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Royal Bk Scot.Grp. (RBS)

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Thursday 30 July, 2015

Royal Bk Scot.Grp.

Half Yearly Report: Part 2

RNS Number : 5088U
Royal Bank of Scotland Group PLC
30 July 2015
 



 

 

 

 

 

 

 

 

 

Appendix 1

 

Capital and risk management


Appendix 1 Capital and risk management

 

Presentation of information

1

General overview

2

 

Capital management

Pillar 2A and MDA

5

Capital resources

7

Leverage exposure

8

Risk-weighted assets

9

 

Liquidity and funding risk

Liquidity risk

13

Funding risk

15

 

Credit risk

Loans and related credit metrics

17

Debt securities

22

Derivatives

23

Key loan portfolios

25

 

Market risk

Trading portfolios

34

Non-trading portfolios

36

 

Country risk

Key points

40

Country exposures

42

 

 

 

 

Presentation of information

The assets and liabilities of disposal groups are presented as single lines in the consolidated balance sheet as required by IFRS. As allowed by IFRS, exposures, measures and ratios in this Appendix include disposal groups, primarily relating to CFG and international private banking, on a line-by-line basis. A summary of this presentation is set out in Appendix 2.

 

The disclosures in this appendix supplement disclosures in Analysis of results - Balance sheet related key metrics and ratios; Impairment losses; Capital and leverage ratios. An overview by risk type is included in the General overview, supporting analyses and additional detailed commentary are included in specific risk sections.



 

Appendix 1 Capital and risk management

 

General overview*

RBS's main risks are described in Capital and risk management - Risk coverage in the 2014 Annual Report and Accounts. The table below is an overview of these risks, including any developments during H1 2015.

 

Risk type

Overview

Capital and leverage

·      RBS's CET1 ratio: continued to strengthen from 11.2% at the end of 2014 to 12.3% at 30 June 2015, an improvement of 110 basis points.

·      Key milestones were:

the reduction of CFG ownership interest to 40.8%; and

the continued run down of RCR and CIB assets.

·      RWAs: continued to decline with a £30 billion reduction from the 2014 year end to £326 billion, £26 billion above the year end 2015 target of £300 billion, following reductions in CIB (£19.1 billion) and RCR (£7.6 billion).

·      Leverage ratio (under the revised 2014 Basel III leverage ratio framework and the 2015 CRR Delegated Act): 4.6% compared with 4.2% at the end of 2014 reflecting capital strength and leverage exposure reduction, from £940 billion to £875 billion, principally in CIB.

·      RBS plans to issue £4-5 billion of end-point CRR compliant Additional Tier 1, of which £2 billion is planned to be issued in 2015.

Liquidity and funding

·      Liquidity position continues to be robust: the liquidity portfolio of £161 billion at 30 June 2015 covered short-term wholesale funding by more than six times. Excluding CFG, the liquidity portfolio was £148 billion. Short-term wholesale funding reduced to £25 billion, due to term debt maturities.

·      Liquidity portfolio increased by £10.8 billion in the six months to 30 June 2015 mainly driven by CIB and RCR run-down, Citizens share disposals and continuation of sales from RBS N.V. treasury portfolio.

·      Liquidity coverage ratio (LCR) improved by five percentage points to 117% since the year end; excluding Citizens the LCR was 118%. From 1 October 2015, RBS will be required by the PRA to have a LCR of at least 80%.

·      Net stable funding ratio (NSFR) at 30 June 2015 was 115% in total and 112%  excluding Citizens, broadly unchanged from 2014 year end.

·      The loan:deposit ratio fell to 92% at 30 June 2015, primarily reflecting asset reductions and a stable deposit base.

·      Based on its current assessment of the Financial Stability Board's proposals, RBS may issue £3-£5 billion of qualifying debt per annum between 2015 and 2019 to meet future total loss absorbing capacity requirements.

Conduct and legal

RBS continued to remediate historical conduct issues. RBS co-operated with global regulators on investigations into the foreign exchange market and the more significant penalties were settled. Litigation and conduct costs were £1.3 billion in H1 2015 compared with £0.25 billion in H1 2014. The conduct risk framework was further embedded in Conduct and Regulatory Affairs' new operating model, focussing assurance coverage and testing towards customer outcomes.

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report



Appendix 1 Capital and risk management

 

General overview* (continued)

 

Risk type

Overview

Credit

·      RBS's credit risk exposures continued to fall overall, with an improvement in credit quality and a net release of impairment provisions in H1 2015. RCR disposals - particularly in the commercial real estate sector in Ireland - contributed significantly to the reductions in exposure and to the provision release. These results also reflect benign economic and market conditions in the UK and Ireland, better liquidity and increased collateral values. Lower sector and asset/product class limits were implemented following the new CIB strategy.

·      The growth in UK PBB gross mortgage lending was within credit risk appetite and against a backdrop of sustained house price growth in 2015 that has outstripped earnings growth. Economic fundamentals continue to look strong, helping to underpin mild improvements in the UK housing and mortgage market.

·      From a low of US$45 per barrel in January 2015, oil prices recovered to US$61 per barrel by the end of June 2015. However, the market is still considered to be oversupplied and the outlook is uncertain. Risk appetite to the oil and gas sector was further reduced during H1 2015 following a review in March 2015, with continued focus on ensuring that the portfolio remains high investment grade.

·      Overall credit metrics strengthened in the first half of 2015 principally reflecting RCR disposals but also improvements in economic conditions: 

Credit risk RWAs fell by £23 billion or 8% to £273 billion at 30 June 2015 from

     £295 billion at the 2014 year end primarily reflecting CIB portfolio sales and

     risk reduction and RCR disposal strategy. 

Impairment provisions of £11.3 billion (2014 - £18.0 billion) covered risk      elements in lending (REIL) of £18.7 billion (2014 - £28.2 billion) by 60% (2014      - 64%).

CRE lending fell to £36.4 billion from £43.3 billion at the end of 2014, of which      £7.2 billion (2014 - £13.3 billion) was in REIL with provision coverage of 64%      (2014 - 68%).

Market

Average trading internal VaR decreased to £21.8 million (H1 2014 - £30.6 million; FY 2014 - £27.8 million), largely in credit spread VaR, reflecting the continued exit from the US asset-backed products trading business. Market risk RWAs decreased by £1.7 billion to £22.3 billion, driven by a decline in the standardised risk capital charge reflecting reduced securitisation exposures in the trading book, partly offset by a small increase in the Pillar 1 risk capital charge.

