordinary and B shareholders' equity |
72,058 |
70,830 |
69,890 |
|
Minority interests |
2,109 |
2,305 |
2,227 |
|
Adjustments for: |
|
|
|
|
- Goodwill and other intangible assets - continuing businesses |
(14,482) |
(14,683) |
(14,786) |
|
- Goodwill and other intangible assets - discontinued businesses |
(757) |
(678) |
(238) |
|
- Unrealised losses on available-for-sale (AFS) debt securities |
1,553 |
1,654 |
1,888 |
|
- Reserves: revaluation of property and unrealised gains on AFS equities |
(117) |
(209) |
(207) |
|
- Reallocation of preference shares and innovative securities |
(548) |
(656) |
(656) |
|
- Other regulatory adjustments |
(1,229) |
(833) |
(950) |
|
Less excess of expected losses over provisions net of tax |
(1,903) |
(2,197) |
(2,558) |
|
Less securitisation positions |
(2,004) |
(1,858) |
(1,353) |
|
Less APS first loss |
(4,936) |
(4,992) |
(5,106) |
|
|
|
|
|
|
Core Tier 1 capital |
49,744 |
48,683 |
48,151 |
|
Preference shares |
5,630 |
10,906 |
11,265 |
|
Innovative Tier 1 securities |
4,768 |
2,857 |
2,772 |
|
Tax on the excess of expected losses over provisions |
759 |
876 |
1,020 |
|
Less deductions from Tier 1 capital |
(271) |
(347) |
(310) |
|
|
|
|
|
|
Total Tier 1 capital |
60,630 |
62,975 |
62,898 |
|
|
|
|
|
|
Tier 2 |
|
|
|
|
Reserves: revaluation of property and unrealised gains on AFS equities |
117 |
209 |
207 |
|
Collective impairment provisions |
763 |
769 |
796 |
|
Perpetual subordinated debt |
1,839 |
4,301 |
4,200 |
|
Term subordinated debt |
16,829 |
18,742 |
18,120 |
|
Minority and other interests in Tier 2 capital |
11 |
11 |
11 |
|
Less deductions from Tier 2 capital |
(4,937) |
(5,278) |
(5,241) |
|
Less APS first loss |
(4,936) |
(4,992) |
(5,106) |
|
|
|
|
|
|
Total Tier 2 capital |
9,686 |
13,762 |
12,987 |
|
|
|
|
|
|
Supervisory deductions |
|
|
|
|
Unconsolidated Investments |
|
|
|
|
- RBS Insurance |
(4,016) |
(4,123) |
(4,068) |
|
- Other investments |
(176) |
(416) |
(404) |
|
Other deductions |
(274) |
(73) |
(93) |
|
|
|
|
|
|
Deductions from total capital |
(4,466) |
(4,612) |
(4,565) |
|
|
|
|
|
|
Total regulatory capital |
65,850 |
72,125 |
71,320 |
Risk and capital management(continued)
Capital (continued)
|
|
30 June 2010 |
31 March 2010 |
31 December 2009 |
|
|
£m |
£m |
£m |
|
|
|
|
|
|
Risk-weighted assets* |
|
|
|
|
Credit risk |
409,400 |
433,200 |
410,400 |
|
Counterparty risk |
80,200 |
55,000 |
56,500 |
|
Market risk |
70,600 |
62,000 |
65,000 |
|
Operational risk |
37,100 |
35,300 |
33,900 |
|
|
|
|
|
|
|
597,300 |
585,500 |
565,800 |
|
Asset Protection Scheme relief |
(123,400) |
(124,800) |
(127,600) |
|
|
|
|
|
|
|
473,900 |
460,700 |
438,200 |
|
|
30 June 2010 |
31 March 2010 |
31 December 2009 |
|
Risk asset ratio* |
% |
% |
% |
|
|
|
|
|
|
Core Tier 1 |
10.5 |
10.6 |
11.0 |
|
Tier 1 |
12.8 |
13.7 |
14.4 |
|
Total |
13.9 |
15.7 |
16.3 |
Key points*
|
· |
Risk-weighted assets increased by 3% to £474 billion between Q1 2010 and Q2 2010. |
|
|
|
|
· |
The RWAs relating to credit and counterparty risk in aggregate were broadly flat. The increase in market risk RWAs was due to a new event risk charge. |
* not reviewed
Risk and capital management (continued)
Regulatory developments*
European Directives
The European Commission has issued various proposals to change the Capital Requirements Directive (CRD).
The first set of changes (usually referred to as CRD2) dealing with own funds, large exposures, supervisory arrangements and crisis management must be applied from 31 December 2010.
The second set of changes (dealing primarily with capital requirements for the trading book and re-securitisations, and remuneration requirements - CRD3), has taken longer to go through the EU legislative process. It is expected that CRD3 will be adopted by the EU in the near future, and that the provisions on remuneration will take effect as of 1 January 2011, and the deadline for implementing CRD3's capital requirements will be 31 December 2011.
The consultative paper on the third set of changes (CRD4) dealing with the definition of capital, capital requirements for counterparty exposures on derivatives, repurchase agreements and securities financing activities, introduction of a leverage ratio, countercyclical capital measures and minimum liquidity standards is anticipated shortly after the finalisation of the Basel Committee's proposals on these matters.
Basel Committee on Banking Supervision
In December 2009, the Basel Committee issued proposals to strengthen the capital and liquidity of banks. The key elements include: raising the quality, consistency and transparency of regulatory capital; increased capital requirements for counterparty exposures on derivatives, repurchase agreements and securities financing activities; the introduction of a leverage ratio; promotion of countercyclical measures to encourage build up of capital buffers and more forward-looking provisioning based on expected losses instead of the current 'incurred loss' provisioning model; and the introduction of a global minimum liquidity standard for internationally active banks, including a short-term liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio. The Committee is carrying out an impact assessment to calibrate the new requirements before issuing final proposals by the end of 2010 for a phased implementation commencing in 2012.
The Committee is continuing to work on its proposals to strengthen the capital and liquidity of banks issued in December 2009 in the light of comments received from the industry and the results of the quantitative impact study. A complete package of reforms, including design and calibration, is expected to be delivered in time for the November 2010 G20 leaders summit in Seoul.
The Group is working with trade bodies and also responding directly to the various consultations.
* not reviewed
Risk and capital management(continued)
Regulatory developments* (continued)
US
The US has passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This includes provisions covering: (i) the establishment of a Financial Stability Oversight Council to monitor systemic risk, including the identification of systemically important firms which will be subject to stricter prudential measures; (ii) setting up a liquidation process for failed firms without recourse to the taxpayer; (iii) increased scrutiny of private equity and hedge funds; (iv) the preclusion of most proprietary trading and limits the amount of a bank's investments in private equity and hedge firms; (v) regulation of derivatives, requiring most over-the-counter instruments to be routed through exchanges and clearing houses and riskier derivatives to be undertaken by a banks' affiliates. The various US regulators must now develop the necessary rules to implement the Act.
* not reviewed
Risk and capital management(continued)
Credit risk
Credit risk is the risk arising from the possibility that the Group will incur losses owing to the failure of customers to meet their financial obligations. The quantum and nature of credit risk assumed across the Group's different businesses varies considerably, while the overall credit risk outcome usually exhibits a high degree of correlation to the macroeconomic environment.
Credit risk assets*
Credit risk assets consist of gross loans and advances (including overdraft facilities), instalment credit, trade finance, finance lease receivables, trade-related instruments, financial guarantees and traded instruments across all customer types. Reverse repurchase agreements and issuer risk (primarily debt securities - see page 100) are excluded. Where relevant, and unless otherwise stated, the data reflects the effect of credit mitigation techniques. During the first quarter of 2010, the integration of RBS N.V. onto the Group's risk management and reporting systems was substantially completed. Prior period figures were revised to reflect the alignment of RBS N.V. data definitions and specifications with Group standards.
The table below analyses the Group's credit risk assets by division.
|
|
30 June 2010 |
31 March 2010 |
31 December 2009 |
|
|
£m |
£m |
£m |
|
|
|
|
|
|
UK Retail |
105,611 |
102,978 |
103,029 |
|
UK Corporate |
108,965 |
112,142 |
110,009 |
|
Wealth |
17,481 |
17,010 |
16,553 |
|
Global Banking & Markets |
181,285 |
204,397 |
205,588 |
|
Global Transaction Services |
36,775 |
38,360 |
32,428 |
|
Ulster Bank |
40,523 |
43,617 |
42,042 |
|
US Retail & Commercial |
55,177 |
54,758 |
52,104 |
|
Other |
17,982 |
3,520 |
3,305 |
|
|
|
|
|
|
Core |
563,799 |
576,782 |
565,058 |
|
Non-Core |
143,072 |
154,903 |
158,499 |
|
|
|
|
|
|
Group |
706,871 |
731,685
|
723,557 |
Key points
|
· |
The aggregate portfolio continued to contract during the first half of the year, driven by a 10% reduction in Non-Core. |
|
|
|
|
· |
The reduction in Global Banking & Markets, in part, reflects a transfer of liquidity management activity to Group Treasury, now reported under 'Other' in the table above. |
|
|
|
|
· |
The growth in US Retail & Commercial reflects the weakening of Sterling against US dollar in the period - in constant currency terms, the portfolio contracted by 2%. |
* not reviewed
Risk and capital management(continued)
Credit risk (continued)
Credit risk assets: Country concentration risk*
The country risk table below shows credit risk assets exceeding £1 billion by borrowers domiciled in countries with an external rating of A+ and below, from Standard & Poor's, Moody's and/or Fitch, and is stated gross of mitigating action, which may have been taken to reduce or eliminate exposure to country risk events.
|
|
Personal |
Central and local government |
Banks and financial institutions |
Corporate |
Total |
Core |
Non-Core |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
Italy |
28 |
165 |
2,210 |
3,495 |
5,898 |
3,607 |
2,291 |
|
India |
458 |
2 |
1,616 |
3,800 |
5,876 |
5,033 |
843 |
|
China |
39 |
118 |
1,862 |
1,097 |
3,116 |
2,784 |
332 |
|
Turkey |
11 |
297 |
555 |
1,757 |
2,620 |
1,742 |
878 |
|
South Korea |
1 |
- |
1,537 |
965 |
2,503 |
2,438 |
65 |
|
Russia |
66 |
- |
217 |
1,938 |
2,221 |
2,024 |
197 |
|
Mexico |
1 |
42 |
189 |
1,339 |
1,571 |
1,065 |
506 |
|
Brazil |
4 |
- |
1,127 |
334 |
1,465 |
1,311 |
154 |
|
Romania |
445 |
80 |
214 |
680 |
1,419 |
31 |
1,388 |
|
Poland |
8 |
20 |
94 |
1,205 |
1,327 |
1,175 |
152 |
|
Portugal |
6 |
21 |
414 |
811 |
1,252 |
846 |
406 |
|
Pakistan |
129 |
1 |
197 |
837 |
1,164 |
129 |
1,035 |
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
Italy |
27 |
91 |
1,704 |
5,697 |
7,519 |
3,921 |
3,598 |
|
India |
619 |
305 |
1,045 |
3,144 |
5,113 |
4,308 |
805 |
|
China |
51 |
50 |
1,336 |
1,102 |
2,539 |
2,198 |
341 |
|
Turkey |
11 |
302 |
628 |
2,010 |
2,951 |
2,190 |
761 |
|
South Korea |
1 |
- |
1,575 |
1,448 |
3,024 |
2,916 |
108 |
|
Russia |
41 |
- |
172 |
2,045 |
2,258 |
1,782 |
476 |
|
Mexico |
1 |
2 |
276 |
1,304 |
1,583 |
694 |
889 |
|
Brazil |
3 |
- |
902 |
423 |
1,328 |
1,113 |
215 |
|
Romania |
508 |
102 |
438 |
753 |
1,801 |
66 |
1,735 |
|
Poland |
6 |
57 |
85 |
1,582 |
1,730 |
1,617 |
113 |
|
Portugal |
5 |
42 |
324 |
1,007 |
1,378 |
952 |
426 |
|
Pakistan |
137 |
8 |
203 |
573 |
921 |
100 |
821 |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - by country concentration risk* (continued)
Key points
|
· |
Under the Group's country risk framework, country exposures continue to be closely managed; both those countries that represent a larger concentration and those that, under the country watch list process, have been identified as exhibiting signs of actual or potential stress. The latter includes countries in the eurozone facing fiscal pressures and rising debt service costs. |
|
|
|
|
· |
Credit risk assets relating to most of the countries listed in the table above have declined. This reflected active exposure management, including Turkey, Romania and South Korea. In addition to overall exposure reductions, granular portfolio reviews were and continue to be undertaken with an eye to adjusting the tenor profile and robustness under stress of the Group's country portfolios to ongoing country developments. Some countries in Asia have seen moderate increases including two of the Group's strategic primary countries in this region, China and India, following reductions in 2008-2009. |
|
|
|
|
· |
Eurozone country exposures were and continue to be tightly managed given the pressures on vulnerable member states. Overall reductions, in-depth reviews and de-risking of portfolios were applied to Greece, Spain, Portugal, Italy and Ireland. The implications of this active portfolio management for Italy and Portugal are shown in the table above. Credit risk assets relating to Greece were £632 million at 30 June 2010 (31 December 2009 - £849 million). The equivalent for Spain (rated AA/Aaa/AA+ by S&P/Moody's/Fitch) was £10,637 million (31 December 2009 - £10,841 million), and for the Republic of Ireland (rated AA/Aa2/AA-, respectively) was £47,934 million (31 December 2009 - £52,289 million). The Group's gross and net exposures to central and local governments of the thirty European Economic Area countries were disclosed on 23 July 2010 in the context of the EU stress test exercise. The Group continued to reduce exposures to countries with credit ratings of A+ or below during the second quarter of 2010. |
|
|
|
|
· |
Debt securities exposure on a number of countries with total balances greater than £0.5 billion are detailed on page 102. |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets by industry and geography*
Industry analysis plays an important part in assessing potential concentration risk in the loan portfolio. Particular attention is given to industry sectors where the Group believes there is a high degree of risk or potential for volatility in the future.
