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Royal Bk Scot.Grp. (RBS)

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Thursday 24 October, 2019

Royal Bk Scot.Grp.

Q3 Interim Management Statement

RNS Number : 9365Q
Royal Bank of Scotland Group PLC
24 October 2019
 

 

 

 

 

 

 

Q3 2019

Interim Management Statement

 

 

 

 

 

 

 

 

 

The Royal Bank of Scotland Group                                                                                  rbs.com

 

 

 

 

The Royal Bank of Scotland Group plc

Q3 2019 Interim Management Statement

 

RBS reported an operating loss before tax of £8 million, which included a £900 million provision in respect of Payment Protection Insurance (PPI), compared with an operating profit of £961 million in Q3 2018.

 

Return on tangible equity was 7.0% for Q3 2019 excluding the PPI charge.

Income was broadly stable across the retail and commercial businesses compared with Q2 2019, excluding notable items.

Group income was impacted by a particularly challenging quarter in NatWest Markets (NWM).

RBS reported an attributable loss of £315 million for Q3 2019.

 

Supporting our customers through continued lending growth

UK Personal Banking (UK PB) gross new mortgage lending was £8.6 billion in Q3 2019 compared with £6.7 billion in Q2 2019.

Commercial Banking net lending was £0.1 billion higher than Q2 2019. Across Business Banking, SME & Mid-Corporate, and Specialised business, lending continues to increase, with year to date growth of £1.6 billion.

We continue to achieve net lending growth across UK PB, Ulster Bank RoI, Commercial and Private Banking at attractive returns; net loans to customers increased by 3.2% on an annualised basis for the year to date, exceeding our 2-3% net loan growth target.

Q3 2019 net impairment loss of £213 million equates to 26 basis points of gross customer loans, compared with 31 basis points in Q3 2018. The cost of risk remains below our view of a normalised long term loss rate of 30-40 basis points.

 

Continuing competitive market

Across the retail and commercial businesses, income decreased by 3.1% compared with Q3 2018 excluding notable items.

Bank net interest margin (NIM) of 1.97% was 5 basis points lower than Q2 2019 primarily reflecting the contraction of the yield curve and competitive pressures in the mortgage business as front book margins, whilst higher than Q2 2019, remain lower than back book margins.

NWM had a challenging quarter with core income of £184 million, lower by £147 million, or 44.4%, than Q3 2018. Rates income in particular was impacted by a deterioration in economic sentiment for the global economy and a fall in bond yields. This, together with legacy items culminated in a loss of £193 million for the quarter.

Costs decreased by £20 million in comparison to Q3 2018, with a £193 million cost reduction achieved for the year to date. We remain on track to achieve our £300 million target for full year 2019.

 

Capital generation

CET1 ratio of 15.7% included a 50 basis point reduction in respect of the PPI charge.

RWAs increased by £1.0 billion in Q3 2019 to £189.5 billion, principally reflecting an increase in NWM. In line with previous guidance, we expect to end the year with RWAs of around £185-190 billion.

           

 

2019 and 2020 outlook - unchanged(1)

We retain the outlook provided in the 2019 Interim Results.

 

Note:

(1)   The targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the "Risk Factors" section on pages 253 to 263 of the 2018 Annual Report and Accounts and the Summary Risk Factors on pages 46 and 47 of the 2019 Interim Results. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 

 

Business performance summary

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

Performance key metrics and ratios

2019

2018

 

2019

2019

2018

Operating profit/(loss) before tax

£2,686m

£2,787m

 

(£8m)

£1,681m

£961m

Profit attributable to ordinary shareholders

£1,723m

£1,336m

 

(£315m)

£1,331m

£448m

Bank net interest margin (RBS NIM excluding NWM) (1)

2.02%

2.10%

 

1.97%

2.02%

2.04%

Bank average interest earning assets (RBS excluding NWM) (1)

£410bn

£408bn

 

£416bn

£410bn

£416bn

Cost:income ratio (1)

67.5%

69.1%

 

92.9%

52.6%

66.7%

Loan impairment rate (1)

22bps

16bps

 

26bps

30bps

31bps

Earnings per share

 

 

 

 

 

 

  - basic

14.3p

11.1p

 

(2.6p)

11.0p

3.7p

  - basic fully diluted

14.2p

11.1p

 

(2.6p)

11.0p

3.7p

Return on tangible equity (1)

6.8%

5.3%

 

(3.8%)

15.8%

5.4%

Average tangible equity

£34bn

£34bn

 

£33bn

£34bn

£33bn

Average number of ordinary shares

 

 

 

 

 

 

  outstanding during the period (millions)

 

 

 

 

 

 

  - basic

12,064

11,998

 

12,075

12,069

12,034

  - fully diluted (2)

12,099

12,053

 

12,106

12,104

12,083

 

 

30 September

30 June

31 December

Balance sheet key metrics and ratios

2019

2019

2018

Total assets

£776.5bn

£729.9bn

£694.2bn

Funded assets (1)

£600.7bn

£584.3bn

£560.9bn

Loans to customers - amortised cost

£319.5bn

£310.6bn

£305.1bn

Impairment provisions

£3.3bn

£3.2bn

£3.3bn

Customer deposits

£369.7bn

£361.6bn

£360.9bn

 

 

 

 

Liquidity coverage ratio (LCR)

148%

154%

158%

Liquidity portfolio

£193bn

£203bn

£198bn

Net stable funding ratio (NSFR) (3)

140%

140%

141%

Loan:deposit ratio (1)

86%

86%

85%

Total wholesale funding

£78bn

£78bn

£74bn

Short-term wholesale funding

£19bn

£19bn

£15bn

 

 

 

 

Common Equity Tier (CET1) ratio

15.7%

16.0%

16.2%

Total capital ratio

20.5%

20.9%

21.8%

Pro forma CET 1 ratio, pre dividend accrual (4)

15.9%

17.1%

16.9%

Risk-weighted assets (RWAs)

£189.5bn

£188.5bn

£188.7bn

CRR leverage ratio

5.0%

5.2%

5.4%

UK leverage ratio

5.7%

5.9%

6.2%

 

 

 

 

Tangible net asset value (TNAV) per ordinary share

272p

290p

287p

Tangible net asset value (TNAV) per ordinary share - fully diluted (1,2)

272p

289p

286p

Tangible equity

£32,930m

£35,036m

£34,566m

Number of ordinary shares in issue (millions)

12,094

12,091

12,049

Number of ordinary shares in issue (millions) - fully diluted (2,5)

12,124

12,124

12,088

 

Notes:

(1)   Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS financial and performance measures.

(2)   Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for Q3 2019 were 31 million shares and for nine months ended 30 September 2019 were 35 million shares; (Q2 2019 - 35 million shares, Q3 2018 - 49 million shares; nine months ended 30 September 2018 - 55 million shares), and as at 30 September 2019 were 30 million shares (30 June 2019 - 33 million shares; 31 December 2018 - 39 million shares).

(3)   NSFR reported in line with CRR2 regulations finalised in June 2019.

(4)   The pro forma CET 1 ratio at 30 September 2019 excluded a charge of £362 million (3p per share) for a foreseeable dividend. 30 June 2019 excluded a charge of £241 million (2p per share) for the interim dividend, a special dividend of £1,449 million (12p per share) and a foreseeable dividend related to interim profits of £363 million (3p per share). 31 December 2018 excluded a charge of £422 million (3.5p per share) for the final dividend and £904 million (7.5p per share) for the special dividend paid following the Annual General Meeting held on 25 April 2019.

(5)   Includes 16 million treasury shares (30 June 2019 - 17 million shares; 31 December 2018 - 8 million shares).

                                 

Re-segmentation

Refer to Note 1 for details of re-segmentation effective from 1 January 2019 and re-stated comparatives.

 

Non-IFRS financial measures

This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations where appropriate refer to the Appendix.

 

 

Summary consolidated income statement for the period ended 30 September 2019

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2019

2018*

 

2019

2019

2018*

 

£m

£m

 

£m

£m

£m

Net interest income

6,010

6,480

 

2,006

1,971

2,154

Own credit adjustments

(58)

59

 

(12)

(3)

20

Strategic disposals

1,035

-

 

-

1,035

-

Other non-interest income

3,033

3,805

 

909

1,077

1,468

Non-interest income

4,010

3,864

 

897

2,109

1,488

Total income

10,020

10,344

 

2,903

4,080

3,642

Litigation and conduct costs

(810)

(1,190)

 

(750)

(55)

(389)

Strategic costs

(844)

(649)

 

(215)

(434)

(299)

Other expenses

(5,144)

(5,337)

 

(1,733)

(1,673)

(1,753)

Operating expenses

(6,798)

(7,176)

 

(2,698)

(2,162)

(2,441)

Profit before impairment losses

3,222

3,168

 

205

1,918

1,201

Impairment losses

(536)

(381)

 

(213)

(237)

(240)

Operating profit/(loss) before tax

2,686

2,787

 

(8)

1,681

961

Tax (charge)/credit

(395)

(1,090)

 

(201)

22

(381)

Profit/(loss) for the period

2,291

1,697

 

(209)

1,703

580

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

1,723

1,336

 

(315)

1,331

448

Other owners

307

355

 

105

102

110

Non-controlling interests

261

6

 

1

270

22

 

Notable items within total income

 

 

 

 

 

 

Alawwal bank merger gain in NatWest Markets

444

-

 

-

444

-

FX recycling gain in Central items & other

290

-

 

-

290

-

Legacy liability release in Central items & other

256

-

 

-

256

-

Insurance indemnity

-

272

 

-

-

272

   of which:

 

 

 

 

 

 

         NatWest Markets

-

165

 

-

-

165

         Central items & other

-

107

 

-

-

107

IFRS volatility in Central items & other (1)

(34)

(34)

 

(51)

21

77

UK PB debt sale gain

18

26

 

16

-

-

FX gains/(losses) in Central items & other

22

(7)

 

2

-

(11)

Commercial Banking fair value and disposal (loss)/gain

(17)

179

 

-

(15)

(13)

NatWest Markets legacy business disposal (loss)/gain

(35)

(43)

 

(8)

(23)

14

 

 

 

 

 

 

 

Notable items within operating expenses

 

 

 

 

 

 

Push payment fraud costs

(25)

-

 

(7)

(18)

-

Litigation and conduct costs

(810)

(1,190)

 

(750)

(55)

(389)

   of which:

 

 

 

 

 

 

          US RMBS

169

(823)

 

162

7

(21)

          PPI

(900)

(200)

 

(900)

-

(200)

 

*Restated. Refer to Note 2 for further details.