 

Non-trading interest rate VaR was lower as RBS positioned its structural interest rate closer to the neutral position prescribed by its risk management policy

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report

 



Appendix 1 Capital and risk management

 

General overview* (continued)

 

Risk type

Overview

Country

RBS continued to maintain a cautious stance as it becomes a UK-centred bank with a focus on Western Europe. Total eurozone net balance sheet exposure decreased by £12 billion or 12% to £85.6 billion in the first half of 2015. Eurozone periphery exposures decreased by £7.4 billion or 24%, to £24.0 billion. Most of this reduction was in Italy, driven by maturity of derivative transactions and higher short positions due to uncertainty around Greece, and in Ireland, reflecting RCR portfolio sales and currency movements. Total exposure to Greece was reduced from £0.4 billion to £110 million and £86 million after the effect of credit mitigation. Exposure to Russia remained under strict control and continued to be reviewed regularly against international sanctions.

Operational

The risks associated with RBS's transformation plan are being closely monitored. Separate to this activity, in June, there was a one or two day delay to payments applied to some customer accounts. A detailed investigation is underway into the root cause of the problem - the findings will be used to reduce the risk of recurrence.

Regulatory

The level of regulatory risk remained high, given the large volume of regulatory change still impacting the industry. Various legacy conduct issues also continued to be managed.

Reputational

The most material threats to RBS's reputation continued to be as a result of conduct and operational-related matters: RBS was the subject of investigations and review by a number of regulators, some of which resulted in fines and public censure. The failure of IT systems in June 2015 also impacted customers, with reputational damage to the bank.

Business

RBS further reduced its business risk profile by continuing to scale back CIB's business activities and by pursuing RCR's asset disposal strategy.

Strategic

2015 has seen further progress in RBS's shift towards the UK and the retail and commercial banking segments to achieve a lower risk profile. Capital ratios continued to increase further towards targets which, when attained, will provide RBS with increased strategic options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Capital management

RBS aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements, and operates within an agreed risk appetite. The appropriate level of capital is determined based on the dual aims of: (i) meeting minimum regulatory capital requirements; and (ii) ensuring RBS maintains sufficient capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting its business franchises and funding capacity. For a description of the capital management framework, governance and basis of preparation refer to Capital management in the 2014 Annual Report and Accounts.

 

Pillar 2A and MDA

RBS's current Pillar 2A requirement is 3.4% of RWAs (31 December 2014 - 3.5%). From 1 January 2015, 56% of the total Pillar 2A or 1.9% of RWAs is required to be met from CET1 capital. Pillar 2A is a point in time regulatory assessment of the amount of capital that is required to be held to meet the overall financial adequacy rules. This PRA assessment may change over time, including as a result of at least an annual assessment and supervisory review of RBS's Internal Capital Adequacy Assessment Process (ICAAP); the latest ICAAP based on the end of 2014 data was completed in May 2015.

 

RBS's capital risk appetite framework, which informs its capital targets, includes consideration of the maximum distributable amount (MDA) requirements. These requirements are expected to be phased in from 2016, with full implementation by 2019.

 

Based on current capital requirements, on the illustrative assumption that current estimates of Pillar 2A remain constant, RBS estimates that its 'fully phased' CET1 MDA requirement would be 10.4% in 2019, assuming RBS's current risk profile is unchanged. It should be noted that this estimate does not reflect the anticipated impact of RBS's planned restructuring and balance sheet risk reduction programmes, changes in the regulatory framework or other factors that could impact target CET1 ratios. This estimated 2019 MDA requirement comprises:

4.5% Pillar 1 minimum CET1 ratio;

2.5% Capital conservation buffer;

1.9% Pillar 2A CET1 ratio; and

1.5% Global Systemically Important Institution buffer.

 

Based on the assumptions above, assuming a 13% steady state CET1 capital ratio is achieved, RBS currently estimates that it would have headroom of 2.6% to fully phased MDA trigger in 2019. This headroom will be subject to ongoing review to accommodate regulatory and other changes.

 

 

 

 

 

 

 

 

 

 

 



Appendix 1 Capital and risk management

 

Developments in prudential regulation

The European Union Capital Requirements Regulation (CRR) is in transition until 2019. Recent developments are set out below.

 

Capital

The Basel Committee on Banking Supervision (BCBS) has consulted on implementing capital floors, and the expectation is that the framework design will be based on a standardised methodology that is currently being revised.

 

Systemic capital buffers - Global Systemically Important Banks (G-SIB) are assessed according to methodology set out by BCBS, and an additional loss absorbency requirement has been set according to the size. An annual assessment of size is undertaken and RBS is currently required to hold a 1.5% buffer. Additional requirements are being set for domestic (D-SIB) by the EBA (up to 2%) and for ring-fenced banks by the Financial Policy Committee of the Bank of England (up to 3%).

 

BCBS is still considering its proposals on the possible inclusion of interest rate risk in the banking book within Pillar 1 capital rather than the existing Pillar 2 treatment. Similarly, there is a possibility that operational risk charges will be moved from Pillar 2 to Pillar 1 capital.

 

A comprehensive review by BCBS into the market risk framework (Fundamental Review of the Trading Book) is likely to result in changes to the banking book/trading book boundary, replacing VaR with an expected shortfall model and new, more risk sensitive standardised methodologies which will need to be calculated for the entire book, regardless of whether a firm has permission to use a modelled approach.

 

BCBS has finalised rules for the capital requirements of securitisation positions. There is a new hierarchy of methods, as well as changes to the methodologies. The new rules, effective from 1 January 2018, aim to reduce reliance on credit rating agencies, although their use will still be permitted subject to local approval, reduce cliff effects seen in the current rules, and enhance risk sensitivity.

 

PRA has published a new approach to setting Pillar 2 capital requirements, replacing the capital planning buffer with a 'PRA buffer'. Broadly this follows the consultation paper of January 2015.

 

Disclosure requirements required by regulators will be more frequent, more extensive and much more standardised (Pillar 3). BCBS requirements will be introduced from the end of 2016 and the more detailed EU requirements are being phased in during late 2015.

 

Leverage ratio

The PRA is consulting on implementation of a UK leverage ratio framework, expected to come into force from 2016, which will incorporate a systemic capital buffer and a countercyclical buffer when establishing the minimum leverage ratio for banks. There will also be disclosures and related measurement bases for exposures.

 

Recovery & resolution planning

The Financial Stability Board is continuing impact studies on Total Loss Absorbency Capacity (TLAC) for G-SIBs with an expectation of final proposals to be issued in late 2015 for implementation in 2019. Minimum requirement for eligible liabilities (MREL) is the EU equivalent of TLAC but is not restricted to G-SIBs. The required amount will be set on a case by case basis by resolution authorities, with the Bank of England proposing that MREL be aligned to TLAC.