The table below analyses the Group's credit risk assets by industry sector and geography.
|
|
UK |
Western Europe (excl. UK) |
North America |
Asia Pacific |
Latin America |
Other (1) |
Total |
Core |
|
Non-Core |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
|
|
|
Personal |
120,740 |
21,462 |
38,761 |
1,888 |
91 |
1,309 |
184,251 |
166,141 |
|
18,110 |
|
Banks and financial institutions |
35,976 |
64,846 |
32,822 |
16,602 |
9,729 |
5,234 |
165,209 |
143,484 |
|
21,725 |
|
Property |
60,473 |
24,867 |
8,427 |
1,937 |
3,188 |
712 |
99,604 |
55,522 |
|
44,082 |
|
Transport and storage |
15,006 |
10,443 |
7,574 |
6,133 |
2,886 |
7,129 |
49,171 |
32,231 |
|
16,940 |
|
Manufacturing |
8,199 |
9,589 |
6,942 |
2,807 |
1,201 |
3,652 |
32,390 |
26,505 |
|
5,885 |
|
Public sector |
12,471 |
6,342 |
7,989 |
2,837 |
257 |
749 |
30,645 |
27,752 |
|
2,893 |
|
Wholesale and retail trade |
15,530 |
7,289 |
5,137 |
1,003 |
581 |
914 |
30,454 |
24,409 |
|
6,045 |
|
TMT (2) |
6,926 |
6,400 |
4,152 |
2,668 |
562 |
1,264 |
21,972 |
14,642 |
|
7,330 |
|
Building |
10,097 |
6,650 |
1,822 |
596 |
176 |
825 |
20,166 |
15,521 |
|
4,645 |
|
Tourism and leisure |
11,975 |
2,634 |
2,329 |
775 |
604 |
338 |
18,655 |
15,552 |
|
3,103 |
|
Business services |
9,675 |
3,006 |
2,390 |
950 |
1,021 |
638 |
17,680 |
14,303 |
|
3,377 |
|
Natural resources and nuclear |
2,436 |
2,378 |
5,211 |
1,958 |
918 |
2,756 |
15,657 |
12,247 |
|
3,410 |
|
Power, water and waste |
4,667 |
4,106 |
3,387 |
1,200 |
1,138 |
993 |
15,491 |
10,205 |
|
5,286 |
|
Agriculture and fisheries |
3,122 |
891 |
1,265 |
147 |
42 |
59 |
5,526 |
5,285 |
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317,293 |
170,903 |
128,208 |
41,501 |
22,394 |
26,572 |
706,871 |
563,799 |
|
143,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
|
|
|
Personal |
118,050 |
23,596 |
37,679 |
3,072 |
63 |
1,368 |
183,828 |
163,549 |
|
20,279 |
|
Banks and financial institutions |
40,415 |
75,937 |
24,273 |
15,739 |
10,004 |
5,182 |
171,550 |
149,166 |
|
22,384 |
|
Property |
62,507 |
27,802 |
8,323 |
2,480 |
2,902 |
429 |
104,443 |
58,009 |
|
46,434 |
|
Transport and storage |
14,887 |
7,854 |
7,265 |
5,475 |
2,592 |
7,168 |
45,241 |
30,030 |
|
15,211 |
|
Manufacturing |
9,283 |
13,998 |
7,690 |
3,483 |
1,559 |
3,848 |
39,861 |
30,249 |
|
9,612 |
|
Public sector |
11,171 |
5,120 |
5,899 |
2,452 |
300 |
723 |
25,665 |
22,219 |
|
3,446 |
|
Wholesale and retail trade |
15,712 |
7,642 |
5,573 |
1,531 |
843 |
1,344 |
32,645 |
24,787 |
|
7,858 |
|
TMT (2) |
7,716 |
8,689 |
5,039 |
2,117 |
697 |
1,502 |
25,760 |
15,424 |
|
10,336 |
|
Building |
10,520 |
7,607 |
1,882 |
985 |
203 |
897 |
22,094 |
16,945 |
|
5,149 |
|
Tourism and leisure |
11,581 |
2,922 |
2,626 |
786 |
632 |
499 |
19,046 |
15,439 |
|
3,607 |
|
Business services |
9,206 |
2,337 |
2,605 |
790 |
1,259 |
533 |
16,730 |
13,980 |
|
2,750 |
|
Natural resources and nuclear |
2,592 |
2,999 |
5,447 |
1,355 |
1,442 |
2,375 |
16,210 |
11,149 |
|
5,061 |
|
Power, water and waste |
4,810 |
4,950 |
3,470 |
1,212 |
1,625 |
965 |
17,032 |
10,836 |
|
6,196 |
|
Agriculture and fisheries |
937 |
667 |
1,615 |
92 |
59 |
82 |
3,452 |
3,276 |
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319,387 |
192,120 |
119,386 |
41,569 |
24,180 |
26,915 |
723,557 |
565,058 |
|
158,499 |
Notes:
|
(1) |
'Other' comprises Central and Eastern Europe, Middle East, Central Asia and Africa. |
|
(2) |
Telecommunication, media and technology. |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets by industry and geography* (continued)
Key points
|
· |
Reductions occurred across most industry sectors and geographic regions. |
|
|
|
|
· |
Growth in North America is in part attributable to the 8% weakening of sterling against the US dollar during the period with the remainder relating to the growth in mostly short-term exposures to banks and public sector entities. |
Credit risk assets by asset quality band
Internal reporting and oversight of risk assets is principally differentiated by credit grades. Customers are assigned credit grades, based on various credit grading models that reflect the key drivers of default for the customer type. All credit grades across the Group map to both a Group level asset quality scale, used for external financial reporting, and a master grading scale for wholesale exposures used for internal management reporting across portfolios. Accordingly, measurement of risk is easily aggregated and can be reported at increasing levels of granularity depending on the audience and business needs.
The table below analyses the Group's credit risk assets by asset quality banding.
|
|
|
30 June 2010 |
|
31 December 2009 |
||||||
|
Asset quality band |
Probability of default range |
Core £m |
Non-Core £m |
Total £m |
% of total |
|
Core £m |
Non-Core £m |
Total £m |
% of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
AQ1 |
0% - 0.03% |
152,573 |
22,617 |
175,190 |
24.8 |
|
149,132 |
23,226 |
172,358 |
23.8 |
|
AQ2 |
0.03% - 0.05% |
16,430 |
2,830 |
19,260 |
2.7 |
|
18,029 |
3,187 |
21,216 |
2.9 |
|
AQ3 |
0.05% - 0.10% |
31,101 |
4,394 |
35,495 |
5.0 |
|
26,703 |
7,613 |
34,316 |
4.7 |
|
AQ4 |
0.10% - 0.38% |
73,595 |
14,062 |
87,657 |
12.4 |
|
78,144 |
18,154 |
96,298 |
13.3 |
|
AQ5 |
0.38% - 1.08% |
90,451 |
20,797 |
111,248 |
15.7 |
|
92,908 |
24,977 |
117,885 |
16.3 |
|
AQ6 |
1.08% - 2.15% |
76,995 |
15,070 |
92,065 |
13.0 |
|
76,206 |
18,072 |
94,278 |
13.0 |
|
AQ7 |
2.15% - 6.09% |
44,440 |
17,718 |
62,158 |
8.8 |
|
44,643 |
15,732 |
60,375 |
8.3 |
|
AQ8 |
6.09% - 17.22% |
17,079 |
3,880 |
20,959 |
3.0 |
|
18,923 |
4,834 |
23,757 |
3.4 |
|
AQ9 |
17.22% - 100% |
10,845 |
8,204 |
19,049 |
2.7 |
|
11,589 |
8,074 |
19,663 |
2.7 |
|
AQ10 |
100% |
18,320 |
22,464 |
40,784 |
5.8 |
|
16,756 |
22,666 |
39,422 |
5.5 |
|
Other (1) |
|
31,970 |
11,036 |
43,006 |
6.1 |
|
32,025 |
11,964 |
43,989 |
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,799 |
143,072 |
706,871 |
100.0 |
|
565,058 |
158,499 |
723,557 |
100.0 |
Note:
|
(1) |
'Other' largely comprises assets covered by the standardised approach for which a probability of default equivalent to those assigned to assets covered by the internal ratings based approach is not available. |
Key points
|
· |
Negative credit grade migration continued to moderate during the period. |
|
|
|
|
· |
Growth in credit AQ10 (default) exposures slowed, notably in the second quarter of 2010, as a consequence of a reduced flow of new defaults and the restructuring of existing defaulted cases. |
|
|
|
|
· |
These moderating trends are evident in most of the Group's portfolios. A notable exception is Ulster Bank where economic weakness continues to impact portfolio trends, particularly in the property sector where the stock of defaulted assets (AQ10) continues to grow. |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets*
Key credit portfolios
The following discussions analyse the credit risk assets relating to certain key credit portfolios.
Personal lending
The following table analyses the credit risk assets of the personal lending portfolio.
|
|
30 June 2010 |
31 December 2009 |
|
Personal credit risk assets (1) |
£m £m |
£m |
|
|
|
|
|
UK Retail: |
|
|
|
- Mortgage |
89,065 |
85,529 |
|
- Cards, loans and overdrafts |
19,174 |
20,316 |
|
Ulster Bank: |
|
|
|
- Mortgage |
20,497 |
22,304 |
|
- Other personal |
1,047 |
1,172 |
|
Citizens: |
|
|
|
- Mortgage |
26,948 |
26,534 |
|
- Auto and cards |
6,412 |
6,917 |
|
- Other - mainly student loans and recreational vehicles/marine |
4,645 |
4,205 |
|
EMEA and Asia Pacific Non-Core |
1,780 |
3,084 |
|
Other |
14,683 |
13,767 |
|
|
|
|
|
|
184,251 |
183,828 |
Note:
|
(1) |
Analysis includes Core and Non-Core but does not compare to divisional analysis on page 83. |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Personal lending (continued)
Residential mortgages
The table below analyses the distribution of residential mortgages by loan-to-value (LTV) (indexed) of the main mortgage brands in each of the Group's three main consumer markets.
|
|
UK Retail |
|
Ulster Bank |
|
Citizens |
|||
|
|
30 June 2010 |
31 December 2009 |
|
30 June 2010 |
31 December 2009 |
|
30 June 2010 |
31 December 2009 (2) |
|
By average LTV (1) |
% |
% |
|
% |
% |
|
% |
% |
|
|
|
|
|
|
|
|
|
|
|
<= 50% |
39.1 |
39.2 |
|
35.3 |
40.7 |
|
26.4 |
26.4 |
|
> 50% and <= 60% |
10.2 |
10.1 |
|
8.1 |
7.6 |
|
7.8 |
7.8 |
|
> 60% and <= 70% |
12.3 |
10.9 |
|
7.0 |
7.6 |
|
9.3 |
8.8 |
|
> 70% and <= 80% |
13.9 |
13.3 |
|
6.9 |
7.5 |
|
13.4 |
12.4 |
|
> 80% and <= 90% |
11.7 |
11.2 |
|
7.0 |
8.0 |
|
13.8 |
13.9 |
|
> 90% and <= 100% |
7.1 |
7.6 |
|
7.8 |
9.0 |
|
10.4 |
11.3 |
|
> 100% |
5.7 |
7.7 |
|
27.9 |
19.6 |
|
18.9 |
19.4 |
|
|
|
|
|
|
|
|
|
|
|
Total portfolio average LTV |
58.2 |
59.1 |
|
69.3 |
62.5 |
|
74.4 |
74.5 |
|
|
|
|
|
|
|
|
|
|
|
Average LTV on new originations during the period |
68.9 |
67.2 |
|
77.1 |
72.8 |
|
65.0 |
62.6 |
Notes:
|
(1) |
LTV averages are calculated by transaction volume. |
|
(2) |
Restated to reflect updated data and analysis completed after the reporting date. |
The table below details the residential mortgages which are three months or more in arrears (by volume).
|
|
30 June 2010 |
31 December 2009 |
|
|
% |
% |
|
|
|
|
|
UK Retail (1) |
1.8 |
1.8 |
|
Ulster Bank |
4.8 |
3.3 |
|
Citizens |
1.3 |
1.5 |
Note:
|
(1) |
Based on the 3+ month arrears rate for RBS and NatWest (76% of standard mortgages) together with the equivalent collections status flag for RBS/NatWest offset and other brand mortgages. The 3+ arrears rate also includes accounts in repossession and cases with shortfalls post property sale. The 'One Account' current account mortgage is excluded (£8 billion of assets), which had 0.7% of accounts 90 days continually in excess of the limit at June 2010 (31 December 2009 - 0.6%). |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Personal lending sectors: Residential mortgages (continued)
UK residential mortgages
The UK Retail mortgage portfolio totalled £89.1 billion at 30 June 2010, an increase of 4% from 31 December 2009, due to strong growth and lower redemption rates. Of the total portfolio, 98% is designated as Core business with the primary brands being RBS, NatWest and the One Account. The assets comprise prime mortgage lending and include 6.7% or £5.9 billion (31 December 2009 - £5.6 billion) of exposure to residential buy-to-let. There is a small legacy self certification book (0.4% of total assets) which was withdrawn from sale in 2004.
UK gross new mortgage lending in the six months to 30 June 2010 was strong at £7.6 billion. The average LTV for new business in the same period was 68.9% compared to 68.7% in the second half of 2009 and 67.2% for the full year 2009. LTV for mortgages that are awaiting drawdown at 30 June 2010 (63%) is lower than the levels seen for completions in Q2 2010. The maximum LTV available to new customers remains at 90%. The book averaged indexed LTV, based on the Halifax House Price Index to March 2010, has declined to 58.2% from 59.1% at year end 2009 influenced by recent favourable house price movements with the proportion of balances in negative equity at 30 June 2010 dropping to 7.5% from 10.9% at 31 December 2009.
After a period of deterioration the arrears rate (three or more payments missed) has stabilised and stood at 1.8% at 30 June 2010 (31 December 2009 - 1.8%, 30 June 2009 - 1.7% and 31 December 2008 - 1.4%). The arrears rate on the buy-to-let portfolio was 1.5% at 30 June 2010 (31 December 2009 - 1.6% and 30 June 2009 - 1.6%).
The mortgage impairment charge was £96 million in the H1 2010 compared with the FY 2009 of £129 million, with a proportion of the H1 2010 charge being the result of assumption changes reflecting reduced expectations of recovery on defaulted debt. Underlying default trends have improved in the first half of 2010 compared with the previous six month period. Provisions cover has increased to 0.32% at 30 June 2010 from 0.25% at 31 December 2009. Default and arrears rates remain sensitive to economic developments and are currently supported by the low interest rate environment and strong book growth with recent business yet to mature.
A number of initiatives aimed at supporting customers experiencing financial difficulties remain in place and the Group does not initiate repossession proceedings for at least six months after arrears are evident. The level of possessions has remained at similar levels to that observed in the second half of 2009.
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Personal lending sectors: Residential mortgages (continued)
Ulster Bank residential mortgages
The residential mortgage portfolio across the Ulster Bank brand totalled £20.5 billion at 30 June 2010; 90% of the portfolio is in the Republic of Ireland and 10% in Northern Ireland. Portfolio size declined by 10% in the period in the Republic of Ireland from 31 December 2009 with Northern Ireland increasing by 7% over the same period.
The increase in the percentage of the portfolio in negative equity is driven by continuing house price depreciation in the Republic of Ireland in the first half of the year. The arrears rate continues to increase owing to the continued challenging economic environment. At 30 June 2010, the arrears rate was 4.8%, compared with 3.3% at 31 December 2009. The impairment charge to June 2010 was £109 million compared with £43 million H1 2009 and £115 million for the full year 2009. Repossessions in H1 2010 totalled 43, compared with 96 for FY 2009; 72% of the repossessions were voluntary.
Ulster Bank has a number of initiatives in place aimed at increasing the level of support to customers experiencing financial difficulties. At 30 June 2010, 3% of customers were on forbearance arrangements.
Citizens residential mortgages
Citizens total residential real estate portfolio totalled $40.4 billion at 30 June 2010 (31 December 2009 - $42.5 billion). The real estate portfolio comprises $10.5 billion (Core - $9.3 billion, Non-Core - $1.2 billion) of first lien residential mortgages and $29.8 billion (Core - $24.4 billion, Non-Core - $5.4 billion Non-Core) of home equity loans and lines (first and second lien). Home equity loans in Core consist of 47% first lien positions while Non-Core consists of 97% second lien positions. The Core business comprises 84% of the portfolio and Non-Core comprises 16% with the serviced by others (SBO) portfolio being the largest component (76%) of the Non-Core portfolio.
Citizens continues to focus on the 'footprint states' of New England, Mid Atlantic and Mid West targeting low risk products and maintaining conservative risk policies. Loan acceptance criteria were tightened during 2009 to address deteriorating economic and market conditions. At 30 June 2010, the portfolio consisted of $32.4 billion (80% of the total portfolio) in these footprint states.
The SBO portfolio consists of purchased pools of home equity loans and lines (96% second lien) whose current LTV (30 June 2010 - 107%) and geographic profiles (outside of Citizens footprint - 73%) have resulted in an annualised charge-off rate of 12.2% in H1 2010. The SBO book has been closed to new purchases since the third quarter of 2007 and is in run-off, with exposure down from $5.5 billion at 31 December 2009 to $5.0 billion at 30 June 2010. The arrears rate of the SBO portfolio has decreased from 3.1% at 31 December 2009 to 2.5% at 30 June 2010 due to more effective account servicing and collections following a systems conversion in 2009.
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Personal lending sectors: Residential mortgages (continued)
Citizens residential mortgages (continued)
The current weighted average LTV of the real estate portfolio reduced slightly from 74.5% at 31 December 2009 to 74.4% at 30 June 2010, due to lower LTV for new originations (65.0%), pay-downs and marginal house price declines in H1 2010. The current weighted average of the real estate portfolio excluding SBO is 68.3%.
The arrears rate decreased slightly from 1.5% at 31 December 2009 to 1.3% at 30 June 2010. Delinquency rates have stabilised in recent months for both residential mortgages and home equity loans and lines. Citizens participates in the US government home modification programme, alongside other bank-sponsored initiatives. The cumulative effect of these arrangements has helped the Group's customers. Modified balances were $505 million at 30 June 2010 compared with $235 million at 31 December 2009.
