Interim Results - Part 6 of 13

Companies

NATWEST GROUP (NWG)

UK 100

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	30 June 2011			31 March 2011			31 December 2010
	Core	Non- Core	Total	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

Central and local government	6,574	1,507	8,081	5,650	1,514	7,164	6,781	1,671	8,452
Finance	47,545	5,038	52,583	47,797	7,559	55,356	46,910	7,651	54,561
Residential mortgages	144,400	5,509	149,909	142,920	5,678	148,598	140,359	6,142	146,501
Personal lending	32,224	3,229	35,453	32,362	3,482	35,844	33,581	3,891	37,472
Property	44,539	42,862	87,401	45,038	43,866	88,904	42,455	47,651	90,106
Construction	8,525	3,070	11,595	9,011	3,231	12,242	8,680	3,352	12,032
Manufacturing	24,068	6,293	30,361	24,621	6,295	30,916	25,797	6,520	32,317
Service industries and business activities
- retail, wholesale and repairs	22,123	2,598	24,721	22,185	2,802	24,987	21,974	3,191	25,165
- transport and storage	15,243	6,449	21,692	15,402	7,090	22,492	15,946	8,195	24,141
- health, education and recreation	16,707	1,547	18,254	16,391	1,460	17,851	17,456	1,865	19,321
- hotels and restaurants	8,028	1,452	9,480	8,090	1,452	9,542	8,189	1,492	9,681
- utilities	7,487	2,010	9,497	7,679	2,016	9,695	7,098	2,110	9,208
- other	25,128	4,966	30,094	22,876	5,892	28,768	24,464	5,530	29,994
Agriculture, forestry and fishing	3,791	123	3,914	3,741	130	3,871	3,758	135	3,893
Finance leases and instalment credit	8,353	7,920	16,273	8,061	8,119	16,180	8,321	8,529	16,850
Interest accruals	715	176	891	673	193	866	831	278	1,109

Gross loans	415,450	94,749	510,199	412,497	100,779	513,276	412,600	108,203	520,803
Loan impairment provisions	(8,621)	(12,006)	(20,627)	(8,287)	(10,841)	(19,128)	(7,740)	(10,315)	(18,055)

Net loans	406,829	82,743	489,572	404,210	89,938	494,148	404,860	97,888	502,748

·	Gross loans reduced by £10.6 billion in the first half of the year, of which £3.1 billion was in the second quarter, principally due to disposals and restructuring and run-offs in Non-Core, partially offset by increased mortgage lending in UK Retail.

·	Unsecured lending decreased in the first half of the year, predominantly in UK Retail.

·	Property lending decreased during the first half of the year in line with the continued focus on lower risk secured lending.

·	The decrease in transport and storage primarily reflects decreases in shipping and aviation.

	30 June 2011			31 March 2011			31 December 2010
	Core	Non- Core	Total	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

UK
Central and local government	5,945	91	6,036	5,144	104	5,248	5,728	173	5,901
Finance	28,657	3,734	32,391	27,510	5,910	33,420	27,995	6,023	34,018
Residential mortgages	103,689	1,570	105,259	102,462	1,632	104,094	99,928	1,665	101,593
Personal lending	22,205	358	22,563	22,278	451	22,729	23,035	585	23,620
Property	36,584	27,182	63,766	36,419	28,322	64,741	34,970	30,492	65,462
Construction	6,839	2,104	8,943	7,271	2,282	9,553	7,041	2,310	9,351
Manufacturing	10,155	1,447	11,602	10,810	1,498	12,308	12,300	1,510	13,810
Service industries and business activities
- retail, wholesale and repairs	12,255	1,615	13,870	12,762	1,676	14,438	12,554	1,853	14,407
- transport and storage	7,905	3,844	11,749	8,354	4,390	12,744	8,105	5,015	13,120
- health, education and recreation	12,678	835	13,513	12,572	951	13,523	13,502	1,039	14,541
- hotels and restaurants	6,399	775	7,174	6,500	792	7,292	6,558	808	7,366
- utilities	3,418	908	4,326	3,705	1,088	4,793	3,101	1,035	4,136
- other	13,555	2,199	15,754	13,406	2,603	16,009	14,445	1,991	16,436
Agriculture, forestry and fishing	2,955	55	3,010	2,935	61	2,996	2,872	67	2,939
Finance leases and instalment credit	5,578	7,161	12,739	5,565	7,431	12,996	5,589	7,785	13,374
Interest accruals	365	21	386	371	48	419	415	98	513

	279,182	53,899	333,081	278,064	59,239	337,303	278,138	62,449	340,587

Europe
Central and local government	397	862	1,259	220	899	1,119	365	1,017	1,382
Finance	2,642	719	3,361	3,768	821	4,589	2,642	1,019	3,661
Residential mortgages	20,224	640	20,864	19,892	684	20,576	19,473	621	20,094
Personal lending	2,234	572	2,806	2,276	587	2,863	2,270	600	2,870
Property	5,483	12,790	18,273	5,304	12,711	18,015	5,139	12,636	17,775
Construction	1,163	864	2,027	1,246	851	2,097	1,014	873	1,887
Manufacturing	5,669	4,253	9,922	6,167	4,139	10,306	5,853	4,181	10,034
Service industries and business activities
- retail, wholesale and repairs	4,058	767	4,825	4,074	847	4,921	4,126	999	5,125
- transport and storage	5,330	970	6,300	4,932	1,013	5,945	5,625	1,369	6,994
- health, education and recreation	1,373	445	1,818	1,383	355	1,738	1,442	496	1,938
- hotels and restaurants	1,065	597	1,662	1,051	556	1,607	1,055	535	1,590
- utilities	1,536	654	2,190	1,425	591	2,016	1,412	623	2,035
- other	4,807	1,850	6,657	3,246	2,286	5,532	3,877	2,050	5,927
Agriculture, forestry and fishing	789	68	857	774	69	843	849	68	917
Finance leases and instalment credit	264	620	884	265	688	953	370	744	1,114
Interest accruals	135	98	233	76	85	161	143	101	244

