The Royal Bank of Scotland N.V. Interim Results

Companies

NATWEST GROUP (NWG)

UK 100

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Contents	Page

Management's report on the interim financial statements	2
Financial review	3

Condensed consolidated interim financial statements

Condensed consolidated income statement (unaudited)	5
Condensed consolidated statement of comprehensive income (unaudited)	5
Condensed consolidated balance sheet (unaudited)	6
Condensed consolidated statement of changes in equity (unaudited)	7
Condensed consolidated cash flow statement (unaudited)	7
Notes	8

Risk factors	19
Forward-looking statements	21
Additional information	23

●	Total assets were €7.1 billion at 30 June 2017, a decrease of €1.2 billion, or 15%, compared with €8.3 billion at 31 December 2016, mainly driven by a decrease in assets of disposal groups with the transfer of the India business to RBS plc in February 2017.
●	Cash and balances at central banks decreased by €0.1 billion, or 22%, to €0.3 billion at 30 June 2017 reflecting reduced liquidity requirements.
●	Loans and advances to banks increased by €0.1 billion, or 3%, to €3.3 billion at 30 June 2017, with the majority of the balance, €2.4 billion, being with fellow subsidiaries and reverse repos and stock borrowing balances of €0.9 billion.
●	Loans and advances to customers decreased by €0.1 billion, or 45%, to €0.1 billion, reflecting continued repayments and business run-down.
●	Derivative assets decreased by €0.3 billion, or 16%, to €1.3 billion, and derivative liabilities decreased by €0.3 billion, or 24%, to €0.9 billion. €0.8 billion of the assets and €0.9 billion of the liabilities are balances with fellow subsidiaries.
●	Subordinated liabilities decreased by €0.4 billion, or 31%, to €1.0 billion primarily due the liquidity management exercise to buy back Tier 2 subordinated liabilities completed in June 2017 as part of the ongoing management of the capital structure.
●	Assets and liabilities of disposal groups decreased from €0.8 billion to nil and €0.2 billion to nil respectively, due to the transfer of the India business.
●	Total equity decreased by €0.1 billion, or 3%, to €2.9 billion, reflecting the attributable loss for the period.

	30 June	31 December
	2017	2016
Capital ratios	%	%
CET1	23.4	21.2
Tier 1	23.4	21.2
Total	24.4	24.1

Risk-weighted assets	€m	€m

Credit risk	11,010	12,315
Market risk	304	455
Operational risk	674	624

Total RWAs	11,988	13,394

	Half year ended
	30 June	30 June
	2017	2016
	€m	€m

Interest receivable	16	33
Interest payable	(16)	(101)

Net interest income	-	(68)

Fees and commissions receivable	2	4
Fees and commissions payable	(1)	(2)
Income from trading activities	(22)	90
Foreign exchange gains and losses related to net investment
hedges reclassified to income following disposals of foreign operations (1)	(173)	37
Other operating income	60	97

Non-interest income	(134)	226

Total income	(134)	158
Operating expenses	(32)	30

(Loss)/profit before impairment losses	(166)	188
Impairment releases	2	9

Operating (loss)/profit before tax	(164)	197
Tax credit/(charge)	6	(48)

(Loss)/profit from continuing operations	(158)	149
Loss from discontinued operations, net of tax	-	(17)

(Loss)/profit for the period attributable to controlling interests	(158)	132

	Half year ended
	30 June	30 June
	2017	2016
	€m	€m

(Loss)/profit for the period	(158)	132

Items that qualify for reclassification
Loss on fair value of credit in financial liabilities designated
at fair value through profit or loss due to own credit risk	(37)	-
Available-for-sale financial assets	-	(4)
Currency translation	95	(71)
Other comprehensive profit/(loss) after tax	58	(75)

Total comprehensive (loss)/income for the period attributable to controlling interests	(100)	57

The geographical analyses in the tables below have been compiled on the basis of location of office where the transactions are recorded.	Netherlands	UK	RoW	Total
30 June 2017	€m	€m	€m	€m
Net interest income	(12)	-	12	-
Net fees and commissions	-	2	(1)	1
Income from trading activities	(19)	(19)	16	(22)
Foreign exchange gains and losses related to net investment
hedges reclassified to income following disposals of foreign operations	(173)	-	-	(173)
Other operating (loss)/income	(12)	-	72	60
Total income	(216)	(17)	99	(134)

Operating (loss)/profit before tax	(240)	(15)	91	(164)
Total assets	2,739	722	3,643	7,104
Total liabilities	2,070	681	1,408	4,159
Net assets attributable to equity owners	669	41	2,235	2,945

30 June 2016
Net interest income	(77)	3	6	(68)
Net fees and commissions	-	2	-	2
Income from trading activities	(37)	128	(1)	90
Foreign exchange gains and losses related to net investment
hedges reclassified to income following disposals of foreign operations	37			37
Other operating income/(loss)	33	(22)	86	97
Total income	(44)	111	91	158

Operating (loss)/profit before tax	(53)	152	98	197

31 December 2016
Total assets	2,544	1,055	4,731	8,330
Total liabilities	2,414	922	1,949	5,285
Net assets attributable to equity owners	130	133	2,782	3,045