Personal lending sectors: Consumer lending
The Group's consumer lending portfolio includes credit cards, unsecured loans, auto finance and overdrafts. The majority of consumer lending exposures are in the UK and the US. The table below shows loans and impairment charges as a proportion of average loans and advances.
|
|
Half year ended 30 June 2010 |
|
Year ended 31 December 2009 |
|
Half year ended |
|||
|
|
Average loans and advances |
Impairment charge as a % of loans and advances |
|
Average loans and advances |
Impairment charge as a % of loans and advances |
|
Average loans and advances |
Impairment charge as a % of loans and advances |
|
|
£m |
% |
|
£m |
% |
|
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
UK: Retail cards (1) |
5,927 |
6.5 |
|
6,069 |
8.8 |
|
5,986 |
8.9 |
|
UK: Retail loans (1) |
10,744 |
5.2 |
|
11,740 |
6.1 |
|
12,742 |
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
$m |
% |
|
$m |
% |
|
$m |
% |
|
|
|
|
|
|
|
|
|
|
|
US consumer lending: Citizens cards (2,3) |
1,535 |
8.8 |
|
1,684 |
9.9 |
|
2,287 |
8.4 |
|
US consumer lending: Citizens auto loans (2) |
8,067 |
1.1 |
|
8,800 |
1.1 |
|
9,834 |
1.3 |
Notes:
|
(1) |
The charge for UK Retail assets refers to impairment on assets in the period. |
|
(2) |
The charge for Citizens assets refers to charge-offs in the period net of recoveries realised in the period. |
|
(3) |
2009 data restated to exclude Kroger Personal Finance portfolio, sold in 2010. |
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Personal lending sectors: Consumer lending (continued)
UK Retail's personal lending portfolio, of which 97% is in Core businesses, includes overdrafts, credit cards and unsecured loans, predominantly offered to customers who have a current account with the Group. The personal lending portfolio totalled £19.2 billion at 30 June 2010, a decrease of 6% from £20.3 billion at 31 December 2009, due to a general market trend of customers repaying debt and a reduction in new lending. Impairments were £0.2 billion lower at £0.6 billion compared to £0.8 billion in H1 2009.
The Non-Core business comprises 3% of the UK personal lending portfolio (£0.5 billion) and contains personal loans originated through direct channels, with a total impairment charge of £1.7 million in the first half of 2010, benefiting from a release arising from recoveries on the defaulted stock.
Risk appetite continues to be actively managed across all unsecured products and support continues for customers in financial difficulties through breathing space initiatives on all unsecured products. A thirty day breathing space allows customers to work with a not-for-profit debt advice agency to establish a debt repayment plan and during this time the Group suspends collection activity. A further extension of thirty days can be granted if progress is made and discussions are continuing. Investment in collection and recovery processes continues to address both support for our customers and management of impairments.
Impairment losses on unsecured lending peaked in the fourth quarter of 2009; the impairment charge for the first half of 2010 was £596 million (H2 2009 - £809 million; H1 2009 - £793 million). Impairments will remain sensitive to the external economic environment, notably unemployment rates.
The Citizens credit card portfolio outstandings totalled US$1.5 billion at 30 June 2010, excluding the Kroger Personal Finance portfolio, which was sold to U.S. Bancorp with effect from 27 May 2010. Core assets comprised 83% of this portfolio.
Given the economic climate over the past 24 months the Citizens cards business has introduced tighter lending criteria and lower credit limits. These actions have led to improving new business quality. Overall portfolio level performance is in line with industry benchmarks (provided by VISA): 60+ days delinquency was 4.0% in June 2010 (compared to an industry figure of 4.1%); and net contractual charge-offs as a percentage of total outstandings was 7.6% in June 2010 (compared to an industry figure of 7.6%).
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Personal lending sectors: Consumer lending (continued)
Citizens is a leading regional provider of retail auto financing to US consumers through a network of 3,500 auto dealers located in 23 US states but is now focused on its core footprint only. Citizens maintain a conservative prime indirect auto lending credit programme with loss rates that have historically been below national averages. Current outstanding retail auto loan balances totalled $8.1 billion at 30 June 2010 of which 94% relates to Core businesses. $454 million of Non-Core auto assets are anticipated to run-off by 2013. The tightening of credit parameters in 2008/09, together with enhanced collection activities and seasonal factors, has resulted in improved credit performance. The net charge-off rate on the total auto portfolio fell to 0.4% at 30 June 2010, down from 1.2% at 31 December 2009. The 30+ days delinquency rate fell from 2.6% at 31 December 2009 to 1.8% at 30 June 2010 even as balances fell by $734 million. At 31 March 2010 (the latest data available for comparison), the 1.7% 30+ days delinquency rate on the Core auto loan portfolio compared favourably to the 2.5% nationwide indirect auto delinquency rate reported by the American Bankers' Association.
Corporate sectors
This section discusses the components of property, transport and storage (automotive, shipping and aviation) and retail sectors, given their significance in the current market environment.
Wholesale property
The table below analyses wholesale property credit risk assets.
|
|
30 June 2010 |
|
31 December 2009 |
|
|
£m |
|
£m |
|
|
|
|
|
|
UK Corporate |
32,329 |
|
35,329 |
|
Ulster Bank |
10,328 |
|
10,671 |
|
Global Banking & Markets |
7,456 |
|
5,825 |
|
US Retail & Commercial |
4,627 |
|
4,231 |
|
Non-Core |
44,082 |
|
46,434 |
|
Other |
782 |
|
1,953 |
|
|
|
|
|
|
|
99,604 |
|
104,443 |
The Group's exposure to the wholesale property sector totals £99.6 billion, down 5% in the period, of which £83.8 billion is commercial property financing. The remainder comprises lending to property related sectors, including housing associations, estate agents and management companies, non-lending exposures on off-balance sheet instruments and foreign exchange derivatives. The portfolios were generally stable or reducing in all divisions during the first half of the year. Growth in the Global Banking & Markets portfolio is attributable to mark-to-market movements on derivatives and not lending.
The property financing portfolio, of which 44% is in Non-Core, is split across investment property, (approximately 75%) and development property (approximately 25%). These proportions remained stable during the period.
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Corporate sectors: Wholesale property (continued)
Whilst there has been some recovery in value of primary properties in the UK, we observe that it has been selective, has not fed through into lower quality properties and has not been evident in other geographic locations, notably the Republic of Ireland and the United States. The outlook remains challenging with limited liquidity to support refinancing, even for conservatively structured debt on prime properties. There has been emerging interest from specialist investors at discounted pricing. In common with the industry, the Group remains focussed on the schedule of refinancing in coming years - on the size of the aggregate requirement, on the extent to which recoveries in valuation will enable refinancing and on recovery in funding markets, notably commercial mortgage-backed securities, to support the scale of debt outstanding.
Approximately half of the Group's defaulted credit risk assets relate to the property portfolio; 20% of commercial property credit risk assets were defaulted (AQ10) at 30 June 2010, up from 16% at 31 December 2009 and 12% at 30 June 2009, although in common with the trend seen in the total portfolio, the rate of migration to default slowed during the second quarter of 2010 in most portfolios. The notable exception is Ulster Bank where property remains the primary driver of growth in the defaulted loan book.
In view of these trends, heightened monitoring has been and remains in place in originating divisions and in Non-Core. There is a dedicated unit in the Global Restructuring Group to ensure that specialist expertise is deployed to manage the portfolio on a consistent basis and to address the volume of cases.
Corporate sectors: Transport and storage
The table below analyses the transport and storage credit risk assets.
|
|
30 June 2010 |
|
31 December 2009 |
|
|
£m |
|
£m |
|
|
|
|
|
|
Shipping |
14,072 |
|
13,112 |
|
Aviation |
10,946 |
|
9,757 |
|
Automotive |
10,033 |
|
9,116 |
|
Other |
14,120 |
|
13,256 |
|
|
|
|
|
|
|
49,171 |
|
45,241 |
The automotive, shipping and aviation portfolios form part of the transport and storage industry sector which stood at £49.2 billion at 30 June 2010, an increase of 9% during the last six months, 4% on a constant currency basis. The remainder of the exposure largely comprises land-based freight, storage and logistics activities.
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Corporate sectors: Transport and storage (continued)
Shipping
The Group's shipping portfolio is focussed on vessel secured mortgage finance, primarily in the dry bulk and tanker sectors with a limited exposure to container and other specialist vessels. Performance within the sector has been impacted by both the global downturn and a high volume of new tonnage entering the market.
The Group's strategy is to focus on modern ships with a long working life to trade through the economic cycle and to work with long-term industry participants with a track record of support. The average age of the Group's mortgaged fleet is 8 years.
Whilst there have been no material impairment charges to date, there is approximately £2 billion of shipping exposure subject to heightened monitoring and one material case undergoing restructuring. Based on a quarterly review of the fleet, undertaken by external brokers, the Group remains confident that the majority of its exposure is fully secured.
Conditions will remain challenging for the foreseeable future; however, the Group continues to support clients on a selective basis to benefit from the current market conditions of lower asset prices and higher returns whilst at the same time maintaining a significant presence in the sector.
Aviation
The Group's aviation portfolio is primarily focussed on its Dublin based Aviation Capital business in Non-Core. The Group's Core aviation portfolio consists mainly of aerospace manufacturers and airport operators.
The aviation sector continues to face challenging conditions owing to the global downturn, compounded by the impact of the Icelandic volcano, overcapacity and intense competition. That said there are early indicators that market conditions may be improving as traffic volumes, particularly related to cargo, have increased compared with H1 2009.
Aviation Capital's strategy is to focus on modern assets that are widely used across airlines and to maintain relationships with the strongest operators with the most flexible cost base. The majority of the portfolio is secured on modern aircraft and, although asset prices have weakened, exposures remain fully secured. Notwithstanding reduced passenger volumes, the leased fleet remains fully utilised.
The Group's aviation portfolio has very low incidences of payment default and exposures requiring restructuring. The young age and commodity nature of the assets and the quality of lessees result in a limited expectation of aircraft being returned.
* not reviewed
Risk and capital management (continued)
Credit risk: Credit risk assets - Key credit portfolios* (continued)
Corporate sectors: Transport and storage (continued)
Automotive
The Group's automotive portfolio comprises automotive retail and rental sectors together with the larger Original Equipment Manufacturers and parts suppliers. The geographic distribution is weighted towards the UK and Europe, which represent 80% of the portfolio exposure.
The long term structural problems of the global automotive industry, such as over capacity, rising input costs and weak consumer demand continue to be features of the sector. Demand in 2009 and the first quarter of 2010 was heavily supported by government schemes that are now being withdrawn at the same time as governments across core markets in Europe, the UK and North America address budget deficits. This is likely to result in reduced spending, slow growth in employment and reduced demand. Whilst there has not been any material deterioration in the quality of the portfolio since 31 December 2009, the combination of these factors drives a continuing cautious stance towards this sector.
Corporate sectors: Tourism and leisure
The table below analyses tourism and leisure credit risk assets by division.
|
|
30 June 2010 |
|
31 December 2009 |
|
|
£m |
|
£m |
|
|
|
|
|
|
UK Corporate |
8,539 |
|
7,669 |
|
Global Banking & Markets |
3,471 |
|
4,105 |
|
Ulster Bank |
1,471 |
|
1,583 |
|
US Retail & Commercial |
1,553 |
|
1,421 |
|
Non-Core |
3,103 |
|
3,607 |
|
Other |
518 |
|
661 |
|
|
|
|
|
|
|
18,655 |
|
19,046 |
The Group's tourism and leisure portfolio is primarily focussed on the hospitality sector, including hotel, restaurant and pub businesses, notably in the UK. The remainder of the portfolio comprises travel, gaming and, to a lesser extent, sporting activities.
The average credit quality of the portfolio is lower than the Group's average, reflecting challenging industry conditions that are closely linked to the wider economy, particularly the level of discretionary consumer spending. Whilst there has been some flow of leisure customers into the Global Restructuring Group, the total value of debt managed remains low. Conditions will remain challenging in the context of slow economic recovery and consumer spending impacted by fiscal and monetary conditions.
* not reviewed
Risk and capital management (continued)
Credit risk: Loans and advances to customers by geography and industry
The following table analyses the balance sheet value of loans and advances to customers (excluding reverse repurchase agreements and stock borrowing) by industry and geography.