	57,169	26,769	83,938	56,099	27,182	83,281	55,655	27,932	83,587

	30 June 2011			31 March 2011			31 December 2010
	Core	Non- Core	Total	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

US
Central and local government	164	15	179	169	38	207	263	53	316
Finance	9,820	444	10,264	9,635	495	10,130	9,522	587	10,109
Residential mortgages	20,020	3,093	23,113	20,084	3,243	23,327	20,548	3,653	24,201
Personal lending	6,315	2,299	8,614	6,327	2,444	8,771	6,816	2,704	9,520
Property	2,228	1,626	3,854	2,574	1,768	4,342	1,611	3,318	4,929
Construction	445	68	513	420	63	483	442	78	520
Manufacturing	6,113	64	6,177	5,614	80	5,694	5,459	143	5,602
Service industries and business activities
- retail, wholesale and repairs	4,644	144	4,788	4,366	199	4,565	4,264	237	4,501
- transport and storage	1,725	1,297	3,022	1,723	1,337	3,060	1,786	1,408	3,194
- health, education and recreation	2,396	107	2,503	2,319	138	2,457	2,380	313	2,693
- hotels and restaurants	455	71	526	487	90	577	486	136	622
- utilities	960	27	987	1,001	32	1,033	1,117	53	1,170
- other	4,195	425	4,620	3,809	465	4,274	4,042	577	4,619
Agriculture, forestry and fishing	25	-	25	26	-	26	31	-	31
Finance leases and instalment credit	2,456	-	2,456	2,188	-	2,188	2,315	-	2,315
Interest accruals	179	57	236	179	59	238	183	73	256

	62,140	9,737	71,877	60,921	10,451	71,372	61,265	13,333	74,598

RoW
Central and local government	68	539	607	117	473	590	425	428	853
Finance	6,426	141	6,567	6,884	333	7,217	6,751	22	6,773
Residential mortgages	467	206	673	482	119	601	410	203	613
Personal lending	1,470	-	1,470	1,481	-	1,481	1,460	2	1,462
Property	244	1,264	1,508	741	1,065	1,806	735	1,205	1,940
Construction	78	34	112	74	35	109	183	91	274
Manufacturing	2,131	529	2,660	2,030	578	2,608	2,185	686	2,871
Service industries and business activities
- retail, wholesale and repairs	1,166	72	1,238	983	80	1,063	1,030	102	1,132
- transport and storage	283	338	621	393	350	743	430	403	833
- health, education and recreation	260	160	420	117	16	133	132	17	149
- hotels and restaurants	109	9	118	52	14	66	90	13	103
- utilities	1,573	421	1,994	1,548	305	1,853	1,468	399	1,867
- other	2,571	492	3,063	2,415	538	2,953	2,100	912	3,012
Agriculture, forestry and fishing	22	-	22	6	-	6	6	-	6
Finance leases and instalment credit	55	139	194	43	-	43	47	-	47
Interest accruals	36	-	36	47	1	48	90	6	96

	16,959	4,344	21,303	17,413	3,907	21,320	17,542	4,489	22,031

	30 June 2011			31 March 2011			31 December 2010
	Core	Non- Core	Total	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

Impaired loans (1)
- UK	9,229	7,812	17,041	9,175	7,147	16,322	8,575	7,835	16,410
- Overseas	6,326	16,268	22,594	5,932	15,878	21,810	4,936	14,355	19,291

	15,555	24,080	39,635	15,107	23,025	38,132	13,511	22,190	35,701

Accruing loans past due 90 days or more (2)
- UK	1,487	583	2,070	1,545	752	2,297	1,434	939	2,373
- Overseas	415	230	645	366	246	612	262	262	524

	1,902	813	2,715	1,911	998	2,909	1,696	1,201	2,897

Total REIL	17,457	24,893	42,350	17,018	24,023	41,041	15,207	23,391	38,598
PPL (3)	354	127	481	324	202	526	473	160	633

Total REIL and PPL	17,811	25,020	42,831	17,342	24,225	41,567	15,680	23,551	39,231

REIL as a % of gross loans and advances (4)	4.2%	26.1%	8.3%	4.1%	23.0%	7.9%	3.7%	20.7%	7.3%
Provisions as a % of REIL	50%	48%	49%	49%	45%	47%	51%	44%	47%

(1)	Loans against which an impairment provision is held.
(2)	Loans where an impairment event has taken place but no impairment provision recognised. This category is used for fully collateralised non-revolving credit facilities.
(3)	Loans for which an impairment event has occurred but no impairment provision is necessary. This category is used for advances and revolving credit facilities where the past due concept is not applicable.
(4)	Gross loans and advances to customers including disposal groups and excluding reverse repurchase agreements.

·	REIL increased by £3.8 billion in the first half of the year and by £1.3 billion in the second quarter, predominantly in Non-Core and Ulster Bank.

·	Ulster Bank (Core and Non-Core) was the predominant contributor to the increase in REIL with an increase of £3.2 billion, principally property lending (commercial real estate up £2.2 billion and mortgages up £0.4 billion).