Appendix 1 Capital and risk management

 

Capital resources









End-point CRR basis (1)


PRA transitional basis (1)


30 June

31 March

31 December


30 June

31 March

31 December

2015 

2015 

2014 


2015 

2015 

2014 


£m 

£m 

£m 


£m 

£m 

£m 









Shareholders' equity (excluding








  non-controlling interests)








 Shareholders' equity

56,064 

56,808 

57,246 


56,064 

56,808 

57,246 

 Preference shares - equity

(4,313)

(4,313)

(4,313)


(4,313)

(4,313)

(4,313)

 Other equity instruments

(634)

(634)

(784)


(634)

(634)

(784)


51,117 

51,861 

52,149 


51,117 

51,861 

52,149 









Regulatory adjustments and deductions








 Own credit

345 

609 

500 


345 

609 

500 

 Defined benefit pension fund








   adjustment

(250)

(245)

(238)


(250)

(245)

(238)

 Cash flow hedging reserve

(435)

(1,109)

(1,029)


(435)

(1,109)

(1,029)

 Deferred tax assets

(1,206)

(1,140)

(1,222)


(1,206)

(1,140)

(1,222)

 Prudential valuation adjustments

(366)

(393)

(384)


(366)

(393)

(384)

 Goodwill and other intangible assets

(7,198)

(7,619)

(7,781)


(7,198)

(7,619)

(7,781)

 Expected losses less impairments

(1,319)

(1,512)

(1,491)


(1,319)

(1,512)

(1,491)

 Other regulatory adjustments

(635)

(327)

(585)


(612)

(305)

(855)










(11,064)

(11,736)

(12,230)


(11,041)

(11,714)

(12,500)









CET1 capital

40,053 

40,125 

39,919 


40,076 

40,147 

39,649 









Additional Tier 1 (AT1) capital








 Qualifying instruments and related








   share premium subject to phase out


6,709 

5,092 

5,820 

 Qualifying instruments issued by








   subsidiaries and held by third parties


1,114 

1,648 









AT1 capital


6,709 

6,206 

7,648 









Tier 1 capital

40,053 

40,125 

39,919 


46,785 

46,353 

47,117 









Qualifying Tier 2 capital








 Qualifying instruments and related








   share premium

5,433 

5,734 

5,542 


10,141 

6,254 

6,136 

 Qualifying instruments issued by








   subsidiaries and held by third parties

2,748 

2,955 

3,175 


3,432 

6,716 

7,490 









Tier 2 capital

8,181 

8,689 

8,717 


13,573 

12,970 

13,626 









Total regulatory capital

48,234 

48,814 

48,636 


60,358 

59,323 

60,743 

 

Note:

(1)

Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on available-for-sale (AFS) securities which has been included from 2015 for the PRA transitional basis.

 



 

Appendix 1 Capital and risk management

 

Capital resources (continued)

 

Capital flow statement*

The table below analyses the movement in end-point CRR CET1 and Tier 2 capital for the half year ended 30 June 2015.


CET1

Tier 2

Total


£m

£m

£m





At 1 January 2015

39,919 

8,717 

48,636 

Loss for the year net of movements in fair value of own credit

(308)

(308)

Share capital and reserve movements in respect of employee share schemes

161 

161 

Ordinary shares issued

150 

150 

Foreign exchange reserve

(1,166)

(1,166)

AFS reserves

(55)

(55)

Decrease in goodwill and intangibles deduction

583 

583 

Deferred tax assets

16 

16 

Prudential valuation adjustments

18 

18 

Excess of expected loss over impairment provisions

172 

172 

Dated subordinated debt issues/(maturities)

(50)

(50)

Net dated subordinated debt/grandfathered instruments

(76)

(76)

Foreign exchange movements

(400)

(400)

Other movements

563 

(10)

553 





At 30 June 2015

40,053 

8,181 

48,234 

 

Leverage exposure

 

Basis of preparation*

The leverage exposure set out on page 24 of the main announcement is based on the revised 2014 Basel III leverage ratio framework and the 2015 CRR Delegated Act. Additional analysis of derivative notionals and undrawn commitments, two of the major components contributing to the leverage exposure is set out below.

 

The table below analyses the derivative notionals by maturity for contracts other than credit derivatives, and credit derivatives by qualifying and non-qualifying.






Credit derivatives (2)



Derivatives other than credit derivatives (1)



Non-



<1 year

1-5 years

>5 years


Qualifying

qualifying

Total

Derivative notionals

£bn

£bn

£bn


£bn

£bn

£bn

30 June 2015








Interest rate

9,642 

6,631 

3,850 




20,123 

Exchange rate

3,403 

505 

288 




4,196 

Equity

42 

16 




60 

Credit





78 

22 

100 









Total

13,087 

7,152 

4,140 


78 

22 

24,479 









31 December 2014
















Interest rate

11,069 

10,423 

5,839 




27,331 

Exchange rate

3,649 

720 

306 




4,675 

Equity

42 

33 




77 

Commodities




Credit





99 

26 

125 









Total

14,761 

11,176 

6,147 


99 

26 

32,209 

 

Notes:

(1)

Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements.

(2)

The PFE on credit derivatives is based on add-on factors determined by the asset quality of the referenced instrument. Qualifying credit derivatives attract a PFE add-on of 5% and have reference securities issued by public sector entities, multilateral development banks or other investment grade issuers. Non-qualifying credit derivatives attract a PFE add-on of 10%.

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Leverage exposure (continued)

 

Weighted undrawn commitments*











Ulster

Commercial

Private


Central




UK PBB

Bank

Banking

Banking

CIB

items

CFG

RCR

Total

30 June 2015

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn











Unconditionally cancellable items (1)

3.2 

0.4 

1.2 

0.1 

3.6 

2.6 

1.8 

12.9 

Items with a 20% CCF

0.1 

0.4 

2.0 

0.1 

0.3 

2.9 

Items with a 50% CCF

5.4 

0.6 

15.0 

0.7 

22.5 

0.8 

7.9 

0.3 

53.2 

Items with a 100% CCF

0.1 

0.1 

2.2 

0.4 

7.7 

3.6 

1.4 

0.2 

15.7 












8.8 

1.1 

18.8 

1.2 

35.8 

7.1 

11.4 

0.5 

84.7 











31 December 2014




















Unconditionally cancellable items (1)

3.1 

0.1 

1.0 

0.2 

2.4 

1.8 

8.6 

Items with a 20% CCF

0.4 

0.7 

0.1 

3.2 

0.4 

4.8 

Items with a 50% CCF

4.8 

1.0 

9.8 

1.4 

36.8 

1.6 

7.8 

0.5 

63.7 

Items with a 100% CCF

0.1 

0.3 

2.2 

0.8 

10.2 

3.9 

1.5 

0.3 

19.3 












8.4 

1.4 

13.7 

2.5 

52.6 

5.5 

11.5 

0.8 

96.4 

 

Note:

(1)

Based on a 10% credit conversion factor.