|
|
30 June 2010 |
|
31 December 2009 |
||||
|
|
Core |
Non-Core |
Total |
|
Core |
Non-Core |
Total |
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Central and local government |
9,568 |
1,370 |
10,938 |
|
6,128 |
1,532 |
7,660 |
|
Finance |
54,373 |
8,979 |
63,352 |
|
50,673 |
9,713 |
60,386 |
|
Individuals - home |
132,508 |
11,933 |
144,441 |
|
127,975 |
12,932 |
140,907 |
|
Individuals - other |
35,003 |
5,397 |
40,400 |
|
35,313 |
6,358 |
41,671 |
|
Manufacturing |
28,477 |
9,894 |
38,371 |
|
30,272 |
14,402 |
44,674 |
|
Construction |
9,194 |
3,723 |
12,917 |
|
9,502 |
5,258 |
14,760 |
|
Service industries and business activities |
100,604 |
26,538 |
127,142 |
|
100,438 |
33,638 |
134,076 |
|
Agriculture, forestry and fishing |
3,940 |
144 |
4,084 |
|
3,726 |
553 |
4,279 |
|
Property |
47,025 |
46,746 |
93,771 |
|
49,054 |
50,372 |
99,426 |
|
Finance leases and instalment credit |
8,076 |
10,529 |
18,605 |
|
8,147 |
11,956 |
20,103 |
|
Interest accruals |
920 |
426 |
1,346 |
|
1,179 |
549 |
1,728 |
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers - gross |
429,688 |
125,679 |
555,367 |
|
422,407 |
147,263 |
569,670 |
|
Loan impairment provisions |
(7,504) |
(8,523) |
(16,027) |
|
(6,786) |
(8,230) |
(15,016) |
|
|
|
|
|
|
|
|
|
|
Total loans and advances to customers |
422,184 |
117,156 |
539,340 |
|
415,621 |
139,033 |
554,654 |
|
|
|
|
|
|
|
|
|
|
By geographical region (location of office): |
|
|
|
|
|
|
|
|
UK domestic |
|
|
|
|
|
|
|
|
Central and local government |
4,160 |
183 |
4,343 |
|
2,951 |
223 |
3,174 |
|
Finance |
18,595 |
3,497 |
22,092 |
|
14,658 |
2,365 |
17,023 |
|
Individuals - home |
95,170 |
1,775 |
96,945 |
|
90,687 |
1,896 |
92,583 |
|
Individuals - other |
23,414 |
768 |
24,182 |
|
24,109 |
1,136 |
25,245 |
|
Manufacturing |
8,252 |
2,162 |
10,414 |
|
8,747 |
2,678 |
11,425 |
|
Construction |
4,500 |
2,260 |
6,760 |
|
4,493 |
3,287 |
7,780 |
|
Service industries and business activities |
38,477 |
10,851 |
49,328 |
|
39,188 |
12,472 |
51,660 |
|
Agriculture, forestry and fishing |
2,858 |
78 |
2,936 |
|
2,775 |
138 |
2,913 |
|
Property |
18,083 |
27,877 |
45,960 |
|
18,057 |
30,802 |
48,859 |
|
Finance leases and instalment credit |
5,192 |
9,638 |
14,830 |
|
5,343 |
10,843 |
16,186 |
|
Interest accruals |
486 |
130 |
616 |
|
718 |
175 |
893 |
|
|
|
|
|
|
|
|
|
|
|
219,187 |
59,219 |
278,406 |
|
211,726 |
66,015 |
277,741 |
|
|
|
|
|
|
|
|
|
|
UK international (1) |
|
|
|
|
|
|
|
|
Central and local government |
3,253 |
46 |
3,299 |
|
1,402 |
53 |
1,455 |
|
Finance |
15,296 |
3,194 |
18,490 |
|
14,615 |
3,640 |
18,255 |
|
Individuals - home |
427 |
- |
427 |
|
1 |
- |
1 |
|
Individuals - other |
366 |
7 |
373 |
|
504 |
1 |
505 |
|
Manufacturing |
4,953 |
637 |
5,590 |
|
5,715 |
577 |
6,292 |
|
Construction |
2,606 |
357 |
2,963 |
|
2,471 |
353 |
2,824 |
|
Service industries and business activities |
23,042 |
3,303 |
26,345 |
|
23,558 |
3,393 |
26,951 |
|
Agriculture, forestry and fishing |
184 |
14 |
198 |
|
171 |
- |
171 |
|
Property |
18,912 |
3,969 |
22,881 |
|
18,350 |
4,585 |
22,935 |
|
Interest accruals |
- |
2 |
2 |
|
- |
2 |
2 |
|
|
|
|
|
|
|
|
|
|
|
69,039 |
11,529 |
80,568 |
|
66,787 |
12,604 |
79,391 |
Note:
|
(1) |
UK International represents transactions concluded through offices in the UK which service international banking transactions. |
Risk and capital management (continued)
Credit risk: Loans and advances to customers by geography and industry (continued)
|
|
30 June 2010 |
|
31 December 2009 |
||||
|
|
Core |
Non-Core |
Total |
|
Core |
Non-Core |
Total |
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
Central and local government |
827 |
1,047 |
1,874 |
|
334 |
1,164 |
1,498 |
|
Finance |
2,771 |
1,399 |
4,170 |
|
3,973 |
904 |
4,877 |
|
Individuals - home |
13,790 |
5,765 |
19,555 |
|
15,055 |
6,718 |
21,773 |
|
Individuals - other |
1,947 |
1,026 |
2,973 |
|
1,877 |
1,009 |
2,886 |
|
Manufacturing |
6,924 |
5,080 |
12,004 |
|
7,311 |
8,609 |
15,920 |
|
Construction |
1,533 |
878 |
2,411 |
|
1,946 |
1,167 |
3,113 |
|
Service industries and business activities |
18,739 |
6,508 |
25,247 |
|
19,088 |
9,883 |
28,971 |
|
Agriculture, forestry and fishing |
858 |
52 |
910 |
|
737 |
356 |
1,093 |
|
Property |
7,730 |
9,392 |
17,122 |
|
10,812 |
9,417 |
20,229 |
|
Finance leases and instalment credit |
378 |
864 |
1,242 |
|
379 |
1,094 |
1,473 |
|
Interest accruals |
131 |
196 |
327 |
|
165 |
246 |
411 |
|
|
|
|
|
|
|
|
|
|
|
55,628 |
32,207 |
87,835 |
|
61,677 |
40,567 |
102,244 |
|
|
|
|
|
|
|
|
|
|
US |
|
|
|
|
|
|
|
|
Central and local government |
207 |
65 |
272 |
|
196 |
64 |
260 |
|
Finance |
9,744 |
719 |
10,463 |
|
9,524 |
1,771 |
11,295 |
|
Individuals - home |
22,715 |
4,221 |
26,936 |
|
21,842 |
4,317 |
26,159 |
|
Individuals - other |
7,881 |
3,155 |
11,036 |
|
7,373 |
3,599 |
10,972 |
|
Manufacturing |
5,555 |
1,015 |
6,570 |
|
5,895 |
1,200 |
7,095 |
|
Construction |
479 |
127 |
606 |
|
490 |
132 |
622 |
|
Service industries and business activities |
14,900 |
3,625 |
18,525 |
|
14,078 |
4,505 |
18,583 |
|
Agriculture, forestry and fishing |
34 |
- |
34 |
|
27 |
- |
27 |
|
Property |
1,631 |
3,862 |
5,493 |
|
1,498 |
3,788 |
5,286 |
|
Finance leases and instalment credit |
2,498 |
- |
2,498 |
|
2,417 |
- |
2,417 |
|
Interest accruals |
219 |
88 |
307 |
|
204 |
94 |
298 |
|
|
|
|
|
|
|
|
|
|
|
65,863 |
16,877 |
82,740 |
|
63,544 |
19,470 |
83,014 |
|
|
|
|
|
|
|
|
|
|
Rest of the World |
|
|
|
|
|
|
|
|
Central and local government |
1,121 |
29 |
1,150 |
|
1,245 |
28 |
1,273 |
|
Finance |
7,967 |
170 |
8,137 |
|
7,903 |
1,033 |
8,936 |
|
Individuals - home |
406 |
172 |
578 |
|
390 |
1 |
391 |
|
Individuals - other |
1,395 |
441 |
1,836 |
|
1,450 |
613 |
2,063 |
|
Manufacturing |
2,793 |
1,000 |
3,793 |
|
2,604 |
1,338 |
3,942 |
|
Construction |
76 |
101 |
177 |
|
102 |
319 |
421 |
|
Service industries and business activities |
5,446 |
2,251 |
7,697 |
|
4,526 |
3,385 |
7,911 |
|
Agriculture, forestry and fishing |
6 |
- |
6 |
|
16 |
59 |
75 |
|
Property |
669 |
1,646 |
2,315 |
|
337 |
1,780 |
2,117 |
|
Finance leases and instalment credit |
8 |
27 |
35 |
|
8 |
19 |
27 |
|
Interest accruals |
84 |
10 |
94 |
|
92 |
32 |
124 |
|
|
|
|
|
|
|
|
|
|
|
19,971 |
5,847 |
25,818 |
|
18,673 |
8,607 |
27,280 |
Risk and capital management (continued)
Credit risk: Debt securities
The table below analyses debt securities by issuer and external ratings.
|
|
Central and local government |
Bank and building society |
ABS (1) |
Corporate |
Other |
Total |
||
|
|
UK |
US |
Other |
|||||
|
External rating |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
|
AAA |
20,589 |
33,836 |
44,520 |
3,626 |
56,330 |
1,088 |
- |
159,989 |
|
AA and above |
- |
- |
20,869 |
3,482 |
7,367 |
1,090 |
11 |
32,819 |
|
A and above |
- |
- |
8,762 |
4,490 |
4,848 |
1,680 |
568 |
20,348 |
|
BBB- and above |
- |
- |
2,014 |
864 |
4,232 |
2,147 |
9 |
9,266 |
|
Non-investment grade |
- |
- |
1,739 |
163 |
4,616 |
3,075 |
3 |
9,596 |
|
Unrated |
- |
- |
501 |
238 |
1,312 |
1,619 |
572 |
4,242 |
|
|
|
|
|
|
|
|
|
|
|
|
20,589 |
33,836 |
78,405 |
12,863 |
78,705 |
10,699 |
1,163 |
236,260 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
|
AAA |
26,601 |
23,219 |
44,396 |
4,012 |
65,067 |
2,263 |
- |
165,558 |
|
AA and above |
- |
- |
22,003 |
4,930 |
8,942 |
1,429 |
- |
37,304 |
|
A and above |
- |
- |
13,159 |
3,770 |
3,886 |
1,860 |
- |
22,675 |
|
BBB- and above |
- |
- |
3,847 |
823 |
4,243 |
2,187 |
- |
11,100 |
|
Non-investment grade |
- |
- |
353 |
169 |
3,515 |
2,042 |
- |
6,079 |
|
Unrated |
- |
- |
504 |
289 |
1,949 |
2,601 |
1,036 |
6,379 |
|
|
|
|
|
|
|
|
|
|
|
|
26,601 |
23,219 |
84,262 |
13,993 |
87,602 |
12,382 |
1,036 |
249,095 |
Note:
|
(1) |
Asset-backed securities. |
Key points
|
· |
56% (31 December 2009 - 54%) were issued by central and local governments. |
|
|
|
|
· |
68% (31 December 2009 - 66%) of securities were AAA rated. |
|
|
|
|
· |
Of the ABS portfolios 72% (31 December 2009 - 74%) were AAA rated and 48% (31 December 2009 - 49%) were guaranteed by G10 governments or covered bonds. |
|
|
|
|
· |
56% (31 December 2009 - 63%) of corporate debt securities were investment grade. |
|
|
|
|
· |
Unrated securities declined from £6.4 billion at 31 December 2009 to £4.2 billion at 30 June 2010. |
Risk and capital management (continued)
Credit risk: Debt securities (continued)
The table below analyses debt securities by issuer and measurement classification.
|
|
Central and local government |
Bank and building society |
ABS |
Corporate |
Other |
Total |
||
|
|
UK |
US |
Other |
|||||
|
Measurement classification |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
|
Held-for-trading |
8,993 |
16,642 |
40,589 |
5,471 |
23,614 |
7,077 |
775 |
103,161 |
|
DFV (1) |
1 |
- |
357 |
3 |
234 |
24 |
- |
619 |
|
Available-for-sale |
11,584 |
17,194 |
37,459 |
7,371 |
47,709 |
2,324 |
300 |
123,941 |
|
Loans and receivables |
11 |
- |
- |
18 |
7,148 |
1,274 |
88 |
8,539 |
|
|
|
|
|
|
|
|
|
|
|
Total |
20,589 |
33,836 |
78,405 |
12,863 |
78,705 |
10,699 |
1,163 |
236,260 |
|
Short positions |
(5,609) |
(10,002) |
(16,890) |
(2,171) |
(1,768) |
(3,053) |
(720) |
(40,213) |
|
|
|
|
|
|
|
|
|
|
|
Net |
14,980 |
23,834 |
61,515 |
10,692 |
76,937 |
7,646 |
443 |
196,047 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
|
Held-for-trading |
8,128 |
10,427 |
50,150 |
6,103 |
28,820 |
6,892 |
893 |
111,413 |
|
DFV (1) |
122 |
3 |
385 |
418 |
394 |
1,087 |
20 |
2,429 |
|
Available-for-sale |
18,350 |
12,789 |
33,727 |
7,472 |
50,464 |
2,550 |
30 |
125,382 |
|
Loans and receivables |
1 |
- |
- |
- |
7,924 |
1,853 |
93 |
9,871 |
|
|
|
|
|
|
|
|
|
|
|
Total |
26,601 |
23,219 |
84,262 |
13,993 |
87,602 |
12,382 |
1,036 |
249,095 |
|
Short positions |
(5,805) |
(8,957) |
(14,491) |
(1,951) |
(3,616) |
(2,199) |
(512) |
(37,531) |
|
|
|
|
|
|
|
|
|
|
|
Net |
20,796 |
14,262 |
69,771 |
12,042 |
83,986 |
10,183 |
524 |
211,564 |
Note:
|
(1) |
Designated as at fair value through profit or loss. |
Risk and capital management (continued)
Credit risk: Debt securities (continued)
Analysis of available-for sale (AFS) debt securities and related net fair value losses net of tax recorded within AFS reserves relating to securities issued by governments and other entities exceeding £0.5 billion at 30 June 2010 or 31 December 2009 are detailed in the table below.
|
|
30 June 2010 |
|
31 December 2009 |
||||||||||
|
|
Government |
ABS |
Other |
Total |
|
AFS reserves |
|
Government |
ABS |
Other |
Total |
|
AFS reserves |
|
|
£m |
£m |
£m |
£m |
|
£m |
|
£m |
£m |
£m |
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US |
17,194 |
25,603 |
900 |
43,697 |
|
745 |
|
12,789 |
24,788 |
668 |
38,245 |
|
(302) |
|
UK |
11,584 |
4,171 |
2,758 |
18,513 |
|
(68) |
|
18,350 |
4,372 |
3,267 |
25,989 |
|
(169) |
|
Germany |
12,027 |
918 |
400 |
13,345 |
|
179 |
|
12,283 |
1,036 |
406 |
13,725 |
|
(24) |
|
Netherlands |
4,482 |
6,503 |
513 |
11,498 |
|
(324) |
|
4,329 |
7,522 |
1,558 |
13,409 |
|
(115) |
|
France |
7,207 |
535 |
914 |
8,656 |
|
86 |
|
6,456 |
543 |
812 |
7,811 |
|
9 |
|
Spain |
108 |
6,591 |
217 |
6,916 |
|
(665) |
|
162 |
8,070 |
355 |
8,587 |
|
(117) |
|
Japan |
4,661 |
- |
258 |
4,919 |
|
(2) |
|
1,426 |
- |
100 |
1,526 |
|
(7) |
|
Australia |
- |
832 |
1,670 |
2,502 |
|
(62) |
|
- |
581 |
1,213 |
1,794 |
|
(85) |
|
Italy |
1,200 |
248 |
31 |
1,479 |
|
(77) |
|
1,007 |
380 |
72 |
1,459 |
|
(39) |
|
Ireland |
121 |
581 |
421 |
1,123 |
|
(132) |
|
150 |
529 |
319 |
998 |
|
(154) |
|
Belgium |
743 |
32 |
270 |
1,045 |
|
48 |
|
788 |
34 |
397 |
1,219 |
|
(24) |
|
Singapore |
759 |
14 |
182 |
955 |
|
3 |
|
564 |
13 |
105 |
682 |
|
- |
|
Switzerland |
855 |
- |
93 |
948 |
|
13 |
|
653 |
- |
28 |
681 |
|
11 |
|
Greece |
919 |
- |
- |
919 |
|
(494) |
|
1,389 |
- |
- |
1,389 |
|
(196) |
|
Denmark |
660 |
- |
213 |
873 |
|
- |
|
659 |
- |
256 |
915 |
|
2 |
|
Hong Kong |
819 |
- |
10 |
829 |
|
3 |
|
975 |
- |
- |
975 |
|
- |
|
India |
628 |
- |
184 |
812 |
|
(74) |
|
480 |
- |
-- |
480 |
|
3 |
|
Austria |
397 |
145 |
10 |
552 |
|
(31) |
|
249 |
202 |
142 |
593 |
|
(17) |
|
Luxembourg |
- |
186 |
356 |
542 |
|
20 |
|
- |
222 |
307 |
529 |
|
11 |
|
Portugal |
96 |
107 |
41 |
244 |
|
(25) |
|
552 |
125 |
45 |
722 |
|
(18) |
|
South Korea |
- |
164 |
- |
164 |
|
- |
|
- |
526 |
- |
526 |
|
(3) |
|
Other |
1,777 |
1,079 |
554 |
3,410 |
|
(696) |
|
1,605 |
1,521 |
2 |
3,128 |
|
(654) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,237 |
47,709 |
9,995 |
123,941 |
|
(1,553) |
|
64,866 |
50,464 |
10,052 |
125,382 |
|
(1,888) |
Key points
|
· |
All the countries above were rated higher than A+ except Italy, Greece, India, Portugal and South Korea. |
|
|
|
|
· |
UK government holdings declined by £6.8 billion as treasury bills received as part of the consideration for the issue of B shares in December 2009, matured. The proceeds were reinvested in other G10, primarily US government securities. |
|
|
|
|
· |
The Netherlands ABS exposures are residential mortgage-backed securities (RMBS) guaranteed by the Dutch government. |
|
|
|
|
· |
Spanish ABS exposures primarily relate to RMBS covered bonds issued by financial institutions. The increase in the AFS reserve reflects mark downs on Spanish banks as credit spreads widened. There were also sales of bonds in the second quarter. |
|
|
|
|
· |
The reduction in Greek exposures reflects disposal of £0.3 billion of bonds in Q2 2010. |
|
|
|
|
· |
Additionally, the Group has Italian (£820 million), UK (£2,901 million) and US (£887 million) of ABS classified as loans and receivables. |
Risk and capital management (continued)
Credit risk: Derivatives
The table below analyses the Group's derivative assets by contract type and residual maturity.
|
|
0 - 3 months |
3 - 6 months |
6 - 12 months |
1 - 5 years |
Over 5 years |
Gross assets |
Counterparty mtm netting (1) |
Net exposure |
|
Contract type |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
|
Exchange rate |
29,147 |
8,394 |
9,712 |
23,892 |
13,948 |
85,093 |
(64,879) |
20,214 |
|
Interest rate |
8,277 |
4,636 |
14,288 |
118,683 |
246,946 |
392,830 |
(323,262) |
69,568 |
|
Credit derivatives |
375 |
141 |
455 |
19,357 |
18,653 |
38,981 |
(29,462) |
9,519 |
|
Equity and commodity |
1,090 |
1,133 |
311 |
2,936 |
497 |
5,967 |
(4,094) |
1,873 |
|
|
|
|
|
|
|
|
|
|
|
|
38,889 |
14,304 |
24,766 |
164,868 |
280,044 |
522,871 |
(421,697) |
101,174 |
|
|
|
|
|
|
|
|
|
|
|
Cash collateral held against derivative exposures |
|
|
|
|
(36,709) |
|||
|
|
|
|
|
|
|
|
|
|
|
Net exposure |
|
|
|
|
|
|
|
64,465 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
|
Exchange rate |
19,127 |
5,824 |
7,603 |
23,831 |
11,967 |
68,352 |
(47,885) |
20,467 |
|
Interest rate |
8,415 |
8,380 |
16,723 |
111,144 |
176,799 |
321,461 |
(270,791) |
50,670 |
|
Credit derivatives |
201 |
112 |
390 |
19,859 |
21,186 |
41,748 |
(36,411) |
5,337 |
|
Equity and commodity |
1,562 |
436 |
1,109 |
3,057 |
474 |
6,638 |
(3,830) |
2,808 |
|
|
|
|
|
|
|
|
|
|
|
|
29,305 |
14,752 |
25,825 |
157,891 |
210,426 |
438,199 |
(358,917) |
79,282 |
|
|
|
|
|
|
|
|
|
|
|
Cash collateral held against derivative exposures |
|
|
|
|
(33,667) |
|||
|
|
|
|
|
|
|
|
|
|
|
Net exposure |
|
|
|
|
|
|
|
45,615 |
Note:
|
(1) |
Mark-to-market. |
Key points
|
· |
Exchange and interest rate contracts fair values increased during H1 2010, due to higher trading volumes compared with Q4 2009, significant reductions in yields across all major curves and the effect of exchange rates relative to the currency mix of the portfolio. |
|
|
|
|
· |
Credit derivative fair values declined principally due to de-risking within GBM. |
The Group enters into master netting agreements in respect of its derivative activities. These arrangements, which give the Group a legal right to set-off derivative assets and liabilities with the same counterparty, do not result in a net presentation in the Group's balance sheet for which IFRS requires an intention to settle net, or to realise the asset and settle the liability simultaneously, as well as a legally enforceable right to set-off. These arrangements are, however, effective in reducing the credit exposure from derivative assets. The Group has executed master netting agreements with the majority of its derivative counterparties, resulting in a significant reduction in the net exposure to derivative assets. Furthermore, the Group holds substantial collateral against this net derivative asset exposure.