·	Ulster Bank (Core and Non-Core) provision coverage ratio increased to 51% from 44% at 31 December 2010 reflecting provisions relating to development land in the second quarter following re-assessment of collateral values. This contributed to the higher Group provision coverage ratio at 30 June 2011, which now stands at 49% compared with 47% at the year end and at 31 March 2011.

	REIL			PPL			Total
	Core	Non- Core	Total	Core	Non- Core	Total	Core	Non- Core	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m

At 1 January 2011	15,207	23,391	38,598	473	160	633	15,680	23,551	39,231
Intra-group transfers	369	(369)	-	-	-	-	369	(369)	-
Currency translation and other adjustments	68	98	166	1	4	5	69	102	171
Additions	3,119	2,866	5,985	305	152	457	3,424	3,018	6,442
Transfers	137	39	176	(137)	(39)	(176)	-	-	-
Disposals, restructurings and repayments	(1,342)	(1,426)	(2,768)	(318)	(75)	(393)	(1,660)	(1,501)	(3,161)
Amounts written-off	(540)	(576)	(1,116)	-	-	-	(540)	(576)	(1,116)

At 31 March 2011	17,018	24,023	41,041	324	202	526	17,342	24,225	41,567
Intra-group transfers	12	(12)	-	-	-	-	12	(12)	-
Currency translation and other adjustments	111	376	487	(5)	(1)	(6)	106	375	481
Additions	2,492	3,094	5,586	137	22	159	2,629	3,116	5,745
Transfers	21	20	41	(21)	(20)	(41)	-	-	-
Disposals, restructurings and repayments	(1,719)	(2,272)	(3,991)	(81)	(76)	(157)	(1,800)	(2,348)	(4,148)
Amounts written-off	(478)	(336)	(814)	-	-	-	(478)	(336)	(814)

At 30 June 2011	17,457	24,893	42,350	354	127	481	17,811	25,020	42,831

		Quarter ended
	30 June 2011					31 March 2011			30 June 2010
	Core		Non-Core	RFS MI	Total	Core	Non-Core	Total	Core	Non-Core	Total
	£m		£m	£m	£m	£m	£m	£m	£m	£m	£m

At beginning of period	8,416		10,842	-	19,258	7,866	10,316	18,182	7,397	9,430	16,827
Transfers to disposal groups	-		9	-	9	-	(9)	(9)	-	(38)	(38)
Intra-group transfers	-		-	-	-	177	(177)	-	-	-	-
Currency translation and other adjustments	33		145	-	178	56	95	151	(309)	(66)	(375)
Disposals	-		-	11	11	-	-	-	-	(17)	(17)
Amounts written-off	(504)		(474)	-	(978)	(514)	(438)	(952)	(562)	(2,122)	(2,684)
Recoveries of amounts previously written-off	41		126	-	167	39	80	119	59	21	80
Charge to income statement
- continued	810		1,427	-	2,237	852	1,046	1,898	1,096	1,383	2,479
- discontinued	-		-	(11)	(11)	-	-	-	-	-	-
Unwind of discount	(44)		(68)	-	(112)	(60)	(71)	(131)	(48)	(58)	(106)

At end of period	8,752		12,007	-	20,759	8,416	10,842	19,258	7,633	8,533	16,166

	Half year ended
	30 June 2011				30 June 2010
	Core	Non-Core	RFS MI	Total	Core	Non-Core	RFS MI	Total
	£m	£m	£m	£m	£m	£m	£m	£m

At beginning of period	7,866	10,316	-	18,182	6,921	8,252	2,110	17,283
Transfers to disposal groups	-	-	-	-	-	(67)	-	(67)
Intra-group transfers	177	(177)	-	-	-	-	-	-
Currency translation and other adjustments	89	240	-	329	(279)	119	-	(160)
Disposals	-	-	11	11	-	(17)	(2,152)	(2,169)
Amounts written-off	(1,018)	(912)	-	(1,930)	(1,063)	(2,718)	-	(3,781)
Recoveries of amounts previously written-off	80	206	-	286	104	46	-	150
Charge to income statement
- continuing	1,662	2,473	-	4,135	2,046	3,035	-	5,081
- discontinued	-	-	(11)	(11)	-	-	42	42
Unwind of discount	(104)	(139)	-	(243)	(96)	(117)	-	(213)

At end of period	8,752	12,007	-	20,759	7,633	8,533	-	16,166

·	Ulster Bank (Core and Non-Core) was the main contributor to impairment losses with a total half year charge of £2.5 billion (Core - £0.7 billion; Non-Core - £1.8 billion), 61% of the total Group impairment charge of £4.1 billion. The Ulster Bank (Core and Non-Core) charge includes the impact of a re-assessment of collateral values relating to development land.

·	The other main contributor to the Q2 2011 Non-Core impairment charge was impairments in respect of a small number of large corporates.

·	Provision balance has increased by £2.6 billion in the first half of 2011 from £18.2 billion to £20.8 billion, as impairments are running twice the rate of write-offs.

·	Non-Core latent loss in Q2 2011 principally reflects the release of Ulster Bank's provision relating to development land booked in Q1 2011, substituted with individually assessed impairment charge in Q2 2011.

·	The H1 2011 impairment charge was marginally lower than for H1 2010. The decrease in loan impairments of £0.9 billion was substantially offset by impairments of AFS Greek sovereign bonds.