								Other
	HFT (1,2)	DFV (3)		AFS (4)		LAR (5)		assets		Total
Assets	€m	€m		€m		€m		€m		€m

Cash and balances at central banks	-	-		-		288		-		288
Loans and advances to banks	4	-		-		3,292		-		3,296
Loans and advances to customers	6	-		-		97		-		103
Amounts due from the ultimate holding company	-	-		-		133		-		133
Debt securities and equity shares	17	19		417		-		-		453
Settlement balances	-	-		-		2		-		2
Derivatives	1,331	-		-		-		-		1,331
Other assets	-	-		-		-		1,498		1,498

30 June 2017	1,358	19		417		3,812		1,498		7,104

Cash and balances at central banks	-	-		-		368		-		368
Loans and advances to banks	67	-		-		3,128		-		3,195
Loans and advances to customers	4	-		-		184		-		188
Amounts due from the ultimate holding company	-	-		-		142		-		142
Debt securities and equity shares	48	90		379		-		-		517
Settlement balances	-	-		-		10		-		10
Derivatives	1,581	-		-		-		-		1,581
Assets of disposal groups	-	-		-		-		810		810
Other assets	-	-		-		-		1,519		1,519

31 December 2016	1,700	90		379		3,832		2,329		8,330

					Amortised		Other
	HFT(1,2)		DFV(3)		cost		liabilities		Total
Liabilities	€m		€m		€m		€m		€m

Deposits by banks	10		-		1,386		-		1,396
Customer accounts	152		-		59		-		211
Debt securities in issue	-		38		-		-		38
Settlement balances and short positions	-		-		32		-		32
Derivatives	947		-		-		-		947
Subordinated liabilities	-		570		423		-		993
Other liabilities	-		-		-		542		542

30 June 2017	1,109		608		1,900		542		4,159

Deposits by banks	127		-		1,273		-		1,400
Customer accounts	169		-		61		-		230
Debt securities in issue	-		55		-		-		55
Settlement balances and short positions	-		-		48		-		48
Derivatives	1,244		-		-		-		1,244
Subordinated liabilities	-		668		770		-		1,438
Liabilities of disposal groups	-		-		-		219		219
Other liabilities	-		-		-		651		651

31 December 2016	1,540		723		2,152		870		5,285

(1)	Includes derivative assets held for hedging purposes (under IAS 39) of €69 million (31 December 2016 - €26 million) and derivative liabilities held for hedging purposes (under IAS 39) of €15 million (31 December 2016 - €72 million).
(2)	Held-for-trading.
(3)	Designated as at fair value through profit and loss.
(4)	Available-for-sale.
(5)	Loans and receivables.

	30 June 2017					31 December 2016
	Level 2	Level 3	Total	Level 2	Level 3		Total
	€bn	€bn	€bn	€bn	€bn		€bn

Assets
Loans and advances	-	-	-	0.1	-		0.1
Debt securities and equity shares	0.5	-	0.5	0.4	0.1		0.5
- of which AFS	0.4	-	0.4	0.3	-		0.3
Derivatives	1.1	0.2	1.3	1.3	0.3		1.6

	1.6	0.2	1.8	1.8	0.4		2.2

Proportion	88.9%	11.1%	100%	81.8%	18.2%		100%

Liabilities
Deposits	0.1	0.1	0.2	0.2	0.1		0.3
Debt securities in issue	-	-	-	0.1	-		0.1
Derivatives	0.7	0.2	0.9	0.9	0.3		1.2
Subordinated liabilities	0.6	-	0.6	0.7	-		0.7

	1.4	0.3	1.7	1.9	0.4		2.3

Proportion	82.4%	17.6%	100%	82.6%	17.4%		100%

(1)	Level 2: valued using techniques based significantly on observable market data. Instruments in this category are valued using: (a) quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or (b) valuation techniques where all the inputs that have a significant effect on the valuations are directly or indirectly based on observable market data. Level 3: instruments in this category have been valued using a valuation technique where at least one input which could have a significant effect on the instrument's valuation, is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, the Group determines a reasonable level for the input.
(2)	Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instruments were transferred. There were no significant transfers between level 1 and level 2.
(3)	The Group does not have any material liabilities measured at fair value that are issued with an inseparable third party credit enhancement.
(4)	Level 3 instruments were €0.2 billion for assets and €0.3 billion for liabilities (31 December 2016 - €0.4 billion for assets and €0.4 billion for liabilities). The decrease in assets during 2017 primarily related to €0.1 billion sales and a loss on the income statement of €0.1 billion and the decrease in liabilities related to a gain on the income statement of €0.1 billion for liabilities (2016 - The decrease in the year primarily related to transfers in of €0.5 billion which is offset by transfers out €0.2 billion, settlements €0.3 billion and sales €0.1 billion, income statement €0.1 billion and decrease in liabilities primarily relates to transfers in of €0.3 billion offset by transfers out of €0.1 billion, settlements €0.2 billion, income statement of €0.2 billion and sales €0.1 billion).