 


Risk-weighted assets*

The tables below analyse the movement in RWAs on the end-point CRR basis during H1 2015, by key drivers.


Credit risk RWAs


Non-counterparty 

Counterparty 

Total


£bn 

£bn 

£bn 





At 1 January 2015

264.7 

30.4 

295.1 

Foreign exchange movement

(3.5)

0.1 

(3.4)

Business movements

(12.9)

(3.3)

(16.2)

Risk parameter changes

(4.1)

(4.1)

Methodology changes

(0.2)

(0.2)

Model updates

0.7 

(0.1)

0.6 

Other changes

0.3 

0.4 

0.7 





At 30 June 2015

245.0 

27.5 

272.5 





Modelled (1)

143.7 

24.2 

167.9 

Non-modelled

101.3 

3.3 

104.6 






245.0 

27.5 

272.5 

 


Market risk RWAs

Operational



CIB

Other

Total

risk RWAs

Total


£bn 

£bn 

£bn 

£bn 

£bn 







At 1 January 2015

18.9 

5.1 

24.0 

36.8 

60.8 

Business and market movements

(0.8)

(0.9)

(1.7)

(5.2)

(6.9)







At 30 June 2015

18.1 

4.2 

22.3 

31.6 

53.9 







Modelled (1)

15.4 

3.3 

18.7 

18.7 

Non-modelled

2.7 

0.9 

3.6 

31.6 

35.2 








18.1 

4.2 

22.3 

31.6 

53.9 

 

Note:

(1)

Modelled refers to advanced internal ratings (AIRB) basis for non-counterparty credit risk, internal model method (IMM) for counterparty credit risk, and value-at-risk and related models for market risk. These principally relate to CIB (£71.8 billion) and Commercial Banking (£50.5 billion).

 

 

 

*Not within the scope of Deloitte LLP's review report



Appendix 1 Capital and risk management

 

Risk-weighted assets* (continued)

The table below analyses the movement in end-point CRR RWAs by segment during the half year.













Ulster

Commercial

Private


Central





UK PBB

Bank

Banking

Banking

CIB

 items

CFG

RCR

Total

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn











At 1 January 2015

42.8 

23.8 

64.0 

11.5 

107.1 

16.3 

68.4 

22.0 

355.9 

Foreign exchange movement

(1.5)

(0.3)

0.1 

(1.0)

(0.3)

(0.4)

(3.4)

Business movements

(0.6)

(0.4)

1.1 

(0.8)

(18.3)

(0.6)

1.7 

(5.2)

(23.1)

Risk parameter changes (1)

(1.3)

(0.7)

(0.2)

0.3 

(0.2)

(2.0)

(4.1)

Methodology changes (2)

(0.2)

(0.2)

Model updates (3)

(0.2)

1.4 

(0.6)

0.6 

Other changes

0.3 

2.5 

(1.0)

(1.5)

0.4 

0.7 











At 30 June 2015

41.0 

21.2 

66.9 

9.8 

88.0 

15.3 

69.8 

14.4 

326.4 











Credit risk










  - non-counterparty

32.0 

19.6 

60.7 

8.2 

38.6 

14.1 

64.0 

7.8 

245.0 

  - counterparty

0.1 

22.9 

0.6 

0.9 

3.0 

27.5 

Market risk

0.1 

18.1 

0.1 

4.0 

22.3 

Operational risk

9.0 

1.5 

6.2 

1.5 

8.4 

0.5 

4.9 

(0.4)

31.6 











Total RWAs

41.0 

21.2 

66.9 

9.8 

88.0 

15.3 

69.8 

14.4 

326.4 

 

Key points

·

RWAs fell by £29.5 billion to £326.4 billion in the first half of 2015 principally in CIB and RCR.

·

CIB reduced RWAs by £19 billion to £88 billion in line with expected business run-off as it implemented the new strategy. These reductions included:


regional loan portfolio disposals and run-offs (£6.8 billion), including US corporate loan portfolio sales to Mizuho (£3.2 billion);


US asset-backed product exit (£2.3 billion);


other trading portfolio disposals (£2.1 billion);


restructuring of certain derivative transactions (£1.7 billion); and


run down of the trade finance in GTS in line with contractual maturities (£3.2 billion).

·

RCR disposal and run-off strategy continued to progress, resulting in RWA reductions of £7.6 billion.

·

Improvements in credit quality metrics contributed to RWA decreases in Ulster Bank and UK PBB.

·

Sterling strengthening against the euro and US dollar resulted in lower RWAs in Ulster Bank and CIB.

·

Commercial Banking RWAs at 30 June 2015 included the transfer of UK Corporate coverage from CIB (£2.3 billion) and Private Banking RBSI (£1.5 billion).

·

Annual recalculation of operational risk resulted in a £5.2 billion RWA reduction, primarily £3.4 billion in CIB and £0.4 billion in both UK PBB and Private Banking.

·

In terms of RWA density for AIRB portfolios:


other sovereign density decreased from 25% to 17% following the sale of term loans in RCR;


non-bank financial institution density increased from 38% to 45% primarily reflecting close-out of a large low risk-weighted exposure and implementation of new LGD and PD models;


commercial property RWA density increased overall principally due to the impact of RCR disposals, including defaulted assets; and


the increase in RWA density for oil and gas and mining and metal sectors reflected implementation of the new large corporate PD model for mining exposures.

 

 

 

 

 

 

 

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Risk-weighted assets* (continued)

 

EAD and RWA density  

The tables below show exposure at default (EAD) after credit risk mitigation (CRM), RWAs, and related RWA density by sector cluster.














EAD post CRM (1,2)


RWAs (1)


RWA density


AIRB

STD

Total 


AIRB

STD

Total 


AIRB

STD

Total 

30 June 2015

£m 

£m 

£m 


£m 

£m 

£m 


%

%

%













Sector cluster












Sovereign












Central banks

47,477 

55,729 

103,206 


1,868 

1,869 


Central government

16,564 

12,287 

28,851 


1,652 

162 

1,814 


10 

Other sovereign

3,958 

7,473 

11,431 


671 

327 

998 


17 













Total sovereign

67,999 

75,489 

143,488 


4,191 

490 

4,681 














Financial institutions (FI)












Banks

27,831 

2,387 

30,218 


12,822 

569 

13,391 


46 

24 

44 

Other FI (2)

35,420 

20,727 

56,147 


15,982 

9,380 

25,362 


45 

45 

45 

SSPEs (3)