 

Note:

(1)

IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.

 

 

 

Business performance summary

Personal & Ulster

UK Personal Banking

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2019

2019

2018

 

 

2019

2019

2018

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

1,224

1,202

1,257

 

Net loans to customers -

 

 

 

Operating expenses

(1,601)

(594)

(819)

 

 amortised cost

154.6

151.9

148.9

Impairment losses

(131)

(69)

(66)

 

Customer deposits

147.9

147.5

145.3

Operating profit

(508)

539

372

 

RWAs

37.5

37.0

34.3

Return on equity

(26.8%)

26.5%

19.4%

 

 

 

 

 

Net interest margin

2.44%

2.51%

2.65%

 

 

 

 

 

Cost:income ratio

130.8%

49.4%

65.2%

 

 

 

 

 

Loan impairment rate

34bps

18bps

18bps

 

 

 

 

 

 

 

UK PB has 6.8 million regular mobile app users and 8.8 million digitally active customers, representing 73% of active current account customers. Total digital sales volumes increased by 25% compared with Q3 2018, now representing 51% of all sales. 58% of personal unsecured loan sales, 68% of credit card accounts and 53% of current accounts opened were via the digital channel.

Total income was £33 million, or 2.6%, lower than Q3 2018, impacted by an IFRS 9 accounting change for interest in suspense recoveries of £8 million offset in impairments, and a £16 million increase in debt sale gains. Excluding these items, income was £41 million, or 3.3%, lower than Q3 2018 reflecting lower overall mortgage margins. Net interest margin decreased by 7 basis points compared with Q2 2019 reflecting the lower yield curve, impacting deposit margins and mortgage margin pressure as front book margins, whilst higher than Q2 2019, remain lower than back book margin.

Excluding strategic, litigation and conduct costs, operating expenses increased by £26 million, or 4.5%, compared with Q3 2018 reflecting increased fraud costs due to a revised customer refund approach for authorised push payment scams, annual pay award and increased technology and innovation costs, partially offset by a 6% reduction in headcount.

Litigation and conduct costs include a £900 million charge in respect of PPI claims following greater than predicted complaints volumes in the lead up to the 29 August 2019 deadline.

Impairment losses were £65 million higher than Q3 2018 reflecting lending growth, lower debt sale recoveries and IFRS 9 modelling adjustments. Underlying defaults have increased slightly since Q3 2018, however the trend is starting to flatten following risk appetite tightening. The uplift in impairment losses relative to Q2 2019 includes an additional charge in respect of increased economic uncertainty and IFRS 9 modelling adjustments.

Compared with Q2 2019, net loans to customers increased by £2.7 billion as a result of strong gross new mortgage lending of £8.6 billion in the quarter, with market flow share of approximately 12%, supporting a stock share of approximately 10%. Personal advances increased by £0.2 billion and cards balances increased by £0.1 billion with cards growth supported by the re-entry to the 0% balance transfer market in Q2 2019.

RWAs increased by £0.5 billion compared with Q2 2019, reflecting strong lending growth across all products.

                   

 

 

 

Business performance summary

Personal & Ulster

Ulster Bank RoI

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2019

2019

2018

 

 

2019

2019

2018

 

€m

€m

€m

 

 

€bn

€bn

€bn

Total income

161

158

169

 

Net loans to customers -

 

 

 

Operating expenses

(146)

(166)

(188)

 

 amortised cost

21.4

21.2

21.0

Impairment

 

 

 

 

Customer deposits

21.3

21.3

20.1

  releases/(losses)

19

11

(68)

 

RWAs

15.0

15.8

16.4

Operating profit/(loss)

34

3

(87)

 

 

 

 

 

Return on equity

5.8%

0.6%

(12.7%)

 

 

 

 

 

Net interest margin

1.55%

1.62%

1.72%

 

 

 

 

 

Cost:income ratio

90.3%

105.1%

110.6%

 

 

 

 

 

Loan impairment rate

(34)bps

(20)bps

119bps

 

 

 

 

 

 

 

Ulster Bank RoI continues to deliver digital enhancements, including paperless processes that simplify the everyday banking experience for customers. 70% of active personal current account customers are now choosing to bank through digital channels, with mobile payments and transfers 29% higher compared with Q3 2018.

Total income was €8 million, or 4.7%, lower than Q3 2018 primarily reflecting the sale of a portfolio of non-performing loans (NPL) and an IFRS 9 accounting change for interest in suspense recoveries of €6 million. Net interest margin decreased by 7 basis points compared with Q2 2019 mainly due to the IFRS 9 accounting change which took effect late in Q2 2019.

Excluding strategic, conduct and litigation costs, operating expenses decreased by €12 million, or 8.3%, compared with Q3 2018 due to the timing of project costs, reduced pension costs and the impact of other cost saving initiatives, partially offset by higher levies.

A net impairment release of €19 million in Q3 2019 principally reflects the net impact of an improvement in the performance of the non-performing loan portfolio and NPL deleveraging, partly offset by a charge for economic uncertainty.

Net loans to customers increased by €0.2 billion compared with Q2 2019 primarily driven by growth in the commercial loan portfolio.

On 8 October 2019 Ulster Bank Ireland DAC confirmed the sale of a portfolio of non-performing mortgages of €0.8 billion. This sale is consistent with our strategic objective to build a strong and sustainable bank and to reduce the percentage of non-performing loans on our balance sheet. The affected loans remain on the bank's balance sheet at 30 September 2019 and will be de-recognised during 2020.

                   

 

 

 

 

Business performance summary

Commercial & Private Banking

Commercial Banking

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2019

2019

2018

 

 

2019

2019

2018

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

1,077

1,083

1,096

 

Net loans to customers -

 

 

 

Operating expenses

(638)

(622)

(583)

 

 amortised cost

101.5

101.4

101.4

Impairment losses

(108)

(197)

(107)

 

Customer deposits

135.7

133.4

134.4

Operating profit

331

264

406

 

RWAs

77.0

77.8

78.4

Return on equity

8.4%

6.2%

9.6%

 

 

 

 

 

Net interest margin

1.90%

1.97%

2.00%

 

 

 

 

 

Cost:income ratio

57.9%

56.1%

51.8%

 

 

 

 

 

Loan impairment rate

42bps

77bps

41bps

 

 

 

 

 

 

 

Total income was £19 million, or 1.7%, lower than Q3 2018 as lower asset volumes and deposit income were partially offset by £13 million of fair value and disposal losses in Q3 2018. Net interest margin decreased by 7 basis points compared with Q2 2019 due to lower deposit funding benefits.

Excluding strategic, litigation and conduct costs, operating expenses increased by £24 million, or 4.5%, compared with Q3 2018 due to additional authorised push payment fraud costs in line with new industry practice, combined with higher remediation, innovation and technology spend. 

Impairment losses of £108 million, which included charges in respect of increased economic uncertainty and IFRS 9 modelling adjustments, were in line with Q3 2018 but were £89 million lower than Q2 2019.

Net loans to customers increased by £0.1 billion compared with Q2 2019. Lending across Business Banking, SME & Mid-Corporate and Specialised business increased by £0.1 billion in comparison to Q2 2019, with year to date growth of £1.6 billion.

RWAs decreased by £0.8 billion compared with Q2 2019 due to active capital management and business transfers of £0.3 billion.

                   

 

Private Banking

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2019

2019

2018

 

 

2019

2019

2018

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

198

191

195

 

Net loans to customers

 

 

 

Operating expenses

(119)

(115)

(110)

 

   - amortised cost

15.2

14.7

14.3

Impairment

 

 

 

 

 

 

 

 

 releases/(losses)

2

(1)

(1)

 

Customer deposits

28.2

28.0

28.4

Operating profit

81

75

84

 

RWAs

10.0

9.7

9.4

Return on equity

16.8%

15.9%

17.3%

 

AUMs

22.5

21.9

19.8

Net interest margin

2.35%

2.44%

2.54%

 

Assets Under

 

 

 

Cost:income ratio

60.1%

60.2%

56.4%

 

  Administration (1)

7.1

7.0

6.6

 

 

 

 

 

Total Assets Under

 

 

 

 

 

 

 

 

  Management and

 

 

 

 

 

 

 

 

  Administration (AUMA)

29.6

28.9

26.4

 

Note:

(1)

Private Banking manages assets under management portfolios on behalf of UK PB and RBSI. Prior to Q4 2018, the assets under management portfolios of UK PB and RBSI were not included. Private Banking receives a management fee from UK PB and clients of RBSI in respect of providing this service.

 

Total income was £3 million, or 1.5%, higher than Q3 2018, as volume growth and one-off benefits related to hedging income gains were partially offset by lower deposit income. Net interest margin decreased by 9 basis points compared with Q2 2019 primarily due to lower deposit funding benefits.

Excluding strategic, litigation and conduct costs, operating expenses were £1 million, or 0.9%, lower than Q3 2018 due to a reduction in back office operations costs.

Net loans to customers increased by £0.5 billion in comparison to Q2 2019, mainly due to mortgage lending.

Total assets under management in Private Banking increased by £0.6 billion, or 2.7%, in comparison with Q2 2019 reflecting investment performance of £0.4 billion and net new business inflows of £0.2 billion.

Total assets under management and administration overseen by Private Banking increased by £0.7 billion, or 2.4%, compared with Q2 2019 reflecting investment performance of £0.5 billion and net new business inflows of £0.2 billion.