Risk and capital management (continued)
Credit risk: Cross border exposures
Cross border exposures are loans and advances including finance leases and instalment credit receivables and other monetary assets, including non-local currency claims of overseas offices on local residents. The Group monitors the geographical breakdown of these exposures based on the country of domicile of the borrower or guarantor of ultimate risk.
The table below sets out the Group's cross border exposures greater than 0.5% of the Group's total assets. None of these countries have experienced repayment difficulties that have required restructuring of outstanding debt.
|
|
30 June 2010 |
|
|
|||
|
|
Government |
Banks and financial institutions |
Other |
Total |
|
|
|
31 December 2009 |
||||||
|
|
£m |
£m |
£m |
£m |
|
Total |
|
|
|
|
|
|
|
|
|
United States |
21,986 |
12,766 |
39,581 |
74,333 |
|
74,409 |
|
France |
17,568 |
16,878 |
6,064 |
40,510 |
|
37,489 |
|
Germany |
19,981 |
10,167 |
8,612 |
38,760 |
|
41,727 |
|
Japan |
9,520 |
7,756 |
5,454 |
22,730 |
|
18,939 |
|
Spain |
1,614 |
9,470 |
8,197 |
19,281 |
|
27,118 |
|
Netherlands |
3,570 |
2,980 |
11,407 |
17,957 |
|
20,262 |
|
Republic of Ireland |
327 |
6,172 |
3,694 |
10,193 |
|
14,902 |
|
Cayman Islands |
- |
48 |
9,715 |
9,763 |
|
10,786 |
|
Italy |
5,047 |
1,495 |
2,706 |
9,248 |
|
14,421 |
Key point
|
· |
Most cross border exposures have reduced during H1 2010, excluding the effect of foreign exchange movements, reflecting active exposure management, to countries facing higher than average economic difficulties. |
Risk and capital management (continued)
Credit risk: Balance sheet by internal credit quality bands
The following table provides an analysis of the credit quality and distribution of financial assets by the Group's internal credit quality gradings.
|
|
Cash and balances at central banks |
Loans and advances to banks (1) |
Loans and advances to customers |
Settlement balances |
Derivatives |
Other financial instruments |
Commitments |
Contingent liabilities |
Total |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
|
|
AQ1 |
29,583 |
88,958 |
105,238 |
11,544 |
476,629 |
582 |
73,952 |
11,400 |
797,886 |
|
AQ2 |
- |
3,198 |
10,406 |
1,873 |
9,016 |
22 |
27,187 |
5,541 |
57,243 |
|
AQ3 |
1 |
2,796 |
34,328 |
769 |
10,005 |
- |
26,270 |
6,180 |
80,349 |
|
AQ4 |
- |
1,529 |
94,669 |
1,472 |
8,006 |
10 |
49,221 |
13,443 |
168,350 |
|
AQ5 |
3 |
1,908 |
122,880 |
371 |
5,540 |
39 |
34,755 |
6,410 |
171,906 |
|
AQ6 |
3 |
610 |
89,995 |
255 |
5,083 |
- |
24,875 |
2,172 |
122,993 |
|
AQ7 |
1 |
48 |
46,578 |
48 |
2,238 |
197 |
22,352 |
1,630 |
73,092 |
|
AQ8 |
- |
113 |
19,575 |
12 |
2,257 |
- |
9,403 |
779 |
32,139 |
|
AQ9 |
- |
145 |
14,380 |
16 |
2,191 |
78 |
4,456 |
968 |
22,234 |
|
AQ10 |
- |
72 |
9,888 |
1 |
1,906 |
- |
2,775 |
385 |
15,027 |
|
Accruing past due |
- |
- |
14,074 |
4,357 |
- |
- |
- |
- |
18,431 |
|
Non-accrual |
- |
180 |
32,752 |
- |
- |
- |
- |
- |
32,932 |
|
Impairment provision |
- |
(139) |
(16,027) |
- |
- |
- |
- |
- |
(16,166) |
|
|
|
|
|
|
|
|
|
|
|
|
|
29,591 |
99,418 |
578,736 |
20,718 |
522,871 |
928 |
275,246 |
48,908 |
1,576,416 |
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
|
|
AQ1 |
51,521 |
72,384 |
106,062 |
6,582 |
389,019 |
755 |
62,084 |
9,446 |
697,853 |
|
AQ2 |
- |
1,725 |
10,780 |
306 |
11,550 |
9 |
27,598 |
4,526 |
56,494 |
|
AQ3 |
1 |
2,175 |
29,958 |
199 |
10,791 |
- |
28,364 |
6,088 |
77,576 |
|
AQ4 |
23 |
1,357 |
102,922 |
605 |
8,296 |
- |
52,496 |
14,948 |
180,647 |
|
AQ5 |
2 |
2,497 |
124,724 |
149 |
8,270 |
37 |
43,239 |
7,387 |
186,305 |
|
AQ6 |
1 |
424 |
94,513 |
40 |
2,548 |
- |
30,847 |
2,448 |
130,821 |
|
AQ7 |
- |
110 |
46,928 |
33 |
2,181 |
98 |
26,724 |
2,352 |
78,426 |
|
AQ8 |
- |
137 |
23,593 |
- |
1,448 |
- |
12,507 |
1,008 |
38,693 |
|
AQ9 |
- |
184 |
16,025 |
- |
2,030 |
- |
5,141 |
1,279 |
24,659 |
|
AQ10 |
- |
368 |
9,051 |
3 |
2,026 |
- |
3,618 |
507 |
15,573 |
|
Accruing past due |
- |
36 |
14,475 |
3,910 |
39 |
- |
- |
- |
18,460 |
|
Non-accrual |
- |
115 |
31,679 |
197 |
1 |
- |
- |
- |
31,992 |
|
Impairment provision |
- |
(157) |
(15,016) |
- |
- |
- |
- |
- |
(15,173) |
|
|
|
|
|
|
|
|
|
|
|
|
|
51,548 |
81,355 |
595,694 |
12,024 |
438,199 |
899 |
292,618 |
49,989 |
1,522,326 |
Notes:
|
(1) |
Excludes items in the course of collection of £2,716 million (31 December 2009 - £2,519 million). |
|
(2) |
The table above excludes debt securities as these are analysed by external ratings on page 100. |
Risk and capital management (continued)
Credit risk: Risk elements and impairments
Risk elements in lending (REIL) and potential problem loans (PPL)
The table below analyses the Group's loans that are classified as REIL and PPL.
|
|
30 June 2010 |
|
31 December 2009 |
||||
|
|
Core |
Non-Core |
Total |
|
Core |
Non-Core |
Total |
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
Loans accounted for on a non-accrual basis (1): |
|
|
|
|
|
|
|
|
- Domestic (2) |
7,100 |
7,924 |
15,024 |
|
6,348 |
7,221 |
13,569 |
|
- Foreign |
5,382 |
12,526 |
17,908 |
|
4,383 |
13,859 |
18,242 |
|
|
|
|
|
|
|
|
|
|
|
12,482 |
20,450 |
32,932 |
|
10,731 |
21,080 |
31,811 |
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more (3): |
|
|
|
|
|
|
|
|
- Domestic (2) |
1,470 |
1,192 |
2,662 |
|
1,135 |
1,089 |
2,224 |
|
- Foreign |
340 |
320 |
660 |
|
223 |
731 |
954 |
|
|
|
|
|
|
|
|
|
|
|
1,810 |
1,512 |
3,322 |
|
1,358 |
1,820 |
3,178 |
|
|
|
|
|
|
|
|
|
|
Total REIL |
14,292 |
21,962 |
36,254 |
|
12,089 |
22,900 |
34,989 |
|
|
|
|
|
|
|
|
|
|
PPL (4): |
|
|
|
|
|
|
|
|
- Domestic (2) |
292 |
174 |
466 |
|
137 |
287 |
424 |
|
- Foreign |
179 |
353 |
532 |
|
135 |
365 |
500 |
|
|
|
|
|
|
|
|
|
|
Total PPL |
471 |
527 |
998 |
|
272 |
652 |
924 |
|
|
|
|
|
|
|
|
|
|
Total REIL and PPL |
14,763 |
22,489 |
37,252 |
|
12,361 |
23,552 |
35,913 |
|
|
|
|
|
|
|
|
|
|
REIL as a % of gross loans to customers (5) |
3.3% |
16.8% |
6.5% |
|
2.8% |
15.1% |
6.1% |
|
|
|
|
|
|
|
|
|
|
REIL and PPL as a % of gross loans to customers (5) |
3.4% |
17.3% |
6.6% |
|
2.9% |
15.5% |
6.2% |
Notes:
|
(1) |
All loans against which an impairment provision is held are reported in the non-accrual category. |
|
(2) |
Domestic activities consist of the UK domestic transactions of the Group. Foreign activities comprise the Group's transactions conducted through the offices outside the UK and those offices in the UK specifically organised to service international banking transactions. |
|
(3) |
Loans where an impairment event has taken place but no impairment recognised. This category is used for fully collateralised non-revolving credit facilities. |
|
(4) |
Loans for which an impairment has occurred but no impairment provision is necessary. This category is used for fully collateralised advances and revolving credit facilities where identification as 90 days overdue is not feasible. |
|
(5) |
Excludes reverse repos and includes gross loans relating to disposal groups. |
Key points
|
· |
REIL increased by 4%, with increases in Ulster Bank, primarily property, UK Retail and UK Corporate being partly offset by a reduction in Non-Core, reflecting one large individual write- off. |
|
|
|
|
· |
REIL and PPL represent 6.6% of gross loans to customers, up from 6.2% at year-end. |
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
Loans, REIL and impairments by industry and geography
The table below analyses loans, REIL and impairment provisions by industry sector and geography.
|
|
30 June 2010 |
|
31 December 2009 |
||||||||
|
|
Gross loans (1) |
REIL (2) |
Provisions (3) |
REIL as a % of loans |
Provisions as a % of REIL |
|
Gross loans (1) |
REIL (2) |
Provisions (3) |
REIL as a % of loans |
Provisions as a % of REIL |
|
Total |
£m |
£m |
£m |
% |
% |
|
£m |
£m |
£m |
% |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and local government |
10,938 |
- |
- |
- |
- |
|
7,660 |
- |
- |
- |
- |
|
Finance |
63,352 |
1,156 |
460 |
1.8 |
39.8 |
|
60,386 |
1,539 |
419 |
2.5 |
27.2 |
|
Individuals - home |
144,441 |
3,795 |
732 |
2.6 |
19.3 |
|
140,907 |
3,284 |
551 |
2.3 |
16.8 |
|
Individuals - other |
40,400 |
3,826 |
3,056 |
9.5 |
79.9 |
|
41,671 |
3,940 |
2,926 |
9.5 |
74.3 |
|
Manufacturing |
38,371 |
1,317 |
544 |
3.4 |
41.3 |
|
44,674 |
3,131 |
2,088 |
7.0 |
66.7 |
|
Construction |
12,917 |
1,749 |
691 |
13.5 |
39.5 |
|
14,760 |
2,232 |
519 |
15.1 |
23.3 |
|
Service and business (4) |
127,142 |
5,584 |
2,220 |
4.4 |
39.8 |
|
134,076 |
5,308 |
1,860 |
4.0 |
35.0 |
|
Agriculture, forestry and fishing |
4,084 |
150 |
69 |
3.7 |
46.0 |
|
4,279 |
137 |
73 |
3.2 |
53.3 |
|
Property |
93,771 |
17,895 |
5,199 |
19.1 |
29.1 |
|
99,426 |
14,318 |
3,422 |
14.4 |
23.9 |
|
Finance leases (5) |
18,605 |
603 |
348 |
3.2 |
57.7 |
|
20,103 |
894 |
418 |
4.4 |
46.8 |
|
Interest accruals |
1,346 |
|
|
|
|
|
1,728 |
|
|
|
|
|
Latent |
|
|
2,708 |
|
|
|
|
|
2,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,367 |
36,075 |
16,027 |
6.5 |
44.4 |
|
569,670 |
34,783 |
15,016 |
6.1 |
43.2 |
|
of which: |
|
|
|
|
|
|
|
|
|
|
|
|
UK domestic |
278,406 |
17,688 |
8,103 |
6.4 |
45.8 |
|
277,741 |
15,791 |
6,811 |
5.7 |
43.1 |
|
UK international |
80,568 |
278 |
127 |
0.3 |
45.7 |
|
79,391 |
313 |
111 |
0.4 |
35.5 |
|
Europe |
87,835 |
13,313 |
4,954 |
15.2 |
37.2 |
|
102,244 |
13,184 |
5,292 |
12.9 |
40.1 |
|
US |
82,740 |
2,870 |
1,915 |
3.5 |
66.7 |
|
83,014 |
4,115 |
2,020 |
5.0 |
49.1 |
|
RoW (6) |
25,818 |
1,926 |
928 |
7.5 |
48.2 |
|
27,280 |
1,380 |
782 |
5.1 |
56.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,367 |
36,075 |
16,027 |
6.5 |
44.4 |
|
569,670 |
34,783 |
15,016 |
6.1 |
43.2 |
For notes to this table see page 109.