14,282 

2,326 

16,608 


5,480 

4,078 

9,558 


38 

175 

58 













Total FI

77,533 

25,440 

102,973 


34,284 

14,027 

48,311 


44 

55 

47 













Corporates












Property












  - UK

42,808 

3,493 

46,301 


21,824 

3,478 

25,302 


51 

100 

55 

  - Ireland

4,077 

15 

4,092 


912 

15 

927 


22 

100 

23 

  - Other Western Europe

3,526 

484 

4,010 


1,520 

503 

2,023 


43 

104 

50 

  - US

1,036 

8,024 

9,060 


519 

8,059 

8,578 


50 

100 

95 

  - RoW

1,639 

361 

2,000 


1,115 

335 

1,450 


68 

93 

73 













Total property

53,086 

12,377 

65,463 


25,890 

12,390 

38,280 


49 

100 

58 

Natural resources












  - Oil and gas

11,145 

2,043 

13,188 


5,401 

1,856 

7,257 


48 

91 

55 

  - Mining and metals

2,438 

613 

3,051 


2,058 

641 

2,699 


84 

105 

88 

  - Other

13,793 

974 

14,767 


5,227 

759 

5,986 


38 

78 

41 

Transport












  - Shipping

6,322 

2,731 

9,053 


4,186 

2,745 

6,931 


66 

101 

77 

  - Other

19,794 

3,091 

22,885 


8,310 

2,734 

11,044 


42 

88 

48 

Manufacturing

25,070 

8,408 

33,478 


10,801 

8,219 

19,020 


43 

98 

57 

Retail and leisure

21,388 

8,095 

29,483 


12,786 

7,981 

20,767 


60 

99 

70 

Services

21,919 

7,973 

29,892 


12,901 

8,028 

20,929 


59 

101 

70 

TMT (4)

10,131 

2,785 

12,916 


5,513 

2,671 

8,184 


54 

96 

63 













Total corporates

185,086 

49,090 

234,176 


93,073 

48,024 

141,097 


50 

98 

60 













Personal












Mortgages












  - UK

117,153 

7,803 

124,956 


10,123 

3,188 

13,311 


41 

11 

  - Ireland

13,992 

35 

14,027 


11,416 

16 

11,432 


82 

46 

81 

  - Other Western Europe

198 

324 

522 


16 

136 

152 


42 

29 

  - US

132 

20,629 

20,761 


10 

10,061 

10,071 


49 

49 

  - RoW

422 

724 

1,146 


37 

284 

321 


39 

28 













Total mortgages

131,897 

29,515 

161,412 


21,602 

13,685 

35,287 


16 

46 

22 

Other personal

30,446 

17,239 

47,685 


12,366 

12,801 

25,167 


41 

74 

53 













Total personal

162,343 

46,754 

209,097 


33,968 

26,486 

60,454 


21 

57 

29 

Other items

4,118 

17,885 

22,003 


2,364 

15,543 

17,907 


57 

87 

81 













Total

497,079 

214,658 

711,737 


167,880 

104,570 

272,450 


34 

49 

38 













For the notes to this table refer to the following page.



















*Not within the scope of Deloitte LLP's review report








 

Appendix 1 Capital and risk management

 

Risk-weighted assets*: EAD and RWA density (continued)

 


EAD post CRM (1,2)


RWAs (1)


RWA density


AIRB

STD

Total 


AIRB

STD

Total 


AIRB

STD

Total 

31 December 2014

£m 

£m 

£m 


£m 

£m 

£m 


%

%

%













Sector cluster












Sovereign












Central banks

44,007 

50,539 

94,546 


1,632 

78 

1,710 


Central government

16,373 

9,944 

26,317 


1,775 

61 

1,836 


11 

Other sovereign

4,936 

6,548 

11,484 


1,250 

386 

1,636 


25 

14 













Total sovereign

65,316 

67,031 

132,347 


4,657 

525 

5,182 














Financial institutions (FI)












Banks

32,777 

2,081 

34,858 


15,089 

488 

15,577 


46 

23 

45 

Other FI (2)

41,420 

22,535 

63,955 


15,585 

9,960 

25,545 


38 

44 

40 

SSPEs (3)

17,504 

2,634 

20,138 


6,216 

4,410 

10,626 


36 

167 

53 













Total FI

91,701 

27,250 

118,951 


36,890 

14,858 

51,748 


40 

55 

44 













Corporates












Property












  - UK

48,081 

3,463 

51,544 


23,736 

3,390 

27,126 


49 

98 

53 

  - Ireland

7,541 

31 

7,572 


1,283 

33 

1,316 


17 

106 

17 

  - Other Western Europe

4,625 

431 

5,056 


2,321 

445 

2,766 


50 

103 

55 

  - US

1,334 

7,481 

8,815 


722 

7,551 

8,273 


54 

101 

94 

  - RoW

2,048 

284 

2,332 


1,296 

249 

1,545 


63 

88 

66 













Total property

63,629 

11,690 

75,319 


29,358 

11,668 

41,026 


46 

100 

54 

Natural resources












  - Oil and gas

15,704 

1,876 

17,580 


6,864 

1,665 

8,529 


44 

89 

49 

  - Mining and metals

3,744 

635 

4,379 


2,602 

660 

3,262 


69 

104 

74 

  - Other

16,173 

1,070 

17,243 


6,367 

861 

7,228 


39 

80 

42 

Transport












  - Shipping

8,332 

2,571 

10,903 


5,790 

2,575 

8,365 


69 

100 

77 

  - Other

21,268 

3,297 

24,565 


9,176 

2,865 

12,041 


43 

87 

49 

Manufacturing

29,450 

8,430 

37,880 


12,673 

8,257 

20,930 


43 

98 

55 

Retail and leisure

24,564 

8,262 

32,826 


14,940 

8,027 

22,967 


61 

97 

70 

Services

23,489 

8,426 

31,915 


13,327 

8,350 

21,677 


57 

99 

68 

TMT (4)

13,555 

2,790 

16,345 


7,079 

2,806 

9,885 


52 

101 

60 













Total corporates

219,908 

49,047 

268,955 


108,176 

47,734 

155,910 


49 

97 

58 













Personal












Mortgages












  - UK

113,884 

7,794 

121,678 


10,651 

3,121 

13,772 


40 

11 

  - Ireland

15,544 

37 

15,581 


13,137 

18 

13,155 


85 

49 

84 

  - Other Western Europe

193 

311 

504 


16 

124 

140 


40 

28 

  - US

131 

21,088 

21,219 


10 

10,352 

10,362 


49 

49 

  - RoW

407 

589 

996 


39 

232 

271 


10 

39 

27 













Total mortgages

130,159 

29,819 

159,978 


23,853 

13,847 

37,700 


18 

46 

24 

Other personal

31,628 

15,971 

47,599 


13,233 

11,805 

25,038 


42 

74 

53 













Total personal

161,787 

45,790 

207,577 


37,086 

25,652 

62,738 


23 

56 

30 

Other items

4,465 

18,363 

22,828 


3,012 

16,580 

19,592 


67 

90 

86 













Total

543,177 

207,481 

750,658 


189,821 

105,349 

295,170 


35 

51 

39 

 

Notes:

(1)

Regulatory permissions to model counterparty credit risk exposure is independent from the scope of applying AIRB methodology. As such, standardised EAD and RWA will incorporate an element of modelled counterparty credit risk exposure.