     

 

 

 

 

Business performance summary

RBS International

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2019

2019

2018

 

 

2019

2019

2018

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

150

159

155

 

Net loans to customers -

 

 

 

Operating expenses

(62)

(60)

(60)

 

 amortised cost

13.8

13.6

13.3

Impairment losses

-

2

(3)

 

Customer deposits

29.1

28.1

27.5

Operating profit

88

101

92

 

RWAs

6.5

6.9

6.9

Return on equity

26.0%

30.8%

26.9%

 

 

 

 

 

Net interest margin

1.55%

1.68%

1.73%

 

 

 

 

 

Cost:income ratio

41.3%

37.7%

38.7%

 

 

 

 

 

 

 

The Institutional Banking electronic platform, eQ, is receiving positive Net Promoter Score (NPS) ratings and within our local banking business,  321, or 68%, of approved savings account applications by customers were paperless or required no signatures in Q3 2019, an increase of 34% in comparison to Q2 2019.

Total income was £5 million, or 3.2%, lower than Q3 2018 reflecting deposit pricing initiatives and lower

funding income. Net interest margin decreased by 13 basis points compared with Q2 2019 principally due to

the impact of US rate movements on our Institutional Banking business and increased central bank balances.

Excluding strategic costs, operating expenses were flat on Q3 2018 as lower back office operations costs were offset by headcount increases associated with becoming a standalone bank. 

Net loans to customers increased by £0.2 billion compared with Q2 2019 due to activity in the Institutional Banking sector, and continues to show year on year growth. Customer deposits increased by £1.0 billion compared with Q2 2019 due to activity across all customer sectors.

 

NatWest Markets

 

Quarter ended

 

 

As at

 

30 September

30 June

30 September

 

 

30 September

30 June

31 December

 

2019

2019

2018

 

 

2019

2019

2018

 

£m

£m

£m

 

 

£bn

£bn

£bn

Total income

150

686

569

 

Funded Assets

142.7

133.4

111.4

of which: Core income excluding

 

 

 

 

RWAs

43.8

41.4

44.9

  own credit adjustments

184

325

331

 

 

 

 

 

 of which: Legacy income

(23)

366

218

 

 

 

 

 

 of which: Own credit adjustments

(11)

(5)

20

 

 

 

 

 

Operating expenses

(348)

(344)

(478)

 

 

 

 

 

Impairment releases/(losses)

5

20

(4)

 

 

 

 

 

Operating (loss)/profit

(193)

362

87

 

 

 

 

 

Return on equity

(8.7%)

4.4%

1.8%

 

 

 

 

 

Cost:income ratio

232.0%

50.1%

84.0%

 

 

 

 

 

                               

 

Note:

(1)   The NatWest Markets operating segment should not be assumed to be the same as the NatWest Markets Plc legal entity or group. NatWest Markets Plc entity includes the Central items & other segment but excludes NatWest Markets N.V. for statutory reporting.

Total income decreased by £419 million to £150 million compared with Q3 2018, primarily reflecting insurance indemnity recoveries in the prior year and lower core income in Q3 2019. Core income of £184 million decreased by £147 million, or 44.4%, compared with Q3 2018. The reduction was due to challenging market conditions, principally affecting Rates income, most significantly during August. Rates income was impacted due to elevated hedging costs caused by reduced liquidity and wider bid-offer spreads, as the market experienced sustained curve flattening across global fixed income markets.

Excluding strategic, litigation and conduct costs, operating expenses increased by £10 million, or 3.7%, compared with Q3 2018 reflecting an elevated level of provision release in the prior year, costs associated with becoming a standalone bank and investment in NatWest Markets N.V..

RWAs increased by £2.4 billion in the quarter largely due to the requirement to hold higher capital on derivative assets driven by market moves in August and September.

Central items & other

 

Quarter ended

 

 

30 September

30 June

30 September

 

 

 

 

2019

2019

2018

 

 

 

 

£m

£m

£m

 

 

 

Central items not allocated

162

337

(4)

 

 

 

 

 

Central items not allocated represent a gain of £162 million in the quarter, principally reflecting reimbursement of £162 million under indemnification agreements relating to residential mortgage-backed securities. Excluding strategic, litigation and conduct costs, operating expenses decreased by £70 million reflecting one-off releases and innovation and other costs that were held centrally in Q3 2018 but are now allocated to the franchises. Across RBS, costs reduced by £20 million compared with Q3 2018.

 

                 

 

Segment performance

 

 

Nine months ended 30 September 2019

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

UK Personal

Ulster

 

Commercial

Private

RBS

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

Net interest income

3,118

302

 

2,127

391

361

(184)

(105)

6,010

Non-interest income

553

125

 

1,115

191

99

890

60

3,033

Own credit adjustments

-

1

 

-

-

-

(58)

(1)

(58)

Strategic disposals

-

-

 

-

-

-

444

591

1,035

Total income

3,671

428

 

3,242

582

460

1,092

545

10,020

Direct expenses

 

 

 

 

 

 

 

 

 

  - staff costs

(470)

(159)

 

(568)

(122)

(89)

(508)

(816)

(2,732)

  - other costs

(259)

(70)

 

(229)

(52)

(37)

(128)

(1,637)

(2,412)

Indirect expenses

(1,032)

(131)

 

(863)

(145)

(40)

(246)

2,457

-

Strategic costs

 

 

 

 

 

 

 

 

 

  - direct

(8)

(12)

 

(37)

-

(9)

(104)

(674)

(844)

  - indirect

(143)

(19)

 

(153)

(30)

(6)

(37)

388

-

Litigation and conduct costs

(918)

(21)

 

(50)

(2)

-

(3)

184

(810)

Operating expenses

(2,830)

(412)

 

(1,900)

(351)

(181)

(1,026)

(98)

(6,798)

Operating profit before impairment (losses)/releases

841

16

 

1,342

231

279

66

447

3,222

Impairment (losses)/releases

(312)

38

 

(310)

5

3

41

(1)

(536)

Operating profit

529

54

 

1,032

236

282

107

446

2,686

Additional information

 

 

 

 

 

 

 

 

 

Return on equity (2)

7.8%

3.4%

 

8.7%

16.7%

28.5%

(2.2%)

nm

6.8%

Cost:income ratio (2)

77.1%

96.3%

 

57.2%

60.3%

39.3%

94.0%

nm

67.5%

Total assets (£bn)

176.7

26.1

 

166.6

22.6

31.2

318.3

35.0

776.5

Funded assets (£bn)

176.7

26.0

 

166.6

22.6

31.2

142.7

34.9

600.7

Net loans to customers - amortised cost (£bn)

154.6

19.0

 

101.5

15.2

13.8

9.1

6.3

319.5

Loan impairment rate (2)

27bps

(26)bps

 

40bps

nm

nm

nm

nm

22bps

Impairment provisions (£bn)

(1.3)

(0.6)

 

(1.2)

-

-

(0.1)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.7)

(0.6)

 

(0.9)

-

-

(0.1)

-

(2.3)

Customer deposits (£bn)

147.9

18.8

 

135.7

28.2

29.1

3.3

6.7

369.7

Risk-weighted assets (RWAs) (£bn)

37.5

13.3

 

77.0

10.0

6.5

43.8

1.4

189.5

RWA equivalent (RWAes) (£bn)

38.4

13.6

 

78.1

10.0

6.6

48.9

1.7

197.3

Employee numbers (FTEs - thousands)

21.0

3.0

 

10.4

1.9

1.8

5.1

22.5

65.7

Average interest earning assets (£bn)

165.3

25.2

 

145.8

21.5

29.3

35.1

nm

445.1

Net interest margin

2.52%

1.60%

 

1.95%

2.44%

1.65%

(0.70%)

nm

1.81%

Third party customer asset rate

3.26%

2.28%

 

3.17%

2.92%

1.73%

nm

nm

nm

Third party customer funding rate

(0.38%)

(0.16%)

 

(0.43%)

(0.44%)

(0.14%)

nm

nm

nm


 

Segment performance

 

Nine months ended 30 September 2018

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

Net interest income

3,222

334

 

2,131

385

343

82

(17)

6,480

Non-interest income

586

129

 

1,355

192

96

1,149

298

3,805

Own credit adjustments

-

-

 

-

-

-

59

-

59

Total income

3,808

463

 

3,486

577

439

1,290

281

10,344

Direct expenses

 

 

 

 

 

 

 

 

 

  - staff costs

(532)

(149)

 

(554)

(122)

(77)

(429)

(927)

(2,790)

  - other costs

(186)

(76)

 

(178)

(44)

(45)

(176)

(1,842)

(2,547)

Indirect expenses

(1,050)

(133)

 

(891)

(157)

(56)

(292)

2,579

-

Strategic costs

 

 

 

 

 

 

 

 

 

  - direct

(14)

1

 

(28)

-

(2)

(106)

(500)

(649)

  - indirect

(122)

(8)

 

(65)

(11)

(4)

(21)

231

-

Litigation and conduct costs

(206)

(54)

 

(7)

(1)

10

(125)

(807)

(1,190)

Operating expenses

(2,110)

(419)

 

(1,723)

(335)

(174)

(1,149)

(1,266)

(7,176)

Operating profit/(loss) before impairment (losses)/releases

1,698

44

 

1,763

242

265

141

(985)

3,168

Impairment (losses)/releases

(197)

(34)

 

(142)

(2)

-

(8)

2

(381)

Operating profit/(loss)

1,501

10

 

1,621

240

265

133

(983)

2,787

Additional information

 

 

 

 

 

 

 

 

 

Return on equity (2)

27.3%

0.5%

 

13.2%

16.3%

26.0%

0.2%

nm

5.3%

Cost:income ratio (2)

55.4%

90.5%

 

48.1%

58.1%

39.6%

89.1%

nm

69.1%

Total assets (£bn)

171.7

25.3

 

167.9

21.4

29.0

253.3

51.3

719.9

Funded assets (£bn)

171.7

25.3

 

167.9

21.4

29.0

120.9

51.1

587.3

Net loans to customers - amortised cost (£bn)

149.2

19.2

 