	Central and local government			Financial institutions	ABS	Corporate	Total
	UK	US	Other	Financial institutions	ABS	Corporate	Total
	£m	£m	£m	£m	£m	£m	£m

30 June 2011
Held-for-trading (HFT)	8,035	14,608	51,434	12,099	25,636	6,357	118,169
DFV	1	-	192	10	1	9	213
Available-for-sale	11,399	16,600	37,546	7,951	43,207	1,965	118,668
Loans and receivables	11	-	-	367	5,813	404	6,595

	19,446	31,208	89,172	20,427	74,657	8,735	243,645
Short positions (HFT)	(3,864)	(15,841)	(25,064)	(5,450)	(1,041)	(2,134)	(53,394)

	15,582	15,367	64,108	14,977	73,616	6,601	190,251

Available-for-sale
Gross unrealised gains	363	474	422	71	1,300	62	2,692
Gross unrealised losses	(3)	-	(119)	(29)	(3,179)	(6)	(3,336)

31 March 2011
Held-for-trading	5,422	19,079	51,792	7,461	23,907	5,478	113,139
DFV	1	-	199	16	114	2	332
Available-for-sale	8,474	15,621	34,325	7,988	42,884	1,836	111,128
Loans and receivables	11	-	-	391	5,951	432	6,785

	13,908	34,700	86,316	15,856	72,856	7,748	231,384
Short positions (HFT)	(4,852)	(12,715)	(22,463)	(3,421)	(1,014)	(2,684)	(47,149)

	9,056	21,985	63,853	12,435	71,842	5,064	184,235

Available-for-sale
Gross unrealised gains	207	202	346	38	1,102	65	1,960
Gross unrealised losses	(24)	(44)	(820)	(31)	(3,201)	(33)	(4,153)

31 December 2010
Held-for-trading	5,097	15,956	43,224	7,548	21,988	5,056	98,869
DFV	1	-	262	16	119	4	402
Available-for-sale	8,377	17,890	33,122	7,849	42,515	1,377	111,130
Loans and receivables	11	-	-	419	6,203	446	7,079

	13,486	33,846	76,608	15,832	70,825	6,883	217,480
Short positions (HFT)	(4,200)	(11,398)	(18,909)	(3,622)	(1,335)	(1,553)	(41,017)

	9,286	22,448	57,699	12,210	69,490	5,330	176,463

Available-for-sale
Gross unrealised gains	349	341	700	60	1,057	88	2,595
Gross unrealised losses	(10)	(1)	(618)	(32)	(3,396)	(40)	(4,097)

·	Held-for-trading bonds increased in H1 2011 by £19.3 billion, with increases in G10 and Australian government bonds. The increase in asset-backed securities (ABS) included £4.1 billion in GBM Mortgage trading primarily in US agency pass-through notes, reflecting strong investor appetite.

·	The Group has continued to add to its liquidity resources through the purchase of around £7.5 billion of top quality AFS government bonds during Q2 2011. These purchases for the Group's liquidity portfolio have been focussed in the highest quality securities and most liquid markets. The growth in these liquidity reserves provides the Group with an opportunity to manage market risk and improve returns.

·	The proportion of AAA rated debt securities increased to 70% primarily due to a move towards higher quality government bonds as well as demand for US agency pass-through notes.

·	Non-investment grade and unrated bonds were 5% of the portfolio compared with 7% at the end of Q1 2011 and 2010 year end.

	Central and local government			Financial institutions	ABS	Corporate	Total	% of total
	Central and local government
	UK	US	Other
	£m	£m	£m	£m	£m	£m	£m

30 June 2011
AAA	19,446	31,208	55,063	7,759	55,669	435	169,580	70
AA to AA+	-	-	5,290	3,300	5,668	678	14,936	6
A to AA-	-	-	23,843	5,191	3,991	1,797	34,822	14
BBB- to A-	-	-	3,229	1,848	3,501	2,442	11,020	5
Non-investment grade	-	-	1,687	931	4,579	2,340	9,537	4
Unrated	-	-	60	1,398	1,249	1,043	3,750	1

	19,446	31,208	89,172	20,427	74,657	8,735	243,645	100

31 March 2011
AAA	13,908	34,700	51,272	2,701	52,867	171	155,619	67
AA to AA+	-	-	6,428	3,341	7,031	640	17,440	7
A to AA-	-	-	22,778	4,832	3,187	1,366	32,163	14
BBB- to A-	-	-	3,351	1,897	3,799	1,883	10,930	5
Non-investment grade	-	-	1,946	1,300	4,805	3,413	11,464	5
Unrated	-	-	541	1,785	1,167	275	3,768	2

	13,908	34,700	86,316	15,856	72,856	7,748	231,384	100

31 December 2010
AAA	13,486	33,846	44,784	3,084	51,235	153	146,588	67
AA to AA+	-	-	18,025	3,261	6,335	554	28,175	13
A to AA-	-	-	9,138	4,352	3,244	1,141	17,875	8
BBB- to A-	-	-	2,843	1,489	3,385	1,869	9,586	5
Non-investment grade	-	-	1,766	2,245	4,923	2,311	11,245	5
Unrated	-	-	52	1,401	1,703	855	4,011	2

	13,486	33,846	76,608	15,832	70,825	6,883	217,480	100

	RMBS (1)
	G10 government	Covered bond	Prime	Non- conforming	Sub-prime	CMBS (2)	CDOs (3)	CLOs (4)	Other ABS	Total
30 June 2011	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

AAA	34,399	7,345	4,835	1,587	295	1,991	389	2,116	2,712	55,669
AA to AA+	1,401	381	451	96	138	435	539	1,356	871	5,668
A to AA-	144	385	239	76	280	1,238	389	448	792	3,991
BBB- to A-	-	61	138	301	86	398	171	582	1,764	3,501
Non-investment grade	-	-	758	727	308	408	1,900	259	219	4,579
Unrated	-	-	108	23	101	14	97	484	422	1,249