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
Loans, REIL and impairment provisions by industry and geography
The table below analyses loans, REIL and impairment provisions relating to the Core businesses, by industry sector and geography.
|
|
30 June 2010 |
|
31 December 2009 |
||||||||
|
|
Gross loans (1) |
REIL (2) |
Provisions (3) |
REIL as a % of loans |
Provisions as a %of REIL |
|
Gross loans (1) |
REIL (2) |
Provisions (3) |
REIL as a % of loans |
Provisions as a % of REIL |
|
Core |
£m |
£m |
£m |
% |
% |
|
£m |
£m |
£m |
% |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and local government |
9,568 |
- |
- |
- |
- |
|
6,128 |
- |
- |
- |
- |
|
Finance |
54,373 |
638 |
307 |
1.2 |
48.1 |
|
50,673 |
1,038 |
259 |
2.0 |
25.0 |
|
Individuals - home |
132,508 |
3,076 |
515 |
2.3 |
16.7 |
|
127,975 |
2,670 |
341 |
2.1 |
12.8 |
|
Individuals - other |
35,003 |
3,361 |
2,707 |
9.6 |
80.5 |
|
35,313 |
3,344 |
2,560 |
9.5 |
76.6 |
|
Manufacturing |
28,477 |
379 |
199 |
1.3 |
52.5 |
|
30,272 |
491 |
191 |
1.6 |
38.9 |
|
Construction |
9,194 |
418 |
210 |
4.5 |
50.2 |
|
9,502 |
457 |
131 |
4.8 |
28.7 |
|
Service and business (4) |
100,604 |
2,518 |
905 |
2.5 |
35.9 |
|
100,438 |
1,762 |
669 |
1.8 |
38.0 |
|
Agriculture, forestry and fishing |
3,940 |
101 |
46 |
2.6 |
45.5 |
|
3,726 |
90 |
46 |
2.4 |
51.1 |
|
Property |
47,025 |
3,432 |
755 |
7.3 |
22.0 |
|
49,054 |
1,766 |
468 |
3.6 |
26.5 |
|
Finance leases (5) |
8,076 |
208 |
124 |
2.6 |
59.6 |
|
8,147 |
303 |
116 |
3.7 |
38.3 |
|
Interest accruals |
920 |
|
|
|
|
|
1,179 |
|
|
|
|
|
Latent |
|
|
1,736 |
|
|
|
|
|
2,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429,688 |
14,131 |
7,504 |
3.3 |
53.1 |
|
422,407 |
11,921 |
6,786 |
2.8 |
56.9 |
|
of which: |
|
|
|
|
|
|
|
|
|
|
|
|
UK domestic |
219,187 |
8,574 |
4,615 |
3.9 |
53.8 |
|
211,726 |
7,481 |
4,171 |
3.5 |
55.8 |
|
UK international |
69,039 |
165 |
29 |
0.2 |
17.6 |
|
66,787 |
314 |
38 |
0.5 |
12.1 |
|
Europe |
55,628 |
3,473 |
1,730 |
6.2 |
49.8 |
|
61,677 |
2,348 |
1,574 |
3.8 |
67.0 |
|
US |
65,863 |
1,001 |
906 |
1.5 |
90.5 |
|
63,544 |
1,497 |
876 |
2.4 |
58.5 |
|
RoW (6) |
19,971 |
918 |
224 |
4.6 |
24.4 |
|
18,673 |
281 |
127 |
1.5 |
45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429,688 |
14,131 |
7,504 |
3.3 |
53.1 |
|
422,407 |
11,921 |
6,786 |
2.8 |
56.9 |
For notes to this table see page 109.
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
Loans, REIL and impairments by industry and geography (continued)
The table below analyses loans, REIL and impairment provisions relating to Non-Core, by industry sector and geography.
|
|
30 June 2010 |
|
31 December 2009 |
||||||||
|
|
Gross loans (1) |
REIL (2) |
Provisions (3) |
REIL as a % of loans |
Provisions as a % of REIL |
|
Gross loans (1) |
REIL (2) |
Provisions (3) |
REIL as a % of loans |
Provisions as a % of REIL |
|
Non-Core |
£m |
£m |
£m |
% |
% |
|
£m |
£m |
£m |
% |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and local government |
1,370 |
- |
- |
- |
- |
|
1,532 |
- |
- |
- |
- |
|
Finance |
8,979 |
518 |
153 |
5.8 |
29.5 |
|
9,713 |
501 |
160 |
5.2 |
31.9 |
|
Individuals - home |
11,933 |
719 |
217 |
6.0 |
30.2 |
|
12,932 |
614 |
210 |
4.7 |
34.2 |
|
Individuals - other |
5,397 |
465 |
349 |
8.6 |
75.1 |
|
6,358 |
596 |
366 |
9.4 |
61.4 |
|
Manufacturing |
9,894 |
938 |
345 |
9.5 |
36.8 |
|
14,402 |
2,640 |
1,897 |
18.3 |
71.9 |
|
Construction |
3,723 |
1,331 |
481 |
35.8 |
36.1 |
|
5,258 |
1,775 |
388 |
33.8 |
21.9 |
|
Service and business (4) |
26,538 |
3,066 |
1,315 |
11.6 |
42.9 |
|
33,638 |
3,546 |
1,191 |
10.5 |
33.6 |
|
Agriculture, forestry and fishing |
144 |
49 |
23 |
34.0 |
46.9 |
|
553 |
47 |
27 |
8.5 |
57.4 |
|
Property |
46,746 |
14,463 |
4,444 |
30.9 |
30.7 |
|
50,372 |
12,552 |
2,954 |
24.9 |
23.5 |
|
Finance leases (5) |
10,529 |
395 |
224 |
3.8 |
56.7 |
|
11,956 |
591 |
302 |
4.9 |
51.1 |
|
Interest accruals |
426 |
|
|
|
|
|
549 |
|
|
|
|
|
Latent |
|
|
972 |
|
|
|
|
|
735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,679 |
21,944 |
8,523 |
17.5 |
38.8 |
|
147,263 |
22,862 |
8,230 |
15.5 |
36.0 |
|
of which: |
|
|
|
|
|
|
|
|
|
|
|
|
UK domestic |
59,219 |
9,114 |
3,488 |
15.4 |
38.3 |
|
66,015 |
8,310 |
2,640 |
12.6 |
31.8 |
|
UK international |
11,529 |
113 |
98 |
1.0 |
86.7 |
|
12,604 |
90 |
73 |
0.7 |
81.1 |
|
Europe |
32,207 |
9,840 |
3,224 |
30.6 |
32.8 |
|
40,567 |
10,745 |
3,718 |
26.5 |
34.6 |
|
US |
16,877 |
1,869 |
1,009 |
11.1 |
54.0 |
|
19,470 |
2,618 |
1,144 |
13.4 |
43.7 |
|
RoW (6) |
5,847 |
1,008 |
704 |
17.2 |
69.8 |
|
8,607 |
1,099 |
655 |
12.8 |
59.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,679 |
21,944 |
8,523 |
17.5 |
38.8 |
|
147,263 |
22,862 |
8,230 |
15.5 |
36.0 |
Notes:
|
(1) |
Gross loans and advances to customers (excluding reverse repurchase agreements and stock borrowing). |
|
(2) |
Excludes gross loans and advances relating to disposal groups. |
|
(3) |
Closing provisions relating to loans and advances to customers. |
|
(4) |
Service industries and business activities. |
|
(5) |
Includes instalment credit. |
|
(6) |
Rest of the World. |
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
Movement in REIL and PPL
The table below details the movement in REIL and PPL for the half year ended 30 June 2010.
|
|
REIL |
PPL |
Total |
|
|
£m |
£m |
£m |
|
|
|
|
|
|
At 1 January 2010 |
34,989 |
924 |
35,913 |
|
Currency translation and other adjustments |
(667) |
(5) |
(672) |
|
Additions |
10,679 |
630 |
11,309 |
|
Transfers |
102 |
(102) |
- |
|
Disposals, restructurings and repayments |
(4,671) |
(449) |
(5,120) |
|
Amounts written-off |
(4,178) |
- |
(4,178) |
|
|
|
|
|
|
At 30 June 2010 |
36,254 |
998 |
37,252 |
Key points
|
· |
Total REIL increased by £1.3 billion in the first half of the year. Additions of £4.8 billion in Core and £5.8 billion in Non-Core were partly offset by disposals, restructurings and repayments (Core - £1.9 billion; Non-Core - £2.7 billion) and write-offs (Core - £1.2 billion; Non-Core - £2.9 billion). |
|
|
|
|
· |
Net increases in Core REIL were mainly due to growth in Ulster Bank of £1.2 billion, primarily relating to property portfolios, and in UK Corporate of £0.6 billion. |
|
|
|
|
· |
Total REIL of £36.3 billion at 30 June 2010 was broadly unchanged from 31 March 2010, with decreases in Non-Core of £1.0 billion, offset by increases in Ulster Bank and GBM of £0.5 billion each. |
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
REIL and PPL by division
The table below analyses REIL, PPL and impairment provisions by division.
|
|
REIL |
PPL |
REIL & PPL |
Total provision |
Total provision as % of REIL |
Total provision as % of REIL & PPL |
|
|
£m |
£m |
£m |
£m |
% |
% |
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
UK Retail |
4,845 |
- |
4,845 |
2,887 |
60 |
60 |
|
UK Corporate |
2,928 |
245 |
3,173 |
1,477 |
50 |
47 |
|
Wealth |
229 |
48 |
277 |
64 |
28 |
23 |
|
Global Banking & Markets |
1,767 |
159 |
1,926 |
1,201 |
68 |
62 |
|
Global Transaction Services |
174 |
13 |
187 |
169 |
97 |
90 |
|
Ulster Bank |
3,484 |
6 |
3,490 |
1,321 |
38 |
38 |
|
US Retail & Commercial |
865 |
- |
865 |
514 |
59 |
59 |
|
|
|
|
|
|
|
|
|
Core |
14,292 |
471 |
14,763 |
7,633 |
53 |
52 |
|
Non-Core |
21,962 |
527 |
22,489 |
8,533 |
39 |
38 |
|
|
|
|
|
|
|
|
|
|
36,254 |
998 |
37,252 |
16,166 |
45 |
43 |
|
. |
|
|
|
|
|
|
|
31 March 2010 |
|
|
|
|
|
|
|
UK Retail |
4,706 |
- |
4,706 |
2,810 |
60 |
60 |
|
UK Corporate |
2,496 |
106 |
2,602 |
1,367 |
55 |
53 |
|
Wealth |
219 |
45 |
264 |
58 |
26 |
22 |
|
Global Banking & Markets |
1,237 |
177 |
1,414 |
1,298 |
105 |
92 |
|
Global Transaction Services |
184 |
7 |
191 |
184 |
100 |
96 |
|
Ulster Bank |
2,987 |
3 |
2,990 |
1,157 |
39 |
39 |
|
US Retail & Commercial |
710 |
- |
710 |
523 |
74 |
74 |
|
|
|
|
|
|
|
|
|
Core |
12,539 |
338 |
12,877 |
7,397 |
59 |
57 |
|
Non-Core |
23,997 |
255 |
24,252 |
9,430 |
39 |
39 |
|
|
|
|
|
|
|
|
|
|
36,536 |
593 |
37,129 |
16,827 |
46 |
45 |
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
UK Retail |
4,641 |
- |
4,641 |
2,677 |
58 |
58 |
|
UK Corporate |
2,330 |
97 |
2,427 |
1,271 |
55 |
52 |
|
Wealth |
218 |
38 |
256 |
55 |
25 |
21 |
|
Global Banking & Markets |
1,800 |
131 |
1,931 |
1,289 |
72 |
67 |
|
Global Transaction Services |
197 |
4 |
201 |
189 |
96 |
94 |
|
Ulster Bank |
2,260 |
2 |
2,262 |
962 |
43 |
43 |
|
US Retail & Commercial |
643 |
- |
643 |
478 |
74 |
74 |
|
|
|
|
|
|
|
|
|
Core |
12,089 |
272 |
12,361 |
6,921 |
57 |
56 |
|
Non-Core |
22,900 |
652 |
23,552 |
8,252 |
36 |
35 |
|
|
|
|
|
|
|
|
|
|
34,989 |
924 |
35,913 |
15,173 |
43 |
42 |
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
REIL and PPL by division (continued)
Key points
|
· |
Provision coverage of REIL increased from 43% to 45%. |
|
|
|
|
· |
Provision coverage of REIL for Core was 53% while that for Non-Core was 39%. The differing ratios arise from product mix with Core REIL containing a higher proportion of unsecured credit exposures whilst Non-Core contains more secured exposures which require relatively lower provisions. |
|
|
|
|
· |
Provisions coverage was down slightly from 46% at 31 March 2010 to 45% at 30 June 2010. |
Movement in loan impairment provisions
The following table shows the movement in impairment provisions for loans and advances to customers and banks.
|
|
First half 2010 |
|
Quarter ended 31 March 2010 |
|
Full year 31 December 2009 |
||||
|
Core |
Non-Core |
Total |
Core |
Non-Core |
Total |
||||
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
|
£m |
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of period |
6,921 |
8,252 |
15,173 |
|
6,921 |
8,252 |
15,173 |
|
9,451 |
|
Transfers to disposal groups |
- |
(67) |
(67) |
|
- |
(29) |
(29) |
|
(321) |
|
Currency translation and other adjustments |
(279) |
119 |
(160) |
|
30 |
185 |
215 |
|
(428) |
|
Disposals |
- |
(17) |
(17) |
|
- |
- |
- |
|
(65) |
|
Amounts written-off |
(1,063) |
(2,718) |
(3,781) |
|
(501) |
(596) |
(1,097) |
|
(6,478) |
|
Recoveries of amounts previously written-off |
104 |
46 |
150 |
|
45 |
25 |
70 |
|
325 |
|
Charge to income statement |
2,046 |
3,035 |
5,081 |
|
950 |
1,652 |
2,602 |
|
13,090 |
|
Unwind of discount |
(96) |
(117) |
(213) |
|
(48) |
(59) |
(107) |
|
(401) |
|
|
|
|
|
|
|
|
|
|
|
|
At end of period |
7,633 |
8,533 |
16,166 |
|
7,397 |
9,430 |
16,827 |
|
15,173 |
Loan impairment provisions on loans to customers
|
|
30 June 2010 |
|
31 March 2010 |
|
31 December 2009 |
||||||
|
|
Core |
Non-Core |
Total |
|
Core |
Non-Core |
Total |
|
Core |
Non-Core |
Total |
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
|
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latent loss |
1,736 |
972 |
2,708 |
|
2,017 |
809 |
2,826 |
|
2,005 |
735 |
2,740 |
|
Collectively assessed |
3,938 |
1,166 |
5,104 |
|
3,783 |
1,164 |
4,947 |
|
3,509 |
1,266 |
4,775 |
|
Individually assessed |
1,830 |
6,385 |
8,215 |
|
1,459 |
7,437 |
8,896 |
|
1,272 |
6,229 |
7,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
7,504 |
8,523 |
16,027 |
|
7,259 |
9,410 |
16,669 |
|
6,786 |
8,230 |
15,016 |
Note:
|
(1) |
Excludes £139 million relating to loans and advances to banks at 30 June 2010 (31 March 2010 - £158 million; 31 December 2009 - £157 million). |
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
Analysis of loan impairment charge
The following table analyses impairment losses.
|
|
Quarter ended |
|
Half year ended |
|||
|
|
30 June 2010 |
31 March 2010 |
30 June 2009 |
|
30 June 2010 |
30 June 2009 |
|
|
£m |
£m |
£m |
|
£m |
£m |
|
|
|
|
|
|
|
|
|
Latent loss |
(76) |
31 |
616 |
|
(45) |
724 |
|
Collectively assessed |
752 |
841 |
1,008 |
|
1,593 |
2,003 |
|
Individually assessed - customer loans |
1,803 |
1,730 |
2,889 |
|
3,533 |
4,061 |
|
|
|
|
|
|
|
|
|
Customer loans |
2,479 |
2,602 |
4,513 |
|
5,081 |
6,788 |
|
Bank loans |
- |
- |
7 |
|
- |
8 |
|
Securities |
8 |
73 |
143 |
|
81 |
725 |
|
|
|
|
|
|
|
|
|
Charge to income statement |
2,487 |
2,675 |
4,663 |
|
5,162 |
7,521 |
|
|
|
|
|
|
|
|
|
Charge relating to customer loans as a % of gross customer loans (1) |
1.8% |
1.8% |
3.0% |
|
1.8% |
2.2% |
Note:
|
(1) |
Gross of provisions excluding reverse repurchase agreements and including gross loans relating to disposal groups. |
Risk and capital management (continued)
Credit risk: Risk elements and impairments (continued)
Impairment charge
The following table details the total impairment losses charged to the income statement by division.
|
|
Quarter ended |
|
Half year ended |
|||
|
|
30 June 2010 |
31 March 2010 |
30 June 2009 |
|
30 June 2010 |
30 June 2009 |
|
|
£m |
£m |
£m |
|
£m |
£m |
|
|
|
|
|
|
|
|
|
UK Retail |
300 |
387 |
470 |
|
687 |
824 |
|
UK Corporate |
198 |
186 |
450 |
|
384 |
550 |
|
Wealth |
7 |
4 |
16 |
|
11 |
22 |
|
Global Banking & Markets |
164 |
32 |
(31) |
|
196 |
238 |
|
Global Transaction Services |
3 |
- |
4 |
|
3 |
13 |
|
Ulster Bank |
281 |
218 |
90 |
|
499 |
157 |
|
US Retail & Commercial |
144 |
143 |
146 |
|
287 |
369 |
|
RBS Insurance |
- |
- |
1 |
|
- |
6 |
|
Central items |
- |
1 |
1 |
|
1 |
(2) |
|
|
|
|
|
|
|
|
|
Core |
1,097 |
971 |
1,147 |
|
2,068 |
2,177 |
|
Non-Core |
1,390 |
1,704 |
3,516 |
|
3,094 |
5,344 |
|
|
|
|
|
|
|
|
|
Charge to income statement |
2,487 |
2,675 |
4,663 |
|
5,162 |
7,521 |
|
|
|
|
|
|
|
|
|
Comprising: |
|
|
|
|
|
|
|
- Loan impairment losses |
2,479 |
2,602 |
4,520 |
|
5,081 |
6,796 |
|
- Securities impairment losses |
8 |
73 |
143 |
|
81 |
725 |
|
|
|
|
|
|
|
|
|
Charge to income statement |
2,487 |
2,675 |
4,663 |
|
5,162 |
7,521 |
Key points
|
· |
Impairment charges fell overall from £7.5 billion in H1 2009 to £5.2 billion in H1 2010, primarily in Non-Core, reflecting the improving trends seen since H2 2009, particularly in the UK corporate sector. |
|
|
|
|
· |
Impairment charges in Q2 2010 were £188 million less than in Q1 2010. Lower charges in Non-Core (£0.3 billion) and UK Retail (£0.1 billion) were partially offset by increases in Ulster Bank (£0.1 billion) and GBM (£0.1 billion). |
|
|
|
|
· |
Impairments in Ulster Bank increased significantly reflecting continued downward pressures on commercial and residential property asset values and the resultant impact on credit quality of customers. |
|
|
|
|
· |
The increased charge in GBM in Q2 2010 relates to a few individual provisions; Q1 2010 benefited from the absence of any such provisions. |
Risk and capital management (continued)
Funding and liquidity risk
The objective of the Group's funding and liquidity management framework is to ensure that at all times the Group can meet its obligations as they fall due.