102.3

14.2

13.0

8.0

(0.1)

305.8

Loan impairment rate (2)

17bps

22bps

 

18bps

nm

nm

nm

nm

16bps

Impairment provisions (£bn)

(1.1)

(1.2)

 

(1.3)

(0.1)

-

(0.2)

-

(3.9)

Impairment provisions - stage 3 (£bn)

(0.7)

(1.0)

 

(1.1)

-

-

(0.1)

-

(2.9)

Customer deposits (£bn)

144.8

17.9

 

135.0

27.2

26.9

2.6

6.2

360.6

Risk-weighted assets (RWAs) (£bn)

34.1

16.5

 

80.3

9.5

6.9

46.5

0.7

194.5

RWA equivalent (RWAes) (£bn)

35.5

16.6

 

83.8

9.5

6.9

49.9

1.0

203.2

Employee numbers (FTEs - thousands)

22.3

3.1

 

10.6

1.9

1.7

4.9

24.1

68.6

Average interest earning assets (£bn)

160.3

24.7

 

144.9

20.3

27.4

27.0

nm

435.2

Net interest margin

2.69%

1.81%

 

1.96%

2.53%

1.67%

0.41%

nm

1.99%

Third party customer asset rate

3.37%

2.40%

 

2.97%

2.87%

2.38%

nm

nm

nm

Third party customer funding rate

(0.30%)

(0.21%)

 

(0.26%)

(0.21%)

(0.10%)

nm

nm

nm

 

 

 

Segment performance

 

Quarter ended 30 September 2019

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

Net interest income

1,034

102

 

703

130

119

(62)

(20)

2,006

Non-interest income

190

43

 

374

68

31

223

(20)

909

Own credit adjustments

-

-

 

-

-

-

(11)

(1)

(12)

Total income

1,224

145

 

1,077

198

150

150

(41)

2,903

Direct expenses

 

 

 

 

 

 

 

 

 

  - staff costs

(157)

(53)

 

(194)

(40)

(30)

(159)

(258)

(891)

  - other costs

(95)

(22)

 

(74)

(17)

(14)

(42)

(578)

(842)

Indirect expenses

(357)

(43)

 

(294)

(49)

(13)

(81)

837

-

Strategic costs

 

 

 

 

 

 

 

 

 

  - direct

(12)

(3)

 

(5)

-

(4)

(55)

(136)

(215)

  - indirect

(68)

(9)

 

(67)

(13)

(1)

(7)

165

-

Litigation and conduct costs

(912)

(1)

 

(4)

-

-

(4)

171

(750)

Operating expenses

(1,601)

(131)

 

(638)

(119)

(62)

(348)

201

(2,698)

Operating (loss)/profit before impairment (losses)/releases

(377)

14

 

439

79

88

(198)

160

205

Impairment (losses)/releases

(131)

17

 

(108)

2

-

5

2

(213)

Operating (loss)/profit

(508)

31

 

331

81

88

(193)

162

(8)

Additional information

 

 

 

 

 

 

 

 

 

Return on equity (2)

(26.8%)

5.8%

 

8.4%

16.8%

26.0%

(8.7%)

nm

(3.8%)

Cost:income ratio (2)

130.8%

90.3%

 

57.9%

60.1%

41.3%

232.0%

nm

92.9%

Total assets (£bn)

176.7

26.1

 

166.6

22.6

31.2

318.3

35.0

776.5

Funded assets (£bn)

176.7

26.0

 

166.6

22.6

31.2

142.7

34.9

600.7

Net loans to customers - amortised cost (£bn)

154.6

19.0

 

101.5

15.2

13.8

9.1

6.3

319.5

Loan impairment rate (2)

34bps

(35)bps

 

42bps

nm

nm

nm

nm

26bps

Impairment provisions (£bn)

(1.3)

(0.6)

 

(1.2)

-

-

(0.1)

(0.1)

(3.3)

Impairment provisions - stage 3 (£bn)

(0.7)

(0.6)

 

(0.9)

-

-

(0.1)

-

(2.3)

Customer deposits (£bn)

147.9

18.8

 

135.7

28.2

29.1

3.3

6.7

369.7

Risk-weighted assets (RWAs) (£bn)

37.5

13.3

 

77.0

10.0

6.5

43.8

1.4

189.5

RWA equivalent (RWAes) (£bn)

38.4

13.6

 

78.1

10.0

6.6

48.9

1.7

197.3

Employee numbers (FTEs - thousands)

21.0

3.0

 

10.4

1.9

1.8

5.1

22.5

65.7

Average interest earning assets (£bn)

168.1

26.2

 

146.7

22.0

30.4

38.6

nm

454.4

Net interest margin

2.44%

1.55%

 

1.90%

2.35%

1.55%

(0.64%)

nm

1.75%

Third party customer asset rate

3.22%

2.23%

 

3.11%

2.87%

1.69%

nm

nm

nm

Third party customer funding rate

(0.38%)

(0.15%)

 

(0.43%)

(0.43%)

(0.15%)

nm

nm

nm


 

Segment performance

 

Quarter ended 30 June 2019

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

Net interest income

1,032

102

 

716

129

125

(91)

(42)

1,971

Non-interest income

170

35

 

367

62

34

338

71

1,077

Own credit adjustments

-

1

 

-

-

-

(5)

1

(3)

Strategic disposals

-

-

 

-

-

-

444

591

1,035

Total income

1,202

138

 

1,083

191

159

686

621

4,080

Direct expenses

 

 

 

 

 

 

 

 

 

  - staff costs

(155)

(54)

 

(184)

(41)

(31)

(176)

(264)

(905)

  - other costs

(90)

(22)

 

(80)

(17)

(10)

(38)

(511)

(768)

Indirect expenses

(297)

(41)

 

(260)

(45)

(13)

(76)

732

-

Strategic costs

 

 

 

 

 

 

 

 

 

  - direct

4

(4)

 

(12)

-

(3)

(31)

(388)

(434)

  - indirect

(49)

(5)

 

(50)

(10)

(3)

(17)

134

-

Litigation and conduct costs

(7)

(19)

 

(36)

(2)

-

(6)

15

(55)

Operating expenses

(594)

(145)

 

(622)

(115)

(60)

(344)

(282)

(2,162)

Operating profit/(loss) before impairment (losses)/releases

608

(7)

 

461

76

99

342

339

1,918

Impairment (losses)/releases

(69)

10

 

(197)

(1)

2

20

(2)

(237)

Operating profit

539

3

 

264

75

101

362

337

1,681

Additional information

 

 

 

 

 

 

 

 

 

Return on equity (2)

26.5%

0.6%

 

6.2%

15.9%

30.8%

4.4%

nm

15.8%

Cost:income ratio (2)

49.4%

105.1%

 

56.1%

60.2%

37.7%

50.1%

nm

52.6%

Total assets (£bn)

173.9

26.4

 

165.6

21.9

30.4

278.9

32.8

729.9

Funded assets (£bn)

173.9

26.4

 

165.6

21.9

30.4

133.4

32.7

584.3

Net loans to customers - amortised cost (£bn)

151.9

19.0

 

101.4

14.7

13.6

9.3

0.7

310.6

Loan impairment rate (2)

18bps

(20)bps

 

77bps

nm

nm

nm

nm

30bps

Impairment provisions (£bn)

(1.2)

(0.7)

 

(1.2)

-

-

(0.1)

-

(3.2)

Impairment provisions - stage 3 (£bn)

(0.7)

(0.6)

 

(0.9)

-

-

(0.1)

-

(2.3)

Customer deposits (£bn)

147.5

19.0

 

133.4

28.0

28.1

2.8

2.8

361.6

Risk-weighted assets (RWAs) (£bn)

37.0

14.2

 

77.8

9.7

6.9

41.4

1.5

188.5

RWA equivalent (RWAes) (£bn)

38.1

14.5

 

79.3

9.7

7.0

46.1

1.8

196.5

Employee numbers (FTEs - thousands)

21.3

3.1

 

10.5

1.9

1.8

5.0

23.0

66.6

Average interest earning assets (£bn)

164.8

25.3

 

146.1

21.2

29.8

34.4

nm

444.8

Net interest margin

2.51%

1.62%

 

1.97%

2.44%

1.68%

(1.05%)

nm

1.78%

Third party customer asset rate

3.25%

2.29%

 

3.18%

2.89%

1.79%

nm

nm

nm

Third party customer funding rate

(0.38%)

(0.15%)

 

(0.42%)

(0.45%)

(0.13%)

nm

nm

nm

                     


 

Segment performance

 

Quarter ended 30 September 2018

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

Net interest income

1,083

110

 

731

133

124

15

(42)

2,154

Non-interest income

174

41

 

365

62

31

534

261

1,468

Own credit adjustments

-

-

 

-

-

-

20

-

20

Total income

1,257

151

 

1,096

195

155

569

219

3,642

Direct expenses

 

 

 

 

 

 

 

 

 

  - staff costs

(172)

(51)

 

(180)

(39)

(26)

(120)

(299)

(887)

  - other costs

(69)

(31)

 

(64)

(16)

(12)

(61)

(613)

(866)

Indirect expenses

(342)

(45)

 

(294)

(52)

(19)

(91)

843

-

Strategic costs

 

 

 

 

 

 

 

 

 

  - direct

-

(1)

 

(8)

1

(2)

(78)

(211)

(299)

  - indirect

(37)

(2)

 

(21)

(4)

(1)

(15)

80

-

Litigation and conduct costs

(199)

(37)

 

(16)

-

-

(113)

(24)

(389)

Operating expenses

(819)

(167)

 

(583)

(110)

(60)

(478)

(224)

(2,441)

Operating profit/(loss) before impairment (losses)/releases

438

(16)

 

513

85

95

91

(5)

1,201

Impairment (losses)/releases

(66)

(60)

 

(107)

(1)

(3)

(4)

1

(240)

Operating profit/(loss) 

372

(76)

 

406

84

92

87

(4)

961

Additional information

 

 

 

 

 

 

 

 

 

Return on equity (2)