	35,944	8,172	6,529	2,810	1,208	4,484	3,485	5,245	6,780	74,657

31 March 2011
AAA	32,067	7,200	4,140	1,684	273	1,922	424	2,269	2,888	52,867
AA to AA+	1,547	475	653	96	218	744	565	1,617	1,116	7,031
A to AA-	-	197	118	73	246	979	358	345	871	3,187
BBB- to A-	-	157	162	299	84	390	185	578	1,944	3,799
Non-investment grade	-	-	760	917	246	439	1,847	344	252	4,805
Unrated	-	-	25	28	143	2	76	673	220	1,167

	33,614	8,029	5,858	3,097	1,210	4,476	3,455	5,826	7,291	72,856

31 December 2010
AAA	28,835	7,107	4,355	1,754	317	2,789	444	2,490	3,144	51,235
AA to AA+	1,529	357	147	144	116	392	567	1,786	1,297	6,335
A to AA-	-	408	67	60	212	973	296	343	885	3,244
BBB- to A-	-	-	82	316	39	500	203	527	1,718	3,385
Non-investment grade	-	-	900	809	458	296	1,863	332	265	4,923
Unrated	-	-	196	52	76	-	85	596	698	1,703

	30,364	7,872	5,747	3,135	1,218	4,950	3,458	6,074	8,007	70,825

(1)	Residential mortgage-backed securities.
(2)	Commercial mortgage-backed securities.
(3)	Collateralised debt obligations.
(4)	Collateralised loan obligations.

	30 June 2011						31 March 2011					31 December 2010
	Central and local government	ABS	Other (1)	Total	AFS reserves (gross)	AFS reserves (net)	Central and local government	ABS	Other (1)	Total	AFS reserves (net)	Central and local government	ABS	Other (1)	Total	AFS reserves (net)
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

US	16,600	20,707	521	37,828	131	265	15,670	20,961	731	37,362	(133)	17,890	20,872	763	39,525	(116)
UK	11,399	4,286	2,066	17,751	182	(148)	8,500	4,134	2,052	14,686	(134)	8,377	4,002	2,284	14,663	(106)
Germany	14,218	1,160	477	15,855	(38)	(35)	12,584	1,298	500	14,382	(217)	10,649	1,360	535	12,544	(35)
Netherlands	5,323	7,366	782	13,471	(66)	40	3,977	7,096	774	11,847	(8)	3,469	6,773	713	10,955	(59)
France	5,503	628	1,171	7,302	(36)	(22)	4,195	579	1,000	5,774	(42)	5,912	575	900	7,387	33
Spain	91	7,018	51	7,160	(1,243)	(921)	91	6,912	78	7,081	(863)	88	6,773	157	7,018	(939)
Japan	4,240	-	6	4,246	1	1	4,204	-	3	4,207	-	4,354	-	82	4,436	-
Australia	-	599	2,141	2,740	(17)	(20)	-	467	2,421	2,888	(27)	-	486	1,586	2,072	(34)
Singapore	1,144	-	213	1,357	-	-	798	-	206	1,004	-	649	-	209	858	-
Italy	955	240	16	1,211	(105)	(79)	928	238	24	1,190	(67)	906	243	24	1,173	(86)
Supranational	-	-	960	960	26	25	-	-	489	489	4	-	-	459	459	6
Denmark	694	-	206	900	(3)	(3)	690	-	251	941	(7)	629	-	172	801	2
India	642	-	175	817	(8)	(5)	657	-	156	813	(3)	548	-	139	687	2
Belgium	770	36	8	814	(52)	(39)	742	35	8	785	(32)	763	34	53	850	(34)
Greece	733	-	-	733	-	-	936	-	-	936	(476)	895	-	-	895	(517)
Switzerland	535	-	173	708	12	10	749	-	161	910	8	657	-	156	813	11
Austria	283	162	150	595	(34)	(27)	267	50	143	460	(19)	274	51	151	476	(20)
Sweden	79	257	253	589	-	-	77	250	219	546	-	30	269	165	464	-
Hong Kong	544	-	1	545	-	-	797	-	12	809	-	905	-	8	913	-
South Korea	129	271	-	400	1	1	229	383	-	612	1	261	429	-	690	(2)
Republic of Ireland	93	160	128	381	(100)	(75)	101	161	375	637	(67)	104	177	408	689	(74)
Other	1,570	317	418	2,305	(91)	(71)	2,228	320	221	2,769	(43)	2,029	471	262	2,762	(93)

	65,545	43,207	9,916	118,668	(1,440)	(1,103)	58,420	42,884	9,824	111,128	(2,125)	59,389	42,515	9,226	111,130	(2,061)

		30 June 2011						31 March 2011 Total	31 December 2010 Total
Asset quality	Probability of default range	0-3 months	3-6 months	6-12 months	1-5 years	Over 5 years	Total	31 March 2011 Total	31 December 2010 Total
Asset quality	Probability of default range	£m	£m	£m	£m	£m	£m	£m	£m