Liquidity management within the Group specifies prudent limits and controls over risk arising from the mismatch of maturities across the balance sheet and from the exposure to undrawn commitments and other contingent obligations.
Loan to deposit ratio (net of provisions): This ratio has improved from 131% at 31 March 2010 to 128% at 30 June 2010 for the Group and is stable at 102% at 31 March 2010 and 30 June 2010 for the Core businesses. The Group has a target for this ratio of 100% by 2013. The gap between customer loans and customer deposits (excluding repurchase agreements and Bancassurance) narrowed by £13 billion from £131 billion at 31 March 2010 to £118 billion at 30 June 2010, due primarily to a reduction in Non-Core and GBM customer loans.
Short-term wholesale funding: The Group's funding objective is to diversify its funding sources and to reduce the amount of its wholesale funding with remaining maturity of less than one year. The Group's overall reliance on wholesale funding with less than one year residual maturity has decreased from £222 billion at 31 March 2010 to £198 billion at 30 June 2010 (including £92 billion of deposits from banks).
Undrawn commitments: The Group actively manages the amount of undrawn commitments to align them with its ability to meet those obligations. Undrawn commitments decreased by £12 billion from £283 billion at 31 March 2010 to £271 billion at 30 June 2010.
Liquidity reserves: The following table shows the composition of the liquidity reserves which comprise government securities, a pool of unencumbered secured assets eligible for discounting at central banks and other liquid assets. The Group's 2013 target for its liquidity reserves remains at £150 billion.
|
|
30 June 2010 |
31 March 2010 |
31 December 2009 |
|
Liquidity reserves |
£m |
£m |
£m |
|
|
|
|
|
|
Central Group Treasury portfolio |
25,243 |
25,212 |
19,655 |
|
Treasury bills |
15,647 |
19,810 |
27,547 |
|
Other government securities |
13,177 |
14,333 |
10,205 |
|
|
|
|
|
|
Total government securities |
54,067 |
59,355 |
57,407 |
|
Cash and central bank balances |
29,591 |
42,008 |
51,500 |
|
Unencumbered collateral (1) |
39,580 |
46,370 |
42,055 |
|
Other liquid assets |
13,731 |
17,158 |
19,699 |
|
|
|
|
|
|
|
136,969 |
164,891 |
170,661 |
Note:
|
(1) |
Includes secured assets which are eligible for discounting at central banks. |
Risk and capital management (continued)
Funding and liquidity risk (continued)
Key points
The Group's liquidity reserves of £137 billion at 30 June 2010 were £28 billion lower than at 31 March 2010 primarily due to the following factors:
|
· |
A reduction of £16 billion in surplus cash balances held at central banks and other liquid assets, which had been built up as a prudent measure ahead of the legal separation of RBS NV and ABN AMRO in April 2010. Following successful separation, the liquid assets and associated short-term wholesale funding were managed down to business as usual levels. |
|
|
|
|
· |
A reduction of £4 billion of contingent liquidity available through central bank schemes introduced in 2008 and 2009. This reflects the Group's strategy to reduce reliance on central bank liquidity and funding schemes. |
|
|
|
|
· |
Exchange rate movements in Q2 2010 which reduced reported liquidity reserves by £4 billion. |
Repurchase agreements: At 30 June 2010 the Group had £71 billion of customer repurchase agreements compared with £81 billion at 31 March 2010. In addition the Group had £44 billion of bank repurchase agreements against £48 billion at 31 March 2010 and £38 billion at 31 December 2009; this includes borrowing using central bank funding schemes.
Wholesale funding: The tables below show the composition of the sources of wholesale funding.
|
|
30 June 2010 |
|
31 March 2010 |
|
31 December 2009 |
|||
|
|
£m |
% |
|
£m |
% |
|
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
Deposits by banks (1) |
96,614 |
12.7 |
|
100,168 |
12.6 |
|
115,642 |
14.3 |
|
|
|
|
|
|
|
|
|
|
|
Debt securities in issue: |
|
|
|
|
|
|
|
|
|
- Commercial paper |
30,865 |
4.1 |
|
36,588 |
4.6 |
|
44,307 |
5.5 |
|
- Certificates of deposits |
45,888 |
6.0 |
|
57,369 |
7.2 |
|
58,195 |
7.2 |
|
- Medium-term notes and other bonds |
122,981 |
16.1 |
|
126,610 |
15.9 |
|
125,800 |
15.6 |
|
- Securitisations |
17,583 |
2.3 |
|
18,645 |
2.3 |
|
18,027 |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
217,317 |
28.5 |
|
239,212 |
30.0 |
|
246,329 |
30.5 |
|
|
|
|
|
|
|
|
|
|
|
Subordinated liabilities |
27,523 |
3.6 |
|
31,936 |
4.0 |
|
31,538 |
3.9 |
|
|
|
|
|
|
|
|
|
|
|
Total wholesale funding |
341,454 |
44.8 |
|
371,316 |
46.6 |
|
393,509 |
48.7 |
|
Customer deposits (1) |
420,890 |
55.2 |
|
425,102 |
53.4 |
|
414,251 |
51.3 |
|
|
|
|
|
|
|
|
|
|
|
|
762,344 |
100.0 |
|
796,418 |
100.0 |
|
807,760 |
100.0 |
Note:
|
(1) |
Excludes repurchase agreements and stock lending. |
Risk and capital management (continued)
Funding and liquidity risk (continued)
Wholesale funding (continued)
Key points
|
· |
The Group has continued to execute its strategic objective to reduce reliance on wholesale funding. Each source of wholesale funding has reduced during the first half of 2010: deposits by banks (16% reduction), debt securities in issue (12% reduction), and subordinated liabilities (13% reduction). |
|
|
|
|
· |
The Group has increased the proportion of its funding base from customer deposits during the first half of the year by 4%, from 51% at 31 December 2009 to 55% at 30 June 2010. |
The table below analyses the Group's debt securities and subordinated debt by maturity.
|
|
30 June 2010 |
|
31 March 2010 |
|
31 December 2009 |
|||||||||
|
|
Debt securities in issue |
Sub debt (1) |
Total |
|
|
Debt securities in issue |
Sub debt (1) |
Total |
|
|
Debt securities in issue |
Sub debt (1) |
Total |
|
|
|
£m |
£m |
£m |
% |
|
£m |
£m |
£m |
% |
|
£m |
£m |
£m |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
< one year |
103,630 |
2,422 |
106,052 |
43.3 |
|
126,102 |
1,835 |
127,937 |
47.2 |
|
136,901 |
2,144 |
139,045 |
50.0 |
|
1-5 years |
77,266 |
7,575 |
84,841 |
34.7 |
|
73,842 |
6,079 |
79,921 |
29.5 |
|
70,437 |
4,235 |
74,672 |
26.9 |
|
> 5 years |
36,421 |
17,526 |
53,947 |
22.0 |
|
39,268 |
24,022 |
63,290 |
23.3 |
|
38,991 |
25,159 |
64,150 |
23.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,317 |
27,523 |
244,840 |
100.0 |
|
239,212 |
31,936 |
271,148 |
100.0 |
|
246,329 |
31,538 |
277,867 |
100.0 |
Note:
|
(1) |
Subordinated liabilities. |
Key points
|
· |
Debt securities in issue and subordinated debt with a remaining maturity of less than 1 year decreased by £22 billion during Q2 2010, and by £33 billion in the first half primarily due to a focused strategy around asset reductions and terming out of the remaining wholesale funding. |
|
|
|
|
· |
The proportion of debt instruments with a remaining maturity of greater than one year has increased from 50% at 31 December 2009 to 57% at 30 June 2010. |
Risk and capital management (continued)
Funding and liquidity risk (continued)
Wholesale funding (continued)
Long-term debt securities issuance: The table below shows the amount and type of debt securities issued by the Group, by quarter for the year to date. This table includes long term debt securities issued with a maturity greater than one year; in addition the Group executes other long-term funding arrangements which are not reflected here.
|
|
Quarter ended |
Half year ended 30 June 2010 |
Quarter ended |
Half year ended 30 June 2009 |
||
|
30 June 2010 |
31 March 2010 |
30 June 2009 |
31 March 2009 |
|||
|
|
£m |
£m |
£m |
£m |
£m |
£bn |
|
|
|
|
|
|
|
|
|
Public |
|
|
|
|
|
|
|
- unsecured |
1,882 |
3,976 |
5,858 |
3,123 |
- |
3,123 |
|
- unsecured: government guaranteed |
- |
- |
- |
4,520 |
8,804 |
13,324 |
|
- secured |
1,030 |
- |
1,030 |
- |
- |
- |
|
Private |
|
|
|
|
|
|
|
- unsecured |
2,370 |
4,158 |
6,528 |
2,654 |
1,637 |
4,291 |
|
- unsecured: government guaranteed |
- |
- |
- |
2,428 |
6,493 |
8,921 |
|
|
|
|
|
|
|
|
|
|
5,282 |
8,134 |
13,416 |
12,725 |
16,934 |
29,659 |
Key points
|
· |
Term funding markets were very strong in Q1 2010 but became more challenging in Q2 due to eurozone concerns. The Group managed during the period to issue £8.1 billion and £5.3 billion in Q1 and Q2 2010 respectively. |
|
|
|
|
· |
Issuances in public and private markets in H1 2010 exceeded 50% of the Group's original full year target funding plan of c. £20-25 billion. |
|
|
|
|
· |
An additional £3.1 billion was issued in July, and it appears markets are improving post the CEBS stress test results. |
|
|
|
|
· |
The Group launched a €15 billion covered bond programme in April 2010 as one important step towards its goal of diversifying funding sources across product types and markets as much as possible. In June 2010, €1.25 billion of covered bonds were issued from this programme. |
Risk and capital management (continued)
Funding and liquidity risk (continued)
Net stable funding ratio:
The net stable funding ratio (NSFR) shows the proportion of structural term assets which are funded by stable funding, including customer deposits, long-term wholesale funding and equity. The measure has improved slightly to 92% at 30 June 2010. The Group is considering an alternative methodology in light of the Basel Committee's decision to delay the requirement of the NSFR until 2018.
|
|
30 June 2010 |
|
31 December 2009 |
|
|
||
|
|
|
ASF(1) |
|
|
ASF(1) |
|
Weighting |
|
|
£bn |
£bn |
|
£bn |
£bn |
|
% |
|
|
|
|
|
|
|
|
|
|
Equity |
77 |
77 |
|
80 |
80 |
|
100 |
|
Wholesale funding > 1 year |
143 |
143 |
|
144 |
144 |
|
100 |
|
Wholesale funding < 1 year |
198 |
- |
|
249 |
- |
|
- |
|
Derivatives |
509 |
- |
|
422 |
- |
|
- |
|
Repos |
115 |
- |
|
106 |
- |
|
- |
|
Customer deposits |
421 |
358 |
|
415 |
353 |
|
85 |
|
Other (deferred taxation, insurance liabilities, etc) |
118 |
- |
|
106 |
- |
|
- |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
1,581 |
578 |
|
1,522 |
577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
30 |
- |
|
52 |
- |
|
- |
|
Inter bank lending |
54 |
- |
|
49 |
- |
|
- |
|
Debt securities |
236 |
47 |
|
249 |
50 |
|
20 |
|
Derivatives |
523 |
- |
|
438 |
- |
|
- |
|
Reverse repos |
87 |
- |
|
76 |
- |
|
- |
|
Advances < 1 year |
135 |
67 |
|
139 |
69 |
|
50 |
|
Advances >1 year |
404 |
404 |
|
416 |
416 |
|
100 |
|
Other (prepayments, accrued income, deferred taxation) |
112 |
112 |
|
103 |
103 |
|
100 |
|
|
|
|
|
|
|
|
|
|
Total assets |
1,581 |
630 |
|
1,522 |
638 |
|
|
|
|
|
|
|
|
|
|
|
|
Net stable funding ratio |
|
92% |
|
|
90% |
|
|
Note:
|
(1) |
Available stable funding. |
Risk and capital management (continued)
Market risk
Market risk arises from changes in interest rates, foreign currency, credit spread, equity prices and risk related factors such as market volatilities. The Group manages market risk centrally within its trading and non-trading portfolios through a comprehensive market risk management framework. This framework includes limits based on, but not limited to, VaR, scenario analyses, position and sensitivity analyses.
At the Group level, the risk appetite is expressed in the form of a combination of VaR, sensitivity and scenario limits. VaR is a technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at given confidence levels. For internal risk management purposes, the Group's VaR assumes a time horizon of one trading day and a confidence level of 99%. The Group's VaR model is based on a historical simulation model, utilising data from the previous two years trading results.
The VaR disclosure is broken down into trading, non-trading and interest rate risk. Trading VaR relates to the main trading activities of the Group and non-trading reflects the VaR associated with reclassified assets, money market business and the management of internal funds flow within the Group's businesses. Interest rate risk disclosures reflect the Group's structural and non-traded interest rate exposure.
As part of the ongoing review and analysis of the suitability of the Group's VaR model, a methodology enhancement to the ABS VaR was approved and incorporated into the regulatory model in H1 2010. The credit crisis in the US in 2007-2009 caused large price changes for some structured bonds and the spread based approach to calculating VaR for these instruments started to give inaccurate risk levels, particularly for bonds trading at a significant discount to par. The methodology enhancement harmonised the VaR approach in the US and Europe by replacing the absolute spread-based approach with a more reliable and granular relative price-based mapping scheme. The enhancement better reflects the risk in the context of position changes, downgrades and vintages as well as improving the differentiation between prime, Alt-A and sub-prime exposures.
All VaR models have limitations, which include:
|
· |
Historical simulation VaR may not provide the best estimate of future market movements. It can only provide a prediction of the future based on events that occurred in the time series horizon therefore, events more severe than those in the historical data series cannot be predicted; |
|
|
|
|
· |
VaR that uses a 99% confidence level does not reflect the extent of potential losses beyond that percentile; |
|
|
|
|
· |
VaR that uses a one-day time horizon will not fully capture the profit and loss implications of positions that cannot be liquidated or hedged within one day; and |
|
|
|
|
· |
The Group computes the VaR of trading portfolios at the close of business. Positions may change substantially during the course of the trading day and intra-day profits and losses will be incurred. |
These limitations mean that the Group cannot guarantee that profits or losses will not exceed the VaR.