19.4%

(12.7%)

 

9.6%

17.3%

26.9%

1.8%

nm

5.4%

Cost:income ratio (2)

65.2%

110.6%

 

51.8%

56.4%

38.7%

84.0%

nm

66.7%

Total assets (£bn)

171.7

25.3

 

167.9

21.4

29.0

253.3

51.3

719.9

Funded assets (£bn)

171.7

25.3

 

167.9

21.4

29.0

120.9

51.1

587.3

Net loans to customers - amortised cost (£bn)

149.2

19.2

 

102.3

14.2

13.0

8.0

(0.1)

305.8

Loan impairment rate (2)

18bps

118bps

 

41bps

nm

nm

nm

nm

31bps

Impairment provisions (£bn)

(1.1)

(1.2)

 

(1.3)

(0.1)

-

(0.2)

-

(3.9)

Impairment provisions - stage 3 (£bn)

(0.7)

(1.0)

 

(1.1)

-

-

(0.1)

-

(2.9)

Customer deposits (£bn)

144.8

17.9

 

135.0

27.2

26.9

2.6

6.2

360.6

Risk-weighted assets (RWAs) (£bn)

34.1

16.5

 

80.3

9.5

6.9

46.5

0.7

194.5

RWA equivalent (RWAes) (£bn)

35.5

16.6

 

83.8

9.5

6.9

49.9

1.0

203.2

Employee numbers (FTEs - thousands)

22.3

3.1

 

10.6

1.9

1.7

4.9

24.1

68.6

Average interest earning assets (£bn)

162.3

25.4

 

144.9

20.8

28.4

26.7

nm

443.1

Net interest margin

2.65%

1.72%

 

2.00%

2.54%

1.73%

0.22%

nm

1.93%

Third party customer asset rate

3.35%

2.42%

 

3.04%

2.91%

2.29%

nm

nm

nm

Third party customer funding rate

(0.31%)

(0.20%)

 

(0.28%)

(0.26%)

(0.11%)

nm

nm

nm

                     

 

Notes:

(1)   Central items include unallocated transactions, including volatile items under IFRS, items related to Alawwal bank merger and RMBS related charges.

(2)   Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant.

 

Business performance summary

Capital and leverage ratios

 

 

End-point CRR basis

 

30 September

30 June

31 December

Capital adequacy ratios

2019

2019

2018

CET1 (%)

15.7

16.0

16.2

Tier 1 (%)

17.9

18.2

18.4

Total (%)

20.5

20.9

21.8

 

 

 

 

Capital

£m

£m

£m

Tangible equity

32,930

35,036

34,566

 

 

 

 

Expected loss less impairment provisions

(620)

(726)

(654)

Prudential valuation adjustment

(466)

(419)

(494)

Deferred tax assets

(732)

(869)

(740)

Own credit adjustments

(234)

(261)

(405)

Pension fund assets

(401)

(400)

(394)

Cash flow hedging reserve

(336)

(117)

191

Foreseeable ordinary dividends

(362)

(2,053)

(1,326)

Other deductions

(6)

-

(105)

Total deductions

(3,157)

(4,845)

(3,927)

 

 

 

 

CET1 capital

29,773

30,191

30,639

AT1 capital

4,051

4,051

4,051

Tier 1 capital

33,824

34,242

34,690

Tier 2 capital

4,980

5,119

6,483

 

 

 

 

Total regulatory capital

38,804

39,361

41,173

 

 

 

 

Risk-weighted assets

 

 

 

Credit risk

136,200

137,100

137,900

Counterparty credit risk

15,000

14,200

13,600

Market risk

15,700

14,600

14,800

Operational risk

22,600

22,600

22,400

Total RWAs

189,500

188,500

188,700

 

 

 

 

Leverage

 

 

 

Cash and balances at central banks

84,300

85,400

88,900

Trading assets

91,600

85,400

75,100

Derivatives

175,800

145,600

133,300

Financial assets

396,400

389,200

377,500

Other assets

28,400

24,300

19,400

Total assets

776,500

729,900

694,200

 

 

 

 

Derivatives

 

 

 

  - netting and variation margin

(189,800)

(156,600)

(141,300)

  - potential future exposures

47,200

44,100

42,100

Securities financing transactions gross up

1,700

1,900

2,100

Undrawn commitments

43,900

49,300

50,300

Regulatory deductions and other adjustments

(9,400)

(9,500)

(2,900)

CRR leverage exposure

670,100

659,100

644,500

 

 

 

 

CRR leverage ratio % (1)

5.0

5.2

5.4

 

 

 

 

UK leverage exposure

589,500

576,600

559,500

 

 

 

 

UK leverage ratio % (2)

5.7

5.9

6.2

 

Notes:

(1)

Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

(2)

Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.

 

 

 

Condensed consolidated income statement for the period ended 30 September 2019 (unaudited)

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2019

2018*

 

2019

2019

2018*

 

£m 

£m 

 

£m 

£m 

£m 

Interest receivable

8,474

8,224

 

2,921

2,806

2,780

Interest payable

(2,464)

(1,744)

 

(915)

(835)

(626)

Net interest income (1)

6,010

6,480

 

2,006

1,971

2,154

Fees and commissions receivable

2,570

2,433

 

808

857

787

Fees and commissions payable

(673)

(671)

 

(186)

(243)

(220)

Income from trading activities

794

1,346

 

195

375

499

Other operating income

1,319

756

 

80

1,120

422

Non-interest income

4,010

3,864

 

897

2,109

1,488

Total income

10,020

10,344

 

2,903

4,080

3,642

Staff costs

(3,028)

(3,108)

 

(1,000)

(1,017)

(1,022)

Premises and equipment

(823)

(972)

 

(265)

(293)

(328)

Other administrative expenses

(2,085)

(2,521)

 

(1,222)

(445)

(885)

Depreciation and amortisation

(853)

(544)

 

(232)

(377)

(206)

Write down of other intangible assets

(9)

(31)

 

21

(30)

-

Operating expenses

(6,798)

(7,176)

 

(2,698)

(2,162)

(2,441)

Profit before impairment losses

3,222

3,168

 

205

1,918

1,201

Impairment losses

(536)

(381)

 

(213)

(237)

(240)

Operating profit/(loss) before tax

2,686

2,787

 

(8)

1,681

961

Tax (charge)/credit

(395)

(1,090)

 

(201)

22

(381)

Profit/(loss) for the period

2,291

1,697

 

(209)

1,703

580

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

1,723

1,336

 

(315)

1,331

448

Preference shareholders

30

94

 

10

10

20

Paid-in equity holders

277

261

 

95

92

90

Non-controlling interests

261

6

 

1

270

22

Earnings per ordinary share (2)

14.3p

11.1p

 

(2.6p)

11.0p

3.7p

 

*Restated. Refer to Note 2 for further details.

 

Notes:

(1)    Negative interest on loans is reported as interest payable. Negative interest on customer deposits is reported as interest receivable.

(2)    Basic, fully diluted, earnings per share for the nine months ended 30 September 2019 was 14.2p. There was no dilutive impact in any other period.

 

 

Condensed consolidated statement of comprehensive income for the period ended 30 September 2019 (unaudited)

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2019

2018*

 

2019

2019

2018*

 

£m

£m

 

£m

£m

£m

Profit/(loss) for the period

2,291

1,697

 

(209)

1,703

580

Items that do not qualify for reclassification

 

 

 

 

 

 

Remeasurement of retirement benefit schemes

 

 

 

 

 

 

  - contributions in preparation for ring-fencing (1)

-

(2,000)

 

-

-

-

  - other movements

(96)

72

 

(28)

(26)

72

(Loss)/profit on fair value of credit in financial liabilities

 

 

 

 

 

 

  designated as at FVTPL due to own credit risk

(115)

109

 

(19)

(50)

14

FVOCI financial assets

(92)

61

 

(130)

(4)

58

Tax

24

487

 

(2)

(6)

(13)

 

(279)

(1,271)

 

(179)

(86)

131

Items that do qualify for reclassification

 

 

 

 

 

 

FVOCI financial assets

(3)

31

 

9

(53)

(168)

Cash flow hedges

688

(822)

 

286

214

(301)

Currency translation

(298)

120

 

(57)

109

102

Tax

(193)

224

 

(71)

(82)

127

 

194

(447)

 

167

188

(240)

Other comprehensive (loss)/income after tax

(85)

(1,718)

 

(12)

102

(109)

Total comprehensive income/(loss) for the period

2,206

(21)

 

(221)

1,805

471

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

1,624

(404)

 

(326)

1,392

304

Preference shareholders

30

94

 

10

10

20

Paid-in equity holders

277

261

 

95

92

90

Non-controlling interests

275

28

 

-

311

57

 

2,206

(21)

 

(221)

1,805

471

 

*Restated. Refer to Note 2 for further details.

 

Note:

(1)

On 17 April 2018, RBS agreed a Memorandum of Understanding (MoU) with the Trustees of the RBS Group Pension Fund in connection with the requirements of ring-fencing.  NatWest Markets Plc could not continue to be a participant in the Main section and separate arrangements were required for its employees. Under the MoU, NatWest Plc made a contribution of £2 billion on 9 October 2018 to strengthen funding of the Main section in recognition of the changes in covenant.