AQ1	0% - 0.034%	23,480	10,823	16,883	114,941	190,904	357,031	323,302	408,489
AQ2	0.034% - 0.048%	648	154	366	1,666	2,766	5,600	5,365	2,659
AQ3	0.048% - 0.095%	1,523	461	741	3,293	4,890	10,908	10,780	3,317
AQ4	0.095% - 0.381%	776	138	429	2,434	2,847	6,624	6,349	3,391
AQ5	0.381% - 1.076%	602	164	251	2,290	3,626	6,933	6,396	4,860
AQ6	1.076% - 2.153%	1,574	57	121	963	880	3,595	3,991	1,070
AQ7	2.153% - 6.089%	194	25	55	511	1,287	2,072	1,880	857
AQ8	6.089% - 17.222%	3	1	10	108	532	654	786	403
AQ9	17.222% - 100%	20	10	24	192	240	486	995	450
AQ10	100%	184	7	36	468	274	969	1,204	1,581

		29,004	11,840	18,916	126,866	208,246	394,872	361,048	427,077
Counterparty mtm netting							(323,455)	(290,462)	(330,397)
Cash collateral held against derivative exposures							(27,500)	(25,363)	(31,096)

Net exposure							43,917	45,223	65,584

·	Net exposure, after taking account of position and collateral netting arrangements reduced marginally in Q2 2011, despite an increase in derivative carrying values.

·	Interest rate contracts increased due to lower over-the-counter contract compression trades, reductions in interest rate yields and depreciation of sterling against the euro. This was partially offset by the effect of the appreciation of sterling against the US dollar. All major five year interest rate indices (sterling, euro, and US dollar), moved down, decreasing by approximately 45, 26, and 39 basis points respectively.

·	Exchange rate contracts decreased due to the trading fluctuations and movements in forward rates and volume.

·	Credit derivative fair values increased by £9.8 billion, primarily as a result of de-risking of Non-Core where hedging trades resulted in higher assets and liabilities. Widening credit spreads also contributed to the increase in Non-Core.

·	Net exposure, after taking account of position and collateral netting arrangements, reduced by 33%, primarily reflecting reductions in derivative carrying values.

·	The main driver of the £28 billion decrease in interest rate assets reflected greater use of over-the-counter contract compression trades during H1 2011 overall and appreciation of sterling against the US dollar, as the majority of interest rate contracts are US dollar denominated. This was partially offset by a reduction in clearing house netting, downward shifts in US interest rate yields and increased net new business.

·	Exchange rate contracts decreased due to trading fluctuations and movements in forward rates and volume.

·	Credit derivatives increased by £5.6 billion, primarily as a result of de-risking of Non-Core where hedging trades put in place in Q2 2011 resulted in higher assets and liabilities. Widening credit spreads also increased carrying values in Non-Core's Structured Credit Products.

	Notional: protected assets	Fair value: reference protected assets	Gross exposure	Credit valuation adjustment (CVA)	Hedges	Net exposure
Monoline insurers	£m	£m	£m	£m	£m	£m

30 June 2011
A to AA-	5,547	4,936	611	166	-	445
Non-investment grade	7,079	4,047	3,032	2,155	68	809

	12,626	8,983	3,643	2,321	68	1,254

Of which:
CMBS	3,853	2,131	1,722	1,285
CDOs	1,086	230	856	596
CLOs	4,946	4,561	385	107
Other ABS	2,241	1,739	502	250
Other	500	322	178	83

	12,626	8,983	3,643	2,321

31 March 2011
A to AA-	5,759	5,121	638	194	-	444
Non-investment grade	8,123	5,246	2,877	1,984	69	824

	13,882	10,367	3,515	2,178	69	1,268

Of which:
CMBS	3,859	2,316	1,543	1,132
CDOs	1,092	245	847	569
CLOs	6,183	5,747	436	139
Other ABS	2,260	1,734	526	260
Other	488	325	163	78

	13,882	10,367	3,515	2,178

31 December 2010
A to AA-	6,336	5,503	833	272	-	561
Non-investment grade	8,555	5,365	3,190	2,171	71	948

	14,891	10,868	4,023	2,443	71	1,509

Of which:
CMBS	4,149	2,424	1,725	1,253
CDOs	1,133	256	877	593
CLOs	6,724	6,121	603	210
Other ABS	2,393	1,779	614	294
Other	492	288	204	93

	14,891	10,868	4,023	2,443

·	The gross exposure to monolines increased primarily due to lower prices of underlying reference instruments.

·	The CVA increased reflecting the increase in exposure and widened credit spreads.

·	The exposure to monolines decreased primarily due to higher prices of underlying reference instruments. The trades with monolines are predominantly US dollar denominated. The strengthening of sterling against the US dollar further decreased the exposure.

·	The CVA decreased on a total basis, with a reduction in exposure but partially offset by the impact of wider credit spreads.

·	Exposure to CDPCs increased primarily driven by wider credit spreads on the underlying reference loans and bonds, partially offset by a decrease in the relative value of senior tranches compared with that of underlying reference portfolios.
·	The CVA increased in line with the increased exposure.