(2)

Exposure at default post credit risk mitigation reflects an estimate of the extent to which a bank will be exposed under a specific facility, in the event of the default of a counterparty; AIRB: advanced internal ratings based; STD: standardised.

(3)

Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks.

(4)

Securitisation structured purpose entities primarily relate to securitisation related vehicles.

(5)

Telecommunications, media and technology.

 

*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management

 

Liquidity and funding risk

Liquidity and funding risk is the risk that RBS is unable to meet its financial obligations, including financing wholesale maturities or customer deposit withdrawals, as and when they fall due. The risk arises through the maturity transformation role that banks perform. It is dependent on RBS specific factors such as maturity profile, composition of sources and uses of funding, the quality and size of the liquidity portfolio as well as broader market factors, such as wholesale market conditions alongside depositor and investor behaviour. For a description of the liquidity and funding risk framework, governance and basis of preparation refer to Capital and risk management - Liquidity and funding risk in the 2014 Annual Report and Accounts.

 

Liquidity and related metrics*

The table below sets out the key liquidity and related metrics monitored by RBS.

 


30 June 2015





RBS

31 March

31 December

RBS

 excluding CFG

2015 

2014 






Liquidity portfolio

£161bn

£148bn

£157bn

£151bn

Stressed outflow coverage (SCR) (1)

215%

235%

187%

186%

LCR (2)

117%

118%

112%

112%

NSFR (3)

115%

112%

110%

112%

Loan:deposit ratio

92%

91%

95%

95%

 

Notes:

(1)

RBS's liquidity risk appetite is measured by reference to the liquidity portfolio as a percentage of stressed contractual and behavioural outflows under the worst of three internal severe stress scenarios (a market-wide stress, an idiosyncratic stress and a combination of both) in accordance with PRA guidance on Individual Liquidity Adequacy Assessment.

(2)

Within the EU, the LCR is due to come into effect from 1 October 2015 on a phased basis, and replace the current PRA regime from this date. RBS monitors the LCR based on its internal interpretations of the EU Delegated Act rules for the implementation of the LCR. Consequently, RBS's ratio may change over time and may not be comparable with those of other financial institutions.

(3)

Pending further guidelines from the EU and the PRA, RBS uses its own interpretation of the proposals from the BCBS recommendations to calculate the NSFR. Consequently RBS's ratio may change over time and may not be comparable with those of other financial institutions. The ratio is due to come into effect from 1 January 2018.

 

Liquidity portfolio

The table below shows RBS's liquidity portfolio by product, liquidity value and carrying value. Liquidity value is lower than carrying value as it is stated after discounts applied by the Bank of England and other central banks to instruments, within the secondary liquidity portfolio, eligible for discounting.

 


Liquidity value


Period end


Average 


UK DLG (1)

CFG 

Other 

Total 


Quarter

H1 2015

30 June 2015

£m 

£m 

£m 

£m 


£m 

£m 









Cash and balances at central banks

73,218 

1,183 

1,406 

75,807 


71,113 

66,392 

Central and local government bonds








  AAA rated governments

3,932 

12 

1,033 

4,977 


5,609 

6,529 

  AA- to AA+ rated governments and US agencies

10,202 

9,845 

2,852 

22,899 


21,154 

20,285 

  Below AA rated governments


80 

91 

  Local government


24 










14,134 

9,857 

3,885 

27,876 


26,843 

26,929 









Primary liquidity

87,352 

11,040 

5,291 

103,683 


97,956 

93,321 

Secondary liquidity (2)

54,667 

2,085 

1,022 

57,774 


57,586 

57,024 









Total liquidity value

142,019 

13,125 

6,313 

161,457 


155,542 

150,345 









Total carrying value

177,485 

14,199 

7,262 

198,946 




 

For the notes to this table refer to the following page.

 

*Not within the scope of Deloitte LLP's review report



Appendix 1 Capital and risk management

 

Liquidity portfolio (continued)


Liquidity value


Period end


Average 


UK DLG (1)

CFG

Other

Total


Quarter

Year

31 December 2014

£m

£m

£m

£m


£m

£m









Cash and balances at central banks

66,409 

1,368 

633 

68,410 


61,777 

61,956 

Central and local government bonds








  AAA rated governments and US agencies

5,609 

2,289 

7,898 


8,729 

5,935 

  AA- to AA+ rated governments

6,902 

9,281 

1,448 

17,631 


16,589 

12,792 

  Below AA rated governments

100 

100 


  Local government

82 

82 


79 

21 










12,511 

9,281 

3,919 

25,711 


25,397 

18,748 









Primary liquidity

78,920 

10,649 

4,552 

94,121 


87,174 

80,704 

Secondary liquidity (2)

53,055 

2,290 

1,189 

56,534 


57,582 

56,017 









Total liquidity value

131,975 

12,939 

5,741 

150,655 


144,756 

136,721 









Total carrying value

167,016 

13,914 

6,055 

186,985 




 

Notes:

(1)

The PRA regulated UK Defined Liquidity Group (UK DLG) comprises the RBS's five licensed deposit-taking UK banks: The Royal Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank Limited, Coutts & Company and Adam & Company. In addition, certain of RBS's significant operating subsidiaries - RBS N.V., Citizens Financial Group Inc. and Ulster Bank Ireland Limited - hold liquidity portfolios of liquid assets that comply with local regulations that may differ from PRA rules.

(2)

Comprises assets eligible for discounting at the Bank of England and other central banks.

 



 

Appendix 1 Capital and risk management

 

Funding risk

The composition of RBS's balance sheet is a function of the broad array of product offerings and diverse markets served by its businesses. Active management of both asset and liability portfolios is designed to optimise the liquidity profile, while ensuring adequate coverage of all cash requirements under extreme stress conditions.

 

The table below summarises the key funding metrics.












Short-term wholesale


Total wholesale


Net inter-bank

funding (1)

funding

funding (2)


Excluding

Including


Excluding

Including


Deposits

Loans (3)

Net

 derivative

 derivative

 derivative

 derivative

 inter-bank

collateral

 collateral

collateral

 collateral

 funding


£bn

£bn


£bn

£bn


£bn

£bn

£bn











30 June 2015

25.0 

47.0 


76.4 

98.4 


13.5 

(12.3)

1.2 

31 March 2015

27.2 

55.3 


84.0 

112.1 


14.3 

(14.8)

(0.5)

31 December 2014

27.8 

53.3 


90.5 

116.0 


15.4 

(13.3)

2.1 

30 September 2014

31.4 

53.9 


94.4 

116.9 


16.5 

(18.2)

(1.7)

30 June 2014

33.6 

55.1 


101.6 

123.1 


17.7 

(19.3)

(1.6)

 

Notes:

(1)

Short-term wholesale funding is funding with a residual maturity of less than one year.