 

 

 

Condensed consolidated balance sheet as at 30 September 2019 (unaudited)

 

 

30 September

31 December

2019

2018

 

£m

£m 

Assets

 

 

Cash and balances at central banks

84,252

88,897

Trading assets

91,605

75,119

Derivatives

175,760

133,349

Settlement balances

12,962

2,928

Loans to banks - amortised cost

12,440

12,947

Loans to customers - amortised cost

319,493

305,089

Other financial assets

64,488

59,485

Intangible assets

6,646

6,616

Other assets

8,861

9,805

Total assets

776,507

694,235

 

 

 

Liabilities

 

 

Bank deposits

22,095

23,297

Customer deposits

369,708

360,914

Settlement balances

11,862

3,066

Trading liabilities

87,374

72,350

Derivatives

173,750

128,897

Other financial liabilities

47,508

39,732

Subordinated liabilities

10,200

10,535

Other liabilities

9,864

8,954

Total liabilities

732,361

647,745

 

 

 

Equity

 

 

Ordinary shareholders' interests

39,576

41,182

Other owners' interests

4,554

4,554

Owners' equity

44,130

45,736

Non-controlling interests

16

754

Total equity

44,146

46,490

Total liabilities and equity

776,507

694,235

 

 

Condensed consolidated statement of changes in equity for the period ended 30 September 2019 (unaudited)

 

 

Share

 

 

 

 

 

 

 

capital and

 

 

 

Total

Non

 

 

statutory

Paid-in

Retained

Other

owners'

controlling

Total

 

reserves

equity

earnings

reserves*

equity

 interests

equity

 

£m

£m

£m

£m

£m

£m

£m

At 1 January 2019

13,055

4,058

14,312

14,311

45,736

754

46,490

Implementation of IFRS 16 on 1 January 2019 (1)

-

-

(187)

-

(187)

-

(187)

Profit attributable to ordinary shareholders

 

 

 

 

 

 

 

  and other equity owners 

-

-

2,030

-

2,030

261

2,291

Other comprehensive income

 

 

 

 

 

 

 

  - Realised gains/(losses) in period

 

 

 

 

 

 

 

      on FVOCI equity shares

-

-

118

(118)

-

-

-

  - Remeasurement of retirement

 

 

 

 

 

 

 

      benefit schemes

-

-

(96)

-

(96)

-

(96)

  - Changes in fair value of credit in financial

 

 

 

 

 

 

 

      liabilities at FVTPL

-

-

(115)

-

(115)

-

(115)

  - Other amounts recognised in equity

-

-

-

737

737

14

751

  - Amount transferred from equity to earnings

-

-

-

(169)

(169)

-

(169)

  - Recycled to profit or loss on disposal

 

 

 

 

 

 

-

      of businesses (2)

-

-

-

(335)

(335)

-

(335)

  - Tax

-

-

39

(160)

(121)

-

(121)

Ordinary share dividends paid

-

-

(3,018)

-

(3,018)

-

(3,018)

Preference share and paid-in equity dividends paid

-

-

(307)

-

(307)

-

(307)

Shares and securities issued during the period

112

-

(4)

-

108

-

108

Share-based payments - gross

-

-

(109)

-

(109)

-

(109)

Movement in own shares held

(24)

-

-

-

(24)

-

(24)

Equity raised (3)

-

-

-

-

-

45

45

Equity withdrawn and disposals (4)

-

-

-

-

-

(1,058)

(1,058)

At 30 September 2019

13,143

4,058

12,663

14,266

44,130

16

44,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September

 

 

 

 

 

 

 

2019

Total equity is attributable to:

 

 

 

 

£m

Ordinary shareholders

 

 

 

 

 

 

39,576

Preference shareholders

 

 

 

 

 

 

496

Paid-in equity holders

 

 

 

 

 

 

4,058

Non-controlling interests

 

 

 

 

 

 

16

 

 

 

 

 

 

 

44,146

*Other reserves consist of:

 

 

 

 

 

 

Merger reserve

 

 

 

 

 

 

10,881

FVOCI reserve

 

 

 

 

 

 

125

Cash flow hedging reserve

 

 

 

 

 

 

336

Foreign exchange reserve

 

 

 

 

 

 

2,924

 

 

 

 

 

 

 

14,266

 

Notes:

(1)   Refer to Note 2 for further information on the impact of IFRS 16 implementation.

(2)   Includes £338 million arising on the completion of the Alawwal bank merger in June 2019, of which £48 million relates to tax. The merger resulted in the derecognition of the associate investment in Alawwal bank and recognition of a new investment in SABB held at fair value through other comprehensive income (FVOCI).

(3)   Capital injection from RFS Holdings B.V. Consortium Members.

(4)   Distribution to RFS Holdings B.V. Consortium Members on completion of Alawwal bank merger.


 

Notes

1. Basis of preparation

The condensed consolidated financial statements should be read in conjunction with RBS's 2018 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).

 

Going concern

Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the periods ended 30 September 2019 have been prepared on a going concern basis.

 

Re-segmentation

Effective from 1 January 2019, Business Banking has been transferred from UK Personal and Business Banking (UK PBB) to Commercial Banking as the nature of the business, including distribution channels, products and customers, are more closely aligned to the Commercial Banking business. Concurrent with the transfer, UK PBB has been renamed UK Personal Banking (UK PB) and the previous franchise combining UK PBB (now UK PB) and Ulster Bank RoI has been renamed Personal & Ulster. Comparatives have been re-stated.

 

2.  Accounting policies

RBS's principal accounting policies are as set out on pages 182 to 186 of the 2018 Annual Report and Accounts and are unchanged other than as presented below.

 

Changes in reporting standards

IAS 12 'Income taxes' was revised with effect from 1 January 2019. The income statement is now required to include any tax relief on the servicing cost of instruments classified as equity. Relief of £67 million was recognised in the statement of changes in equity for the year ended 31 December 2018; this and prior periods have been restated.

 

Presentation of interest in suspense recoveries

Until 1 January 2019, interest in suspense recoveries were presented as a component of interest receivable within Net interest income. It amounted to £46 million for the period ended 30 September 2019. From 1 January 2019 interest in suspense recoveries is presented within impairment charges; prior periods were presented as income. Comparatives have not been restated.

 

Revised Accounting policy 10 - Leases

RBS has adopted IFRS 16 'Leases' with effect from 1 January 2019, replacing IAS 17 'Leases'. RBS has applied IFRS 16 on a modified retrospective basis without restating prior years. Accounting policy 10 presented in the 2018 Annual Report and Accounts has been updated as follows:

 

As lessor

Finance lease contracts are those which transfer substantially all the risks and rewards of ownership of an asset to a customer. All other contracts with customers to lease assets are classified as operating leases.

 

Loans to customers include finance lease receivables measured at the net investment in the lease, comprising the minimum lease payments and any unguaranteed residual value discounted at the interest rate implicit in the lease. Interest receivable includes finance lease income recognised at a constant periodic rate of return before tax on the net investment. Unguaranteed residual values are subject to regular review; if there is a reduction in their value, income allocation is revised and any reduction in respect of amounts accrued is recognised immediately.

 

Rental income from operating leases is recognised in other operating income on a straight-line basis over the lease term unless another systematic basis better represents the time pattern of the asset's use. Operating lease assets are included within Property, plant and equipment and depreciated over their useful lives.

 

As lessee

On entering a new lease contract, RBS recognises a right of use asset and a liability to pay future rentals. The liability is measured at the present value of future lease payments discounted at the applicable incremental borrowing rate. The right of use asset is depreciated over the shorter of the term of the lease and the useful economic life, subject to review for impairment. Short term and low value leased assets are expensed on a systematic basis.

 

Notes

2. Accounting policies continued

For further details see page 186 of RBS's 2018 Annual Report and Accounts. The impact on RBS's balance sheet at 1 January 2019 is as follows:

 

£bn

Retained earnings at 31 December 2018

14.3

Loans to customers - finance leases

0.2

Other assets - net right of use assets

1.3

  - Recognition of lease liabilities

(1.9)

  - Provision for onerous leases

0.2

Other liabilities

(1.7)

 

 

Net impact on retained earnings

(0.2)

Retained earnings at 1 January 2019

14.1

 

Operating lease commitments reported under IAS 17 were £2.7 billion which resulted in lease liabilities recognised under IFRS 16 of £1.9 billion. The difference is primarily because of the different treatment of termination and extension options, and discounting the contractual lease payments under IFRS 16.

 

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on page 186 of the 2018 Annual Report and Accounts.

Notes

3. Provisions for liabilities and charges

 

Payment

Other

 

 

 

 

protection

 customer

Litigation and

 

 

 

insurance (1)

 redress

other regulatory

Other (2)

Total

 

£m

£m

£m

£m

£m

At 1 January 2019

695

536

783

990

3,004

Implementation of IFRS 16 on 1 January 2019 (3)

-

-

-

(170)

(170)

ECL impairment release

-

-

-

(3)

(3)

Transfer to accruals and other liabilities

-

(4)

-

1

(3)

Currency translation and other movements

-

(7)

(6)

(16)

(29)

Charge to income statement

-

17

5

33

55

Releases to income statement

-

(12)

(9)

(16)

(37)

Provisions utilised

(136)

(81)

(6)

(114)

(337)

At 31 March 2019

559

449

767

705

2,480

ECL impairment charge

-

-

-

21

21

Transfer from accruals and other liabilities

-

4

-

-

4

Currency translation and other movements

-

3

3

4

10

Charge to income statement

-

64

18

100

182

Releases to income statement

-

(11)

(33)

(70)

(114)

Provisions utilised

(116)

(90)

(28)

(79)

(313)

At 30 June 2019

443

419

727

681

2,270

ECL impairment charge

-

-

-

13

13

Transfer from accruals and other liabilities

-

(1)

-

15

14

Currency translation and other movements

-

(5)

19

2

16

Charge to income statement

900

29

14

69

1,012

Releases to income statement

-

(14)

(32)

(25)

(71)

Provisions utilised

(99)

(70)

(227)

(66)

(462)

At 30 September 2019

1,244

358

501

689

2,792

 

Notes:

(1)   30 September 2019 includes provisions held in relation to offers made in 2018 and earlier years of £97 million.

(2)   Materially comprises provisions relating to property closures and restructuring costs.

(3)   Refer to Note 2 for further information on the impact of IFRS 16 implementation.

 

There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the amount provided.

 

Payment protection insurance

An additional provision of £0.9 billion was taken at Q3 2019, reflecting greater than predicted complaints volumes in the lead up to the 29 August 2019 deadline for making new PPI complaints. RBS has made provisions totalling £6.2 billion to date for PPI claims, of which £5.0 billion had been utilised by 30 September 2019.