	30 June 2017		31 December 2016
	Carrying value	Fair value	Carrying value	Fair value
	€m	€m	€m	€m

Financial assets
Loans and advances to banks	3,292	3,292	3,128	3,128
Loans and advances to customers	97	50	184	139
Amounts due from the ultimate holding company	133	189	142	156

Financial liabilities
Deposits by banks	568	569	947	947
Customer accounts	56	59	55	61
Subordinated liabilities	423	514	770	781


8. Contingent liabilities and commitments
	30 June	31 December
	2017	2016
	€m	€m

Guarantees and assets pledged as collateral security	4,458	4,602
Other contingent liabilities	1,185	1,284
Standby facilities, credit lines and other commitments	75	78

Contingent liabilities and commitments	5,718	5,964

●	The RBS Group and the RBSH Group are subject to political risks, including economic, regulatory and political uncertainty arising from the vote to leave in the UK's membership of the European Union (EU Referendum) and more generally arising from the outcome of general elections in the UK and changes in government policies, including as a shareholder of the RBS Group, which could adversely impact the RBS Group's business, results of operations, financial condition and prospects.
●	Changes to the prudential regulatory framework for banks and investment banks within the EU may require additional structural changes to the RBS Group's operations, including, for example, as a result of potential changes in the prudential regulatory framework for banks and investment banks within the EU or if the RBS Group is no longer able to rely on the passporting framework for financial services applicable in the EU, which may affect current restructuring plans and have a material adverse effect on the RBSH Group.
●	Implementation of the ring-fencing regime in the UK which began in 2015 and must be completed before 1 January 2019 will result in material structural changes to the RBS Group. These changes could have a material adverse effect on the RBSH Group. The steps required to implement the UK ring-fencing regime are extraordinarily complex and entail significant costs and operational, legal and execution risks, which risks may be exacerbated by the RBS Group's other ongoing restructuring efforts. There is no certainty that the RBS Group will be able to complete the legal restructuring and migration of customers by the 1 January 2019 deadline or in accordance with future rules and the consequences of non-compliance are currently uncertain.
●	The RBS Group has been, and will remain, in a period of major restructuring through to 2019, which carries significant execution and operational risks, and may adversely impact the RBSH Group.
●	The RBSH Group and the RBS Group are subject to a number of legal, regulatory and governmental actions and investigations. Unfavourable outcomes in such actions and investigations could have a material adverse effect on the RBSH Group's operations, operating results, reputation or financial position.
●	Operational risks are inherent in the RBSH Group's businesses and these risks are heightened as the RBS Group implements its transformation programme against the backdrop of legal and regulatory changes.

●	The RBS Group and the RBSH Group are exposed to cyberattacks and a failure to prevent or defend against such attacks could have a material adverse effect on the RBSH Group's operations, results of operations or reputation.
●	The RBSH Group's business performance and financial position could be adversely affected if its capital is not managed effectively or if it is unable to meet its capital targets or capital requirements.
●	The RBSH Group's borrowing costs, its access to the debt capital markets and its liquidity depend significantly on its and the RBS Group's credit ratings.
●	The RBSH Group's ability to meet its obligations including its funding commitments depends on the RBSH Group's ability to access sources of liquidity and funding.
●	The RBS Group and RBSH Group's businesses and financial position could be negatively affected by actual or perceived global economic and financial market conditions and other global risks, including risks arising out of geopolitical events and political developments.
●	The financial performance of the RBSH Group has been, and may continue to be, materially affected by customer and counterparty credit quality and deterioration in credit quality could arise due to prevailing economic and market conditions and legal and regulatory developments.
●	The RBSH Group's operations are highly dependent on its and the RBS Group's IT systems. A failure of such IT systems, including as a result of the lack of or untimely investments, could adversely affect the RBSH Group's operations and expose the RBSH Group to regulatory sanctions.
●	Failure to retain qualified and sufficient staff may adversely impact the RBSH Group.
●	The RBSH Group's businesses are subject to substantial regulation and oversight. Significant regulatory developments and increased scrutiny by the RBSH Group's key regulators has had and is likely to continue to increase compliance and conduct risks and could have a material adverse effect on how the RBSH Group conducts its business, its results of operations and financial condition.
●	The RBS Group and the RBSH Group rely on valuation, capital and stress test models to conduct their business, assess their risk exposure and anticipate capital and funding requirements. Failure of these models to provide accurate results or accurately reflect changes in the micro- and macroeconomic environment in which the RBS Group and the RBSH Group operate or findings of deficiencies by the RBSH Group's regulators resulting in increased regulatory capital requirements could have a material adverse effect on the RBSH Group's business, capital position or results of operations.
●	The reported results of the RBSH Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. Its results in future periods may be affected by changes to applicable accounting rules and standards.
●	The RBSH Group is exposed to conduct risk which may adversely impact the RBSH Group or its employees and may result in conduct having a detrimental impact on the RBSH Group's customers or counterparties.
●	The RBSH Group may be adversely impacted if its risk management is not effective.
●	The legal demerger of ABN AMRO Bank N.V. (as it was then named) has resulted in a cross liability that affects the legal recourse available to investors.