	30 June 2011						31 December 2010
	Government	Banks	Other	Total	Short positions	Net of short positions	Government	Banks	Other	Total	Short positions	Net of short positions
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m

US	22,912	9,721	39,259	71,892	19,484	52,408	21,201	14,382	36,813	72,396	14,240	58,156
France	18,905	18,956	6,635	44,496	6,069	38,427	17,293	16,007	6,756	40,056	4,285	35,771
Germany	21,741	6,595	8,320	36,656	5,391	31,265	22,962	6,276	10,467	39,705	4,685	35,020
Netherlands	4,303	5,186	11,778	21,267	1,287	19,980	2,900	3,055	10,824	16,779	951	15,828
Japan	5,421	7,789	5,777	18,987	3,336	15,651	7,983	6,962	7,542	22,487	409	22,078
Spain	1,247	4,911	11,242	17,400	2,402	14,998	1,401	4,248	11,589	17,238	1,357	15,881
Italy	8,501	1,671	1,846	12,018	5,337	6,681	6,409	1,083	2,188	9,680	3,183	6,497
Switzerland	4,313	4,024	3,309	11,646	18	11,628	4	1,714	2,944	4,662	12	4,650
Republic of Ireland	186	3,094	2,376	5,656	82	5,574	199	3,789	3,101	7,089	131	6,958

Set out below are cross border exposures for selected other eurozone countries:
Portugal	189	536	957	1,682	113	1,569	197	985	472	1,654	121	1,533
Greece	1,032	48	840	1,920	29	1,891	1,015	228	1,175	2,418	37	2,381

	Lending								Derivatives and contingent obligations
	Central and local government	Central banks	Other financial institutions	Corporate	Personal	Total	Core	Non- Core	Derivatives and contingent obligations
30 June 2011	£m	£m	£m	£m	£m	£m	£m	£m	£m

Republic of Ireland	53	1,557	459	20,669	20,773	43,511	32,364	11,147	2,448
India	192	260	1,170	2,625	16	4,263	3,975	288	1,448
Italy	7	81	1,121	2,317	26	3,552	1,891	1,661	2,323
China	14	223	1,431	647	34	2,349	2,177	172	1,697
South Korea	-	12	1,078	710	2	1,802	1,786	16	394
Turkey	207	36	312	1,216	13	1,784	1,221	563	556
Russia	-	49	815	808	65	1,737	1,610	127	248
Brazil	-	-	1,001	301	4	1,306	1,185	121	88
Mexico	-	8	249	1,036	1	1,294	872	422	198
Romania	34	183	48	477	401	1,143	17	1,126	125
Poland	41	5	52	723	5	826	744	82	372
Indonesia	83	57	233	264	133	770	632	138	321
Portugal	45	-	48	585	5	683	327	356	555

Additional selected countries

Spain	20	13	1,197	6,842	405	8,477	4,022	4,455	2,372
Belgium	172	11	1,182	983	19	2,367	1,855	512	2,342
Japan	401	-	1,028	756	24	2,209	1,561	648	1,907
Greece	10	9	36	421	15	491	341	150	220

31 December 2010

Republic of Ireland	61	2,119	900	19,881	20,228	43,189	32,431	10,758	3,496
India	262	-	1,614	2,590	273	4,739	4,085	654	1,249
Italy	45	78	1,086	2,483	27	3,719	1,817	1,902	2,312
China	17	298	1,240	753	64	2,372	2,136	236	1,572
South Korea	-	276	1,039	555	2	1,872	1,822	50	643
Turkey	282	68	485	1,365	12	2,212	1,520	692	547
Russia	-	110	251	1,181	58	1,600	1,475	125	216
Brazil	-	-	825	315	5	1,145	1,025	120	120
Mexico	-	8	149	999	1	1,157	854	303	148
Romania	36	178	42	426	446	1,128	7	1,121	142
Poland	-	168	13	655	6	842	736	106	381
Indonesia	84	42	262	293	131	812	657	155	273
Portugal	86	-	63	611	6	766	450	316	537

Additional selected countries

Spain	19	5	258	6,962	407	7,651	3,130	4,521	2,447
Belgium	102	14	473	893	327	1,809	1,307	502	2,546
Japan	1,379	-	685	809	24	2,897	2,105	792	2,000
Greece	14	36	49	188	16	303	173	130	214

(1)	Credit risk assets consist of:
	●	Lending: cash and balances at central banks, loans and advances to banks and customers (including overdraft facilities, instalment credit and finance leases). Undrawn commitments are excluded;
	●	Derivative exposures are measured at mark-to-market and net of liabilities where a master netting arrangement is enforceable;
	●	Contingent obligations, primarily letters of credit and guarantees. Undrawn commitments are excluded.

·	Exposure shows a mixed picture for the selected countries during the first half of 2011. Currency movements increased euro denominated lending by 4.6% and reduced US dollar denominated exposures by 3.5%. There were reductions in lending to governments, central banks and corporate clients whereas exposure to banks increased. Non-Core exposures fell, except in a few countries where drawings took place under committed facilities. Appendix 3 provides further commentary and details on selected eurozone countries, including held-for-trading and available-for-sale holdings.

·	Japan - lending exposure at £2.2 billion reduced by £0.7 billion since 31 December 2010 driven by a reduction in government lending.

·	North Africa and the Middle East - exposure reduced during the first half of 2011. Of the countries experiencing varying degrees of social and political unrest. Lending exposure to Bahrain and Egypt was £197 million and £77 million respectively. Exposure to Libya and Syria is negligible.