 

The table below shows the sensitivity of the provision to changes in the principal assumptions in relation to claims received since June 2019 which are still being processed, all other assumptions remaining the same.

 

 

 

Sensitivity

 

 

 

 

Consequential

 

Claims

Claims

 

change in

 

to

since

Change in

provision

Assumption

June 2019

June 2019 (5)

assumption

£m

Customer Initiated Total Complaints (1)

4,064k

783k

+/-50k

+/-50

No PPI % (2)

27%

32%

+/-1%

+/-11

Uphold rate (3)

88%

94%

+/-1%

+/-8

Average redress (4)

£1,658

£1,556

+/-£50

+/-25

 

Notes:

(1)    Claims and auto-converted queries (PPI mis-sale and 'Plevin' (commission)) received directly by RBS to date, including those received by CMCs.

(2)    No PPI % relates to those cases where no PPI policy exists.

(3)    Average uphold rate per customer initiated claims received directly by RBS, including those received via CMCs, to end of timebar for both PPI (mis-sale) and Plevin (commission), excluding those for which no PPI policy exists.

(4)    Average redress for PPI (mis-sale) and Plevin (commission) pay-outs.

(5)    Claims since June 2019 represents complaints received via telephone, on-line and post as at 30 September 2019. These complaints are currently undergoing processing.

 

Notes

4. Litigation, investigations and reviews

RBS's 2019 Interim Results, issued on 2 August 2019, included comprehensive disclosures about RBS's litigation, investigations and reviews in Note 13. Set out below are the material developments in those matters since the 2019 Interim Results were published.

 

Litigation

London Interbank Offered Rate (LIBOR) and other rates litigation

As previously disclosed, NWM plc and certain other members of the RBS Group, including RBSG, are defendants in a number of cases, including several class actions, pending in the United States District Court for the Southern District of New York which concern alleged manipulation of USD LIBOR. In September 2019, RBS Group companies reached a settlement in principle to resolve the class action on behalf of those who held bonds issued by non-defendants on which interest was paid from 2007 to 2010 at a rate expressly tied to USD LIBOR. The settlement is subject to documentation and court approval. The amount of the settlement is covered by a provision existing as of 30 September 2019.

 

On 16 August 2019, the United States District Court for the Southern District of New York dismissed all remaining claims in the class action concerning alleged manipulation of Pound Sterling LIBOR on the ground that the only named plaintiff with potentially valid claims lacks capacity to maintain the suit. Plaintiffs have commenced an appeal to the United States Court of Appeals for the Second Circuit.

 

On 16 September 2019, the United States District Court for the Southern District of New York dismissed the amended class action complaint concerning alleged manipulation of Swiss Franc LIBOR on the ground that, because the named plaintiffs who originally purported to file the case had ceased to exist at the time of filing, there is no triable issue over which court has jurisdiction. The court's decision is subject to potential appeal.

 

US Anti-Terrorism Act litigation

On 16 September 2019, the United States District Court for the Eastern District of New York dismissed the US Anti-Terrorism Act case that has been pending against NWM N.V. and certain other financial institutions since it was filed in November 2014, concerning an alleged conspiracy to assist Iran in transferring money to Hezbollah and Iraqi terror cells. The court held that the claims were deficient for several reasons, including lack of sufficient allegations as to the alleged conspiracy and causation. The decision is subject to potential appeal.

 

US investigations relating to fixed-income securities

In October 2017, NatWest Markets Securities Inc. entered into a non-prosecution agreement (NPA) with the United States Attorney for the District of Connecticut (USAO) in connection with alleged misrepresentations to counterparties relating to secondary trading in various forms of asset-backed securities. In the NPA, the USAO agreed not to file criminal charges relating to certain conduct and information described in the NPA if NatWest Markets Securities Inc. complies with the NPA's requirements during its term, including by not engaging in conduct during the NPA that the US Department of Justice   determines was a felony under federal or state law or a violation of the anti-fraud provisions of the United States securities law. As previously disclosed, the NatWest Markets business is currently responding to a criminal investigation concerning unrelated securities trading by certain traders in 2018, which was reported to the USAO during the course of the NPA. In October 2019, NatWest Markets Securities Inc. agreed to a third extension of the NPA (for three additional months) so that the USAO could review the circumstances of that unrelated matter. The NatWest Markets business is in discussions to resolve these matters.

 

Investigations and reviews

Systematic Anti-Money Laundering Programme

In December 2018, the Financial Conduct Authority (FCA) commenced a Systematic Anti-Money Laundering Programme assessment of RBS. The FCA provided its written findings to RBS on 28 June 2019, and RBS responded on 8 August 2019. On 28 August 2019, the FCA instructed RBS to appoint a Skilled Person to provide assurance on financial crime governance arrangements in relation to two change programmes. It is not yet possible to assess the likely impact of these matters.

 

Payment Protection Insurance (PPI)

An additional provision of £900 million was taken at Q3 2019, reflecting greater than predicted complaints volumes in the lead up to the 29 August 2019 deadline for making new PPI complaints. RBS has made provisions totalling £6.2 billion to date for PPI claims, of which £5.0 billion had been utilised by 30 September 2019.

 

 

Notes

5. Tax

 

The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 19% (2018 - 19%), as analysed below.

 

 

Nine months ended

 

30 September

 

30 September

 

2019

 

2018

 

£m

 

£m

Profit before tax

2,686

 

2,787

 

 

 

 

Expected tax charge

(510)

 

(530)

 

 

 

Regulatory and legal actions

(158)

 

(222)

Alawwal bank merger gain disposal

212

 

-

Increase/(reduction) in carrying value of deferred tax in respect of:-

 

 

 

  - UK tax losses

215

 

-

  - Ireland tax losses

(70)

 

-

Banking surcharge

(210)

 

(308)

Tax credit paid-in equity

57

 

49

Other

(37)

 

(113)

Adjustments in respect of prior years

106

 

34

Actual tax charge

(395)

 

(1,090)

 

The tax charge includes a £215 million deferred tax credit associated with the transfer of taxable losses from NatWest Markets Plc to RBS plc under ring-fencing regulations and a £70 million deferred tax charge in respect of reducing the carrying value of the deferred tax asset for losses in Ulster Bank Ireland DAC. RBS has implemented amendments to IAS 12 Income Taxes with effect from 1 January 2019 and as a result tax relief on distributions on other equity instruments, previously recognised under retained earnings, is now reported as a tax expense in the income statement. 

6. Post balance sheet events

Other than as disclosed there have been no other significant events between 30 September 2019 and the date of approval of these accounts which would require a change to or additional disclosure in the accounts.

Additional information

 

Presentation of information

In this document, 'RBSG plc' or the 'parent company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the 'RBS Group' refers to RBSG plc and its subsidiaries.

 

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

 

Contacts

Analyst enquiries:

Alexander Holcroft, Investor Relations

+44 (0) 20 7672 1982

Media enquiries:

RBS Press Office

+44 (0) 131 523 4205

 

 

Analyst and investor call

Webcast and dial in details

Date:

24 October 2019

www.rbs.com/results

Time:

9am UK time

International: +44 (0) 203 057 6566

Conference ID:

5889802

UK Free Call: 0800 279 5995

US Local Dial-In, New York: +1 646 741 2115

 

Available on www.rbs.com/results

·    Q3 2019 Interim Management Statement and background slides.

·    A financial supplement containing income statement, balance sheet and segment performance for the nine quarters ended 30 September 2019.

·    Pillar 3 supplement at 30 September 2019.

Forward looking statements

This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as RBSG's future economic results, business plans and current strategies.  In particular, this document may include forward-looking statements relating to RBSG in respect of, but not limited to: its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital and operational targets), its access to adequate sources of liquidity and funding, increasing competition from new incumbents and  disruptive technologies, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, LIBOR, EURIBOR and other benchmark reform and RBSG's exposure to economic and political risks (including with respect to Brexit and climate change), operational risk, conduct risk, cyber and IT risk, key person risk and credit rating risk.  Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, the final number of PPI claims and their amounts, legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations and general economic conditions. These and other factors, risks and uncertainties that may impact any forward-looking statement or RBSG's actual results are discussed in RBSG's UK 2018 Annual Report and Accounts (ARA), RBSG's Interim Results for H1 2019 and materials filed with, or furnished to, the US Securities and Exchange Commission, including, but not limited to, RBSG's most recent Annual Report on Form 20-F and Reports on Form 6-K. The forward-looking statements contained in this document speak only as of the date of this document and RBSG does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

 

 

 

 

 

 

 

Appendix

 

Non-IFRS financial measures

 

 

 

 

Appendix Non-IFRS financial measures

As described in Note 1 on page 18, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (GAAP). The Q3 2019 Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

 

Non-IFRS financial measures

Measure

Basis of preparation

Additional analysis or reconciliation

RBS return on tangible equity

Annualised profit for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is total equity less intangible assets and other owners' equity.

Table I

RBS return on tangible equity excluding PPI

Annualised profit for the period attributable to ordinary shareholders adjusted for the PPI charge for the period divided by average tangible equity. Average tangible equity is total equity less intangible assets and other owners' equity.

Table I

Segmental return on tangible equity

Annualised segmental operating profit adjusted for tax and for preference share dividends divided by average notional equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).

Table I

Operating expenses analysis - management view

The management analysis of strategic disposals in other income and operating expenses shows strategic costs and litigation and conduct costs in separate lines. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.

Table II

Cost:income ratio

Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.

Table III

Commentary - adjusted periodically for specific items

RBS and segmental business performance commentary have been adjusted for the impact of specific items such as the Alawwal bank merger, additional authorised push payments fraud costs, notable items (detailed on page 3), strategic, litigation and conduct costs (detailed on pages 8 to 12).

Notable items - page 3

Strategic, litigation and conduct costs - pages 8 to 12.

Aggregation of business segments into franchises

Personal & Ulster franchise results, combining the reportable segments of UK Personal Banking (UK PB) and Ulster Bank RoI, and Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking and Private Banking.

Pages 8 to 12.

Bank net interest margin (NIM)

Net interest income of the banking business less the NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less the NWM element.