 

(2)

Excludes derivative cash collateral.

 

(3)

Principally short-term balances.

 









The table below shows RBS's principal funding sources excluding repurchase agreements (repos).










30 June 2015


31 December 2014


Short-term 

Long-term 



Short-term 

Long-term 



less than 

more than 

Total 


less than 

more than 

Total 

1 year 

1 year 

1 year 

1 year 


£m 

£m 

£m 


£m 

£m 

£m 









Deposits by banks








 derivative cash collateral

21,993 

21,993 


25,503 

25,503 

 other deposits

11,938 

1,521 

13,459 


13,137 

2,294 

15,431 










33,931 

1,521 

35,452 


38,640 

2,294 

40,934 

Debt securities in issue








 commercial paper

154 

154 


625 

625 

 certificates of deposit

1,413 

196 

1,609 


1,695 

149 

1,844 

 medium-term notes

7,842 

22,199 

30,041 


7,741 

29,007 

36,748 

 covered bonds

2,625 

3,861 

6,486 


1,284 

5,830 

7,114 

 securitisations

4,699 

4,707 


10 

5,564 

5,574 










12,042 

30,955 

42,997 


11,355 

40,550 

51,905 

Subordinated liabilities

1,057 

18,852 

19,909 


3,274 

19,857 

23,131 









Notes issued

13,099 

49,807 

62,906 


14,629 

60,407 

75,036 









Wholesale funding

47,030 

51,328 

98,358 


53,269 

62,701 

115,970 









Customer deposits








 derivative cash collateral (1)

11,133 

11,133 


13,003 

13,003 

 financial institution deposits

47,274 

1,547 

48,821 


46,359 

1,422 

47,781 

 personal deposits

188,191 

5,337 

193,528 


185,781 

6,121 

191,902 

 corporate deposits

157,200 

1,832 

159,032 


159,782 

2,403 

162,185 









Total customer deposits

403,798 

8,716 

412,514 


404,925 

9,946 

414,871 









Total funding excluding repos

450,828 

60,044 

510,872 


458,194 

72,647 

530,841 









Of which CFG:








Wholesale funding

4,529 

1,332 

5,861 





Total customer deposits

62,064 

1,727 

63,791 





Total funding excluding repos

66,593 

3,059 

69,652 





 

Note:

(1)

Cash collateral includes £10,220 million (31 December 2014 - £12,036 million) from financial institutions.

 



 

Appendix 1 Capital and risk management

 

Funding risk (continued)

Repos totalled £68.8 billion at 30 June 2015, of which £2.4 billion related to CFG compared with £64.6 billion and £2.4 billion respectively at 31 December 2014.

 

Customer deposits insured through deposit guarantee schemes totalled £163 billion (2014 - £160 billion), the more material of them being UK Financial Services Compensation Scheme (FSCS), £113 billion (2014 - £112 billion); US Federal Insurance Corporation relating to CFG, £40 billion (2014 - £37 billion) and Republic of Ireland's Deposit Guarantee Scheme, £6 billion (2014 - £7 billion). FSCS deposit protection will decrease from the current limit of £85,000 to £75,000 with effect from 1 January 2016.

RBS is currently subject to the UK bank levy on its consolidated liabilities and equity after taking account of certain exemptions such as regulatory Tier 1 capital, insured deposits and liabilities subject to legally enforceable netting arrangements. The July 2015 Budget Statement, proposed a phased reduction of the bank levy rate from the existing rate of 0.21% to 0.18% from 1 January 2016 and subsequent annual reductions to 0.1% from January 2021. There will also be a change in the bank levy's scope from 1 January 2021, such that UK headquartered banks will be subject to bank levy only on their UK balance sheet liabilities. Total liabilities at 30 June 2015 excluding CFG were £829 billion (2014 - £919 billion) of which 82% (2014 - 81%) related to transactions recorded in UK offices.


Appendix 1 Capital and risk management

 

Credit risk

Credit risk is the risk of financial loss due to the failure of a customer or counterparty to meet its obligation to settle outstanding amounts. For a description of the bank's credit risk framework, governance, policies and methodologies refer to Capital and risk management - Credit risk in the 2014 Annual Report and Accounts.


 

Loans and related credit metrics

The tables below show gross loans and advances (excluding reverse repos) and related credit metrics by segment. Risk elements in lending (REIL) comprise impaired loans and accruing loans past due 90 days or more as to principal or interest. Impaired loans are all loans (including loans subject to forbearance) for which an impairment provision has been established. For collectively-assessed loans, impairment loss provisions are not allocated to individual loans and the entire portfolio is included in impaired loans. Accruing loans past due 90 days or more comprise loans past due 90 days where no impairment loss is expected.





Credit metrics




Gross loans to

REIL

Provisions

REIL as a %


Provisions

YTD


of gross

Provisions

as a % of

Impairment

YTD

loans to

as a %

gross loans

losses/

Amounts

Banks

Customers

customers

of REIL

to customers

(releases)

written-off

30 June 2015

£m

£m

£m

£m

%

%

%

£m

£m











UK PBB

1,023 

130,688 

3,232 

2,131 

2.5 

66 

1.6 

(17)

439 

Ulster Bank

2,495 

22,603 

4,190 

2,410 

18.5 

58 

10.7 

(52)

46 











PBB

3,518 

153,291 

7,422 

4,541 

4.8 

61 

3.0 

(69)

485 











Commercial Banking

510 

91,009 

2,284 

898 

2.5 

39 

1.0 

27 

120 

Private Banking

1,176 

13,520 

150 

47 

1.1 

31 

0.3 

(3)











CPB

1,686 

104,529 

2,434 

945 

2.3 

39 

0.9 

24 

121 











CIB

13,717 

57,956 

221 

143 

0.4 

65 

0.2 

(29)

28 

Central items

2,385 

2,039 

100 

(2)

CFG

1,438 

61,960 

1,240 

532 

2.0 

43 

0.9 

89 

156 

RCR

567 

11,006 

7,396 

5,141 

67.2 

69 

46.7 

(355)

4,981 












23,311 

390,781 

18,714 

11,303 

4.8 

60 

2.9 

(342)

5,771 











31 December 2014




















UK PBB

641 

129,848 

3,778 

2,604 

2.9 

69 

2.0 

268 

728 

Ulster Bank

1,381 

24,719 

4,775 

2,711 

19.3 

57 

11.0 

(365)