	Investment		Development
	Commercial	Residential	Commercial	Residential	Total
By geography	£m	£m	£m	£m	£m

30 June 2011
UK (excluding Northern Ireland)	31,116	6,696	1,356	7,763	46,931
Ireland (ROI & NI) (1)	5,424	1,210	2,762	6,701	16,097
Western Europe	10,887	1,565	13	87	12,552
US	5,880	1,196	79	108	7,263
RoW	1,361	24	149	230	1,764

	54,668	10,691	4,359	14,889	84,607

31 March 2011
UK (excluding Northern Ireland)	32,221	7,195	1,405	8,184	49,005
Ireland (ROI & NI) (1)	5,153	1,143	2,848	6,556	15,700
Western Europe	12,273	712	8	70	13,063
US	6,696	1,252	234	97	8,279
RoW	1,490	24	141	260	1,915

	57,833	10,326	4,636	15,167	87,962

31 December 2010
UK (excluding Northern Ireland)	32,979	7,255	1,520	8,296	50,050
Ireland (ROI & NI) (1)	5,056	1,148	2,785	6,578	15,567
Western Europe	12,262	707	25	46	13,040
US	7,405	1,332	69	175	8,981
RoW	1,622	25	138	524	2,309

	59,324	10,467	4,537	15,619	89,947

By sub-sector (1)	UK (excl NI) £m	Ireland (ROI & NI) £m	Western Europe £m	US £m	RoW £m	Total £m

30 June 2011
Residential	14,449	9,046	1,650	1,304	254	26,703
Office	7,766	462	4,446	552	806	14,032
Retail	9,671	956	2,618	268	296	13,809
Industrial	4,589	183	675	53	51	5,551
Mixed/other	10,456	5,450	3,163	5,086	357	24,512

	46,931	16,097	12,552	7,263	1,764	84,607

31 December 2010
Residential	15,551	7,726	753	1,507	549	26,086
Office	8,551	1,402	4,431	675	891	15,950
Retail	10,607	3,985	1,933	1,029	479	18,033
Industrial	4,928	674	711	80	106	6,499
Mixed/other	10,413	1,780	5,212	5,690	284	23,379

	50,050	15,567	13,040	8,981	2,309	89,947

·	The decrease in the commercial real estate portfolio over the last six months has occurred primarily in the UK. The growth shown in Ireland is due to foreign exchange rate movements. The asset mix has remained broadly unchanged since the end of 2010.

·	Of the total portfolio at 30 June 2011, £39.0 billion (31 December 2010 - £46.3 billion) is managed within the Group's standard credit risk processes, £6.2 billion (31 December 2010 - £9.2 billion) is receiving heightened credit oversight under the Group watchlist process ("watch") and £39.5 billion (31 December 2010 - £34.4 billion) is managed within Global Restructuring Group (GRG). The increase in the portfolio managed by GRG is primarily driven by Ulster Bank Group.

·	Ulster Bank (Core and Non-Core) commercial real estate lending of £18.4 billion had a provision of £6.0 billion at 30 June 2011.

·	Short-term lending to property developers without firm long-term financing in place is characterised as speculative. Speculative lending at origination continues to represent less than 1% of the portfolio.

·	Tighter risk appetite criteria for new business origination were implemented during 2010. Whilst there has been some recovery in the value of prime properties in the UK, the Group observes that it has been inconsistent. To date this recovery has not fed through into lower quality properties in the UK and has not been evident in other regions, notably the eurozone and Republic of Ireland.

·	The commercial real estate market will remain challenging in key markets and new business will be accommodated by running-off existing exposure. Liquidity in the market remains tight and so the Group's focus remains on re-financing and supporting the existing client base.

	30 June 2011	31 December 2010
Personal credit risk assets	£m	£m

UK Retail
- mortgages	95,955	92,592
- cards, loans and overdrafts	16,941	18,072
Ulster Bank
- mortgages	21,778	21,162
- other personal	1,605	1,017
Citizens
- mortgages	23,513	24,575
- auto and cards	5,575	6,062
- other (1)	3,070	3,455
Other (2)	16,409	18,123

	184,846	185,058

(1)	Mainly student loans and recreational vehicles/marine.
(2)	Personal exposures in other divisions.

	30 June 2011	31 December 2010
	%	%

UK Retail (1)	1.7	1.7
Citizens	1.2	1.4

·	The UK Retail mortgage portfolio totalled £96.0 billion at 30 June 2011, an increase of 3.6% from 31 December 2010, due to continued strong sales growth and lower redemption rates relative to before the financial crisis. Of the total portfolio, 98.4% is designated as Core business with the primary brands being the Royal Bank of Scotland, NatWest, the One Account and First Active. Non-Core comprises Direct Line Mortgages. The assets are prime mortgage lending and include 6.8% (£6.5 billion) of exposure to residential buy-to-let. There is a small legacy self certification book (0.3% of total assets), which was withdrawn from sale in 2004.
·	Gross new mortgage lending in H1 2011 remained strong at £7.8 billion. The average LTV for new business during H1 2011 was 54.9% compared with 64.2% in FY 2010. The maximum LTV available to new customers remains at 90%. Based on the Halifax House Price index at March 2011, the book average indexed LTV has increased marginally to 59.0% from 58.2% at 31 December 2010, influenced by the fall in house prices with the proportion of balances with an LTV over 100% at 30 June 2011 at 7.8%, up from 6.9% at 31 December 2010.
·	The arrears rate (more than 3 payments in arrears, excluding repossessions and shortfalls post property sale) has remained broadly stable since late 2009 at 1.7%.
·	The mortgage impairment charge was £116 million for the half year ended 30 June 2011 (Q1 2011 - £61 million; Q2 2011 - £55 million) an increase of 36.7% from H2 2010. A significant part of this relates to adjustments reflecting reduced expectations of recovery on prior period defaulted debt and provisions relating to mortgages in forbearance. 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 temporary financial difficulties remain in place. Forbearance/re-negotiation activities include offering reduced or deferred payment terms on a temporary basis for a period of up to twelve months, during which arrears continue to accrue on the account, as well as term extensions beyond the originally planned repayment date, and also re-capitalisations from the non-performing book back to performing. It is Group policy not to initiate repossession proceedings for at least six months after arrears are evident. The number of properties repossessed in H1 2011 was 715 which is broadly in line with the 2010 average.