Risk and capital management (continued)
Market risk: Traded portfolios
The table below analyses the VaR for the Group's trading portfolios segregated by type of market risk exposure.
|
|
30 June 2010 (1) |
|
31 December 2009 (1) |
||||||
|
|
Average |
Period end |
Maximum |
Minimum |
|
Average |
Period end |
Maximum |
Minimum |
|
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
45.8 |
42.8 |
64.2 |
32.5 |
|
48.5 |
50.5 |
84.6 |
28.1 |
|
Credit spread |
158.2 |
203.0 |
203.2 |
113.0 |
|
170.8 |
174.8 |
211.6 |
135.7 |
|
Currency |
20.6 |
21.4 |
28.0 |
13.9 |
|
18.0 |
20.7 |
26.2 |
10.5 |
|
Equity |
10.4 |
6.7 |
17.3 |
6.6 |
|
13.0 |
13.1 |
23.2 |
2.7 |
|
Commodity |
10.7 |
8.1 |
15.8 |
6.7 |
|
15.8 |
8.9 |
32.1 |
6.6 |
|
Diversification |
|
(71.5) |
|
|
|
|
(86.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
152.9 |
210.5 |
210.5 |
103.0 |
|
166.9 |
181.9 |
214.7 |
121.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Core |
95.5 |
118.1 |
145.4 |
58.9 |
|
104.6 |
127.3 |
135.4 |
73.8 |
|
CEM (2) |
45.1 |
75.5 |
76.5 |
30.3 |
|
38.1 |
38.6 |
41.3 |
29.4 |
|
Core excluding CEM (2) |
82.8 |
78.6 |
108.7 |
53.6 |
|
83.8 |
97.4 |
116.5 |
55.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Core |
90.4 |
104.9 |
108.1 |
63.2 |
|
97.3 |
84.8 |
147.7 |
58.6 |
Notes:
|
(1) |
As of and for the six months ended. |
|
(2) |
Counterparty Exposure Management. |
Key points
|
· |
The credit spread, Core and total VaR have decreased overall in H1 2010 compared with H2 2009. A significant decrease in VaR was observed primarily due to the implementation of the relative price-based mapping scheme described above; however this was partially offset by the novation of counterparty risk hedging trades from RBS NV to RBS plc. For RBS NV there is no local regulatory requirement for counterparty hedges to be included in VaR, as they are treated on a standardised basis but on novation to CEM in RBS plc, under UK regulatory requirements, the trades were captured by the VaR model resulting in an increase in VaR. |
|
|
|
|
· |
The period end and maximum VaR for CEM is significantly higher in H1 2010 compared to H2 2009 due to the novation of the counterparty risk hedging trades described above. CEM manages the counterparty risk on behalf of GBM, by actively controlling risk concentrations and reducing unwanted risk exposures. The hedging transactions CEM enters into are booked in the trading book, and therefore contribute to the market risk VaR exposure of the Group. The counterparty exposures themselves are not captured in VaR regulatory capital. |
|
|
|
|
· |
The Non-Core average VaR also decreased due to the implementation of the price mapping scheme, but this was more than offset by the weakening of sterling against the US dollar through the period. |
Risk and capital management (continued)
Market risk: Non-traded portfolios
The tables below analyse the risk of the Group's non-trading portfolios.
VaR is not always the most appropriate measure of risk for assets in the non-trading book and particularly for those in Non-Core, which will diminish over time as the asset inventory is sold down.
The first VaR table below represents the VaR for all non-trading portfolios as reported in previous disclosures for comparative purposes. To better represent the risk of the non-traded portfolios, the second table below analyses the VaR for the non-trading portfolios, but excludes the Non-Core structured credit portfolio (SCP). These assets are shown separately on a drawn notional and fair value basis by maturity profile and asset class. The risk in this portfolio is managed on both an asset and RWA basis.
VaR for the Group's non-trading portfolios (including SCP), segregated by type of market risk exposure is shown below.
|
|
30 June 2010 (1) |
|
31 December 2009 (1) |
||||||
|
|
Average |
Period end |
Maximum |
Minimum |
|
Average |
Period end |
Maximum |
Minimum |
|
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
10.6 |
9.3 |
15.8 |
6.5 |
|
13.4 |
16.5 |
17.2 |
9.5 |
|
Credit spread |
161.3 |
135.2 |
226.9 |
133.8 |
|
223.2 |
213.3 |
245.8 |
180.3 |
|
Currency |
1.7 |
3.0 |
7.9 |
0.3 |
|
1.6 |
0.6 |
7.0 |
0.5 |
|
Equity |
0.9 |
0.4 |
3.4 |
0.2 |
|
3.2 |
2.3 |
3.7 |
1.7 |
|
Diversification |
|
(19.9) |
|
|
|
|
(26.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
153.1 |
128.0 |
216.2 |
128.0 |
|
214.4 |
206.7 |
234.3 |
182.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Core |
71.8 |
31.9 |
145.7 |
30.6 |
|
127.0 |
129.4 |
142.7 |
81.0 |
|
Non-Core |
101.2 |
113.4 |
120.8 |
79.6 |
|
102.3 |
87.6 |
120.2 |
80.3 |
Note:
|
(1) |
As of and for the six months ended. |
Key points
|
· |
Sales of available-for-sale securities contributed to the VaR reduction. |
|
|
|
|
|
|
· |
As for traded VaR, the non-traded credit spread, Core and total VaR have decreased significantly due to the implementation of the relative price-based mapping scheme in the VaR methodology discussed above. |
|
|
|
|
|
|
· |
The H1 2010 period end Non-Core VaR increased due to: |
|
|
|
(a) |
Loan collateral came back on the balance sheet in April 2010 following the failure of some real estate investment trusts that had pledged commercial real estate loans; and |
|
|
(b) |
The implementation in March 2010 of the relative price-based ABS VaR methodology described above. The enhancement for these Non-Core banking book positions resulted in mapping to a relatively more volatile time series and hence increased VaR. |
Risk and capital management (continued)
Market risk: Non-traded portfolios (continued)
VaR for non-trading portfolios (excluding SCP), segregated by type of mark risk exposure, is presented below.
|
|
30 June 2010 |
|
31 December 2009 |
||||||
|
|
Average |
Period end |
Maximum |
Minimum |
|
Average |
Period end |
Maximum |
Minimum |
|
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
9.8 |
10.1 |
13.6 |
6.5 |
|
12.7 |
15.0 |
16.0 |
9.1 |
|
Credit spread |
154.4 |
125.1 |
227.2 |
123.0 |
|
214.5 |
209.5 |
232.8 |
176.5 |
|
Currency |
1.7 |
3.4 |
7.6 |
0.3 |
|
1.6 |
0.6 |
7.0 |
0.5 |
|
Equity |
0.9 |
0.4 |
3.4 |
0.2 |
|
3.2 |
2.3 |
3.7 |
1.7 |
|
Diversification |
|
(22.4) |
|
|
|
|
(31.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
148.1 |
116.6 |
216.2 |
115.0 |
|
201.1 |
195.8 |
221.9 |
167.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Core |
71.8 |
31.9 |
145.7 |
30.6 |
|
127.0 |
129.4 |
142.7 |
81.0 |
|
Non-Core |
80.6 |
85.5 |
94.7 |
70.2 |
|
83.2 |
72.9 |
98.5 |
72.9 |
Structured Credit Portfolio
|
|
CDOs (1) |
|
CLOs (2) |
|
MBS (3) |
|
Other ABS |
|
Total |
|||||
|
|
30 June 2010 |
31 December 2009 |
|
30 June 2010 |
31 December 2009 |
|
30 June 2010 |
31 December 2009 |
|
30 June 2010 |
31 December 2009 |
|
30 June 2010 |
31 December2009 |
|
|
£m |
£m |
|
£m |
£m |
|
£m |
£m |
|
£m |
£m |
|
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drawn notional: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-2 years |
- |
- |
|
- |
- |
|
- |
- |
|
67.5 |
81.5 |
|
67.5 |
81.5 |
|
2-3 years |
75.0 |
39.9 |
|
20.0 |
- |
|
42.5 |
- |
|
85.0 |
19.4 |
|
222.5 |
59.3 |
|
3-4 years |
29.8 |
18.8 |
|
36.7 |
18.5 |
|
19.0 |
42.3 |
|
297.9 |
99.0 |
|
383.4 |
178.6 |
|
4-5 years |
20.2 |
17.4 |
|
10.8 |
47.1 |
|
38.1 |
36.4 |
|
58.6 |
331.7 |
|
127.7 |
432.6 |
|
5-10 years |
90.1 |
107.2 |
|
438.8 |
684.8 |
|
393.6 |
424.0 |
|
547.8 |
521.5 |
|
1,470.3 |
1,737.5 |
|
>10 years |
624.2 |
593.5 |
|
1,004.5 |
1,113.6 |
|
688.7 |
820.0 |
|
607.4 |
572.9 |
|
2,924.8 |
3,100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
839.3 |
776.8 |
|
1,510.8 |
1,864.0 |
|
1,181.9 |
1,322.7 |
|
1,664.2 |
1,626.0 |
|
5,196.2 |
5,589.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-2 years |
- |
- |
|
- |
- |
|
- |
- |
|
61.2 |
67.7 |
|
61.2 |
67.7 |
|
2-3 years |
70.3 |
23.9 |
|
18.3 |
- |
|
31.4 |
- |
|
79.5 |
18.1 |
|
199.5 |
42.0 |
|
3-4 years |
23.3 |
16.4 |
|
31.8 |
16.8 |
|
17.9 |
31.2 |
|
239.3 |
75.6 |
|
312.3 |
140.0 |
|
4-5 years |
17.2 |
3.5 |
|
10.4 |
41.3 |
|
32.9 |
28.8 |
|
52.8 |
275.0 |
|
113.3 |
348.6 |
|
5-10 years |
80.1 |
89.7 |
|
389.9 |
593.5 |
|
254.5 |
251.4 |
|
454.6 |
394.0 |
|
1,179.1 |
1,328.6 |
|
>10 years |
232.5 |
192.7 |
|
810.4 |
895.6 |
|
419.5 |
468.4 |
|
386.8 |
324.9 |
|
1,849.2 |
1,881.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423.4 |
326.2 |
|
1,260.8 |
1,547.2 |
|
756.2 |
779.8 |
|
1,274.2 |
1,155.3 |
|
3,714.6 |
3,808.5 |
Notes:
|
(1) |
Collateralised debt obligations. |
|
(2) |
Collateralised loan obligations. |
|
(3) |
Mortgage-backed securities. |
MBS include sub-prime RMBS with a notional amount of £562.3 million (31 December 2009 - £681.7 million) and a fair value of £349.5 million (31 December 2009 - £415.1 million), all with residual maturities greater than 10 years.
Risk and capital management (continued)
Market risk: Structured Credit Portfolio (continued)
Key points
|
· |
The reduction of total portfolio notionals was driven by sales of AUD and USD denominated CLO assets and amortisation of MBS assets. The sales were partially offset by foreign exchange translation on USD denominated assets, particularly CDO and other ABS assets. |
|
|
|
|
· |
Fair values reduced significantly less than the notionals. The divergence was due to a rally in risk assets during 2010, where CDO and other ABS assets rallied strongly from the 2009 year end prices. |
Interest rate risk
The table below shows the structural interest rate VaR for the Group's retail and commercial businesses and non-traded interest rate VaR, analysed by currency.
|
|
30 June 2010 (1) |
|
31 December 2009 (1) |
||||||
|
|
Average |
Period end |
Maximum |
Minimum |
|
Average |
Period end |
Maximum |
Minimum |
|
|
£m |
£m |
£m |
£m |
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate VaR |
56.8 |
42.1 |
77.5 |
42.1 |
|
72.6 |
101.3 |
101.3 |
53.3 |
|
|
30 June 2010 |
31 December 2009 |
|
|
£m |
£m |
|
|
|
|
|
EUR |
4.3 |
32.2 |
|
GBP |
12.0 |
111.2 |
|
USD |
36.9 |
42.1 |
|
Other |
14.6 |
9.0 |
Note:
|
(1) |
As of and for the six months ended. |
Key points
|
· |
The sterling interest rate VaR has reduced significantly as a result of the hedging of the proceeds from the B-share issuance in December 2009. |
|
|
|
|
· |
The Euro interest rate VaR significantly reduced following legal separation of ABN AMRO and RBS NV on 1 April 2010. |
Risk and capital management (continued)
Market risk: Sensitivity of net interest income*
The Group seeks to mitigate the effect of prospective interest rate movements which could reduce future net interest income (NII) through its management of market risk in the Group's retail and commercial portfolios, whilst balancing the cost of such hedging activities on the current net revenue stream.
The following table shows the sensitivity of NII over the next twelve months to an immediate up and down 1% change to all interest rates.
|
|
30 June 2010 |
31 December 2009 |
|
|
£m |
£m |
|
|
|
|
|
+ 100bp shift in yield curves |
429 |
510 |
|
- 100bp shift in yield curves |
(364) |
(687) |
The base case projected NII is based on the Group's period end balance sheetand forward rate paths implied by the yield curve at 30 June 2010. Contractual repricing dates are used when available. Where contractual repricing dates are not held an estimate of the likely timing and extent of any rate change is used. The projection also includes the expected effects of behavioural options such as the prepayment of residential mortgages. The reported sensitivities show how this projected NII would change in response to an immediate parallel shift to all market rates.
The scenarios used are simplified in that they assume all interest rates for all currencies and maturities move simultaneously and by the same amount. The scenarios do not incorporate new business or potential management actions taken to mitigate the impact of the interest rate risk shock.
The Group remains asset sensitive. The position reflects the assumed margin uplift from the removal of embedded deposit floors and slower mortgage prepayment speeds in higher rate environments. The position also reflects the Group's view that market rates are more likely to rise than decline from levels implied by the forward yield curve.
* Not reviewed
Risk and capital management (continued)
Market risk: Currency risk
The Group does not maintain material non-trading open currency positions other than the structural foreign currency translation exposures arising from its investments in foreign subsidiaries and associated undertakings and their related currency funding. For more details, refer to the Group's 2009 Report and Accounts - Risk, capital and liquidity management section, included within the Business review.
The table below details the Group's structural foreign currency exposures.
|
|
Net assets of overseas operations |
RFS Holdings minority interest |
Net investments in foreign operations |
Net investment hedges |
Structural foreign currency exposures pre-economic hedges |
Economic hedges (1) |
Residual structural foreign currency exposures |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
|
|
|
30 June 2010 |
|
|
|
|
|
|
|
|
US dollar |
17,536 |
2 |
17,534 |
(2,846) |
14,688 |
(4,205) |
10,483 |
|
Euro |
7,192 |
104 |
7,088 |
(778) |
6,310 |
(2,191) |
4,119 |
|
Other non-sterling |
5,219 |
266 |
4,953 |
(3,703) |
1,250 |
- |
1,250 |
|
|
|
|
|
|
|
|
|
|
|
29,947 |
372 |
29,575 |
(7,327) |
22,248 |
(6,396) |
15,852 |
|
|
|
|
|
|
|
|
|
|
31 December 2009 |
|
|
|
|
|
|
|
|
US dollar |
15,589 |
(2) |
15,591 |
(3,846) |
11,745 |
(5,696) |
6,049 |
|
Euro |
21,900 |
13,938 |
7,962 |
(2,351) |
5,611 |
(3,522) |
2,089 |
|
Other non-sterling |
5,706 |
511 |
5,195 |
(4,001) |
1,194 |
- |
1,194 |
|
|
|
|
|
|
|
|
|
|
|
43,195 |
14,447 |
28,748 |
(10,198) |
18,550 |
(9,218) |
9,332 |
Note:
|
(1) |
The economic hedges represent US dollar and Euro preference shares in issue that are treated as equity under IFRS, and do not qualify as hedges for accounting purposes. |
Key point
|
· |
Structural foreign currency exposures have increased in sterling terms due to exchange rate movements and reduced hedging. The increased exposures more effectively offset retranslation movements in RWAs, reducing the sensitivity of the Group's capital ratios to exchange rate movements. |
This information is provided by RNS
Latest directors dealings
- 13 minutes ago Close Brothers Group
- 13 minutes ago Savannah Energy
- 31 minutes ago Mid Wynd International Inv Trust
- 43 minutes ago Dillistone Group
- 52 minutes ago SSP Group