131 











PBB

2,022 

154,567 

8,553 

5,315 

5.5 

62 

3.4 

(97)

859 











Commercial Banking

486 

86,008 

2,506 

955 

2.9 

38 

1.1 

77 

436 

Private Banking

972 

16,599 

226 

76 

1.4 

34 

0.5 

(5)

37 











CPB

1,458 

102,607 

2,732 

1,031 

2.7 

38 

1.0 

72 

473 











CIB

16,910 

72,957 

197 

206 

0.3 

105 

0.3 

(7)

Central items

2,178 

619 

1.1 

86 

1.0 

(12)

55 

CFG

1,728 

60,142 

1,330 

536 

2.2 

40 

0.9 

194 

300 

RCR

516 

21,909 

15,400 

10,946 

70.3 

71 

50.0 

(1,320)

3,591 












24,812 

412,801 

28,219 

18,040 

6.8 

64 

4.4 

(1,170)

5,278 



 

Appendix 1 Capital and risk management

 

Loans and related credit metrics (continued)

 

Key points 

·

Loans to banks decreased by £1.5 billion with a strategy-driven reduction of £3.2 billion in CIB, which was partially offset by some increases in other segments. Liquidity management saw an increase in Ulster Bank of £1.1 billion and £0.4 billion in UK PBB.



·

Customer loans fell by £22.0 billion: CIB decreased by £15.0 billion and RCR by £10.9 billion;  Commercial Banking and UK PBB saw net growth of £5.0 billion and £0.8 billion respectively.



·

Risk elements in lending (REIL) at £18.7 billion was 4.8% of gross customer loans, a significant improvement on the £28.2 billion (or 6.8%) six months ago. This reflects the success of RCR's disposal strategy, particularly in relation to Irish assets. REIL is now covered 60% by impairment provisions, lower than 64% as a result of the disposals.



·

In UK PBB, gross customer loans increased by £0.8 billion to £130.7 billion. Mortgage lending was up by £2.2 billion, £1.8 billion in Q2 2015, reflecting targeted growth partially offset by decreases in unsecured lending. Impairments and credit metrics continued to improve. REIL as a percentage of gross loans fell from 2.9% to 2.5% due to repayments of £494 million, reflecting improved asset quality and write-offs of £439 million. Impairment release reflected recoveries on the back of improved economic conditions.



·

Ulster Bank: gross customers lending was £2.1 billion lower primarily driven by the weakening euro. Significant growth in new lending volumes was more than offset by continued customer deleveraging including a reduction in the tracker mortgage portfolio. Improved economic conditions and lower observable defaults have resulted in recoveries contributing to an impairment release of £52 million.



·

In Commercial Banking, gross customer lending increased by £5.0 billion, of which £2.4 billion related to transfers from Private Banking and £2.1 billion to transfers from CIB, partially offset by a £0.5 billion decrease in legacy portfolios. REIL as a percentage of gross loans continued to decrease falling from 2.9% to 2.5%. The overall reduction in REIL reflects a low number of new individual cases.



·

CIB: gross loans fell by £15.0 billion largely through asset disposals throughout the regions, repayments and exit of non-strategic clients in GTS and included sectors such as oil and gas and shipping. There were also transfers to Commercial Banking (£2.1 billion). REIL increases were seen in shipping, electric and gas sectors.



·

CFG gross loans to customers increased by £1.8 billion or 3.0% to £62.0 billion, reflecting growth in the retail and wholesale portfolio. Impairments and REIL were broadly unchanged.



·

RCR saw a significant reduction in gross customer loans - £6.5 billion in commercial real estate, £3.3 billion in other corporate and £1.1 billion in asset finance - as the execution of its disposal and run-down strategy continued. REIL fell by £8.0 billion to £7.4 billion and provisions decreased by £5.8 billion to £5.1 billion as a consequence. This contributed to the significant improvements in credit metrics in both RCR and RBS overall.

 


Appendix 1 Capital and risk management

 

Loans and related credit metrics: Risk elements in lending









RBS




UK

Ulster

Commercial

Private


Central


excluding




PBB

Bank

Banking

Banking

CIB

items

CFG

RCR

RCR

Total


£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 












At 1 January 2015

3,778 

4,775 

2,506 

226 

197 

1,330 

12,819 

15,400 

28,219 

Currency translation











  and other adjustments

(17)

(384)

91 

(80)

(18)

(6)

(5)

(419)

(784)

(1,203)

Additions

687 

294 

397 

10 

90 

140 

1,618 

692 

2,310 

Transfers (1)

(121)

(116)

(5)

(121)

Transfers to











  performing book

(162)

(41)

(93)

(296)

(28)

(324)

Repayments











  and disposals

(494)

(408)

(501)

(6)

(20)

(69)

(1,498)

(2,898)

(4,396)

Amounts written-off

(439)

(46)

(120)

(1)

(28)

(156)

(790)

(4,981)

(5,771)












At 30 June 2015

3,232 

4,190 

2,284 

150 

221 

1,240 

11,318 

7,396 

18,714 

 

Note:

(1)

Represents transfers between REIL and potential problem loans.

 

Impairment provisions

The movement in loan impairment provisions by segment is shown in the table below.

<









RBS




UK

Ulster

Commercial

Private


Central 


excluding 




PBB

Bank

 Banking

Banking

CIB

items 

CFG

RCR

RCR

Total


£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 












At 1 January 2015

2,604 

2,711 

955 

76 

206 

536 

7,094 

10,946 

18,040 

Currency translation 











  and other adjustments

(7)

(209)

37 

(24)

(10)

(3)

(5)

(221)

(466)

(687)

Disposal of subsidiaries

(1)

(1)

(1)

Amounts written-off

(439)

(46)

(120)

(1)

(28)

(156)

(790)

(4,981)

(5,771)

Recoveries of amounts 











  previously written-off

21 

24 

69 

126 

22 

148 

Charged to income statement











  - continuing operations

(17)

(52)

27 

(3)

(29)

(2)

(76)

(355)

(431)

  - discontinued operations

89 

89 

89 

Unwind of discount

(31)

(18)

(9)

(1)

(59)

(25)

(84)












At 30 June 2015

2,131 

2,410 

898 

47 

143 

532 

6,162 

5,141 

11,303 












Individually assessed











  - banks

25 

26 

  - customers

32 

481 

44 

111 

82 

757 

4,966 

5,723 

Collectively assessed

1,890 

2,118 

329 

171 

4,508 

100 

4,608 

Latent

235 

260 

88 

31 

279 

896 

50 

946 













2,131 

2,410 

898 

47 

143 

532 

6,162 

5,141 

11,303