Table IV

 

Performance metrics not defined under IFRS(1) 

Measure

Basis of preparation

Additional analysis or reconciliation

Loan:deposit ratio

Net customer loans held at amortised cost divided by total customer deposits.

Table V

Tangible net asset value (TNAV)

Tangible equity divided by the number of ordinary shares in issue. Tangible equity is ordinary shareholders' interest less intangible assets.

Page 2.

NIM

Net interest income of the banking business as a percentage of interest-earning assets of the banking business.

Pages 8 to 12.

Funded assets

Total assets less derivatives.

Pages 8 to 12.

ECL loss rate

The annualised loan impairment charge divided by gross customer loans.

Pages 8 to 12.

 

Note:

(1)     Metric based on GAAP measures, included as not defined under IFRS and reported for compliance with ESMA adjusted performance measure rules.

 

Appendix Non-IFRS financial measures

I. Return on tangible equity

 

 

 

 

Nine months ended or as at

 

Quarter ended or as at

 

30 September

30 September

 

30 September

30 June

30 September

RBS return on tangible equity

2019 

2018 

 

2019 

2019 

2018 

Profit/(loss) attributable to ordinary shareholders (£m)

1,723

1,336

 

(315)

1,331

448

Annualised profit/(loss) attributable to ordinary shareholders (£m)

2,297

1,781

 

(1,260)

5,324

1,792

Adjustment for PPI provision for Q3 2019 (£m)

 

 

 

900

 

 

Adjusted profit attributable to ordinary shareholders (£m)

 

 

 

585

 

 

Annualised adjusted profit attributable to ordinary

 

 

 

 

 

 

  shareholders (£m)

 

 

 

2,340

 

 

Average total equity (£m)

46,025

48,825

 

45,579

46,179

48,833

Adjustment  for other owners equity and intangibles (£m)

(12,432)

(15,126)

 

(12,226)

(12,410)

(15,341)

 

 

 

 

 

 

 

Adjusted total tangible equity (£m)

33,593

33,699

 

33,353

33,769

33,492

 

 

 

 

 

 

 

Return on tangible equity (%)

6.8%

5.3%

 

(3.8%)

15.8%

5.4%

Return on tangible equity adjusting for impact of PPI

 

 

 

 

 

 

  provision (%)

 

 

 

7.0%

 

 

 

 

Personal & Ulster

 

Commercial & Private

 

 

 

UK

Ulster

 

 

 

 

 

 

Personal

 Bank

 

Commercial

Private

RBS

NatWest

Nine months ended 30 September 2019

Banking

RoI

 

Banking

Banking

International

Markets

Operating profit (£m)

529

54

 

1,032

236

282

107

Adjustment for tax  (£m)

(148)

-

 

(289)

(66)

(39)

(30)

Preference share cost allocation (£m)

(54)

-

 

(123)

(12)

(5)

(50)

Adjusted attributable profit (£m)

327

54

 

620

158

238

27

Annualised adjusted attributable profit (£m)

436

72

 

827

211

317

36

Adjustment for Alawwal merger gain (£m)

-

-

 

-

-

-

(200)

Annualised adjusted attributable profit/(loss) (£m)

436

72

 

827

211

317

(164)

Average RWAe (£bn)

37.4

14.2

 

79.3

9.7

6.9

49.0

Equity factor

15.0%

15.0%

 

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.6

2.1

 

9.5

1.3

1.1

7.4

Return on equity

7.8%

3.4%

 

8.7%

16.7%

28.5%

(2.2%)

 

 

 

 

 

 

 

 

Nine months ended 30 September 2018*

 

 

 

 

 

 

 

Operating profit (£m)

1,501

10

 

1,621

240

265

133

Adjustment for tax (£m)

(420)

-

 

(454)

(67)

(38)

(37)

Preference share cost allocation (£m)

(60)

-

 

(141)

(18)

(12)

(81)

Adjusted attributable profit (£m)

1,021

10

 

1,026

155

215

15

Annualised adjusted attributable profit (£m)

1,361

13

 

1,368

206

287

20

Average RWAe (£bn)

33.2

17.5

 

86.1

9.4

6.9

55.1

Equity factor

15.0%

14.0%

 

12.0%

13.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.0

2.4

 

10.3

1.3

1.1

8.3

Return on equity

27.3%

0.5%

 

13.2%

16.3%

26.0%

0.2%

 

 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

 

 

 

 

Appendix Non-IFRS financial measures

I. Return on tangible equity continued

 

 

Personal & Ulster

 

Commercial & Private

 

 

 

UK

Ulster

 

 

 

 

 

 

Personal

 Bank

 

Commercial

Private

RBS

NatWest

Quarter ended 30 September 2019

Banking

RoI

 

Banking

Banking

International

Markets

Operating (loss)/profit (£m)

(508)

31

 

331

81

88

(193)

Adjustment for tax (£m)

142

-

 

(92)

(23)

(12)

54

Preference share cost allocation (£m)

(18)

-

 

(41)

(4)

(5)

(20)

Adjusted attributable (loss)/profit (£m)

(384)

31

 

198

54

71

(159)

Annualised adjusted attributable (loss)/profit (£m)

(1,536)

124

 

792

216

283

(634)

Average RWAe (£bn)

38.2

14.2

 

78.8

9.9

6.8

48.7

Equity factor

15.0%

15.0%

 

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.7

2.1

 

9.5

1.3

1.1

7.3

Return on equity

(26.8%)

5.8%

 

8.4%

16.8%

26.0%

(8.7%)

 

 

 

 

 

 

 

 

Quarter ended 30 June 2019

 

 

 

 

 

 

 

Operating profit (£m)

539

3

 

264

75

101

362

Adjustment for tax (£m)

(151)

-

 

(74)

(21)

(14)

(101)

Preference share cost allocation (£m)

(18)

-

 

(41)

(4)

-

(30)

Adjusted attributable profit (£m)

370

3

 

149

50

87

231

Annualised adjusted attributable profit (£m)

1,480

12

 

596

199

345

924

Adjustment for Alawwal bank merger gain (£m)

-

-

 

-

-

-

(598)

Annualised adjusted attributable profit (£m)

1,480

12

 

596

199

345

326

Average RWAe (£bn)

37.2

14.3

 

80.1

9.6

7.0

49.1

Equity factor

15.0%

15.0%

 

12.0%

13.0%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.6

2.1

 

9.6

1.2

1.1

7.4

Return on equity

26.5%

0.6%

 

6.2%

15.9%

30.8%

4.4%

 

 

 

 

 

 

 

 

Quarter ended 30 September 2018*

 

 

 

 

 

 

 

Operating profit/(loss) (£m)

372

(76)

 

406

84

92

87

Adjustment for tax (£m)

(104)

-

 

(114)

(24)

(13)

(24)

Preference share cost allocation (£m)

(20)

-

 

(47)

(6)

(4)

(27)

Adjusted attributable profit/(loss) (£m)

248

(76)

 

245

55

75

36

Annualised adjusted attributable profit/(loss) (£m)

991

(304)

 

981

219

299

142

Average RWAe (£bn)

34.0

17.1

 

85.5

9.4

6.9

52.5

Equity factor

15.0%

14.0%

 

12.0%

13.5%

16.0%

15.0%

RWAe applying equity factor (£bn)

5.1

2.4

 

10.3

1.3

1.1

7.9

Return on equity

19.4%

(12.7%)

 

9.6%

17.3%

26.9%

1.8%

 

 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

 

 

 

 

Appendix Non-IFRS financial measures

II. Operating expenses analysis

 

Statutory analysis (1,2)

 

 

 

 

 

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2019 

2018 

 

2019 

2019 

2018 

Operating expenses

£m

£m

 

£m

£m

£m

Staff expenses

3,028

3,108

 

1,000

1,017

1,022

Premises and equipment

823

972

 

265

293

328

Other administrative expenses

2,085

2,521

 

1,222

445

885

Administrative expenses

5,936

6,601

 

2,487

1,755

2,235

Depreciation and amortisation

853

544

 

232

377

206

Write-down of other intangible assets

9

31

 

(21)

30

-

Total operating expenses

6,798

7,176

 

2,698

2,162

2,441

 

Non-statutory analysis

 

 

 

 

 

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2019 

2018 

 

2019 

2019 

2018 

Operating expenses

£m

£m

 

£m

£m

£m

Staff expenses

2,732

2,790

 

891

905

887

Premises and equipment

730

872

 

237

245

298

Other administrative expenses

1,078

1,164

 

405

318

404

Strategic costs (1)

844

649

 

215

434

299

Litigation and conduct costs (2)

810

1,190

 

750

55

389

Administrative expenses

6,194

6,665

 

2,498

1,957

2,277

Depreciation and amortisation

620

480

 

221

200

164

Write-down of other intangible assets

(16)

31

 

(21)

5

-

Total

6,798

7,176

 

2,698

2,162

2,441

 

Notes:

(1)   On a statutory, or GAAP, basis, strategic costs are included within staff, premises and equipment, depreciation and amortisation, write-down of other intangible assets and other administrative expenses.

(2)   On a statutory, or GAAP, basis, litigation and conduct costs are included within other administrative expenses.

III. Cost:income ratio

 

 

 Personal & Ulster

 

Commercial & Private

 

 

 

 

 

UK

Ulster

 

 

 

 

 

 

 

 

Personal

 Bank

 

Commercial

Private

RBS

NatWest

Central items

RBS

Nine months ended

Banking

RoI

 

Banking

Banking

International

Markets

& other

Group

30 September 2019

£m

£m

 

£m

£m

£m

£m

£m

£m

Operating expenses

(2,830)

(412)

 

(1,900)

(351)

(181)

(1,026)

(98)

(6,798)

Operating lease depreciation

-

-

 

103

-

-

-

-

103

Adjusted operating expenses

(2,830)

(412)

 

(1,797)

(351)

(181)

(1,026)

(98)

(6,695)

Total income

3,671

428

 

3,242

582

460

1,092

545

10,020

Operating lease depreciation

-

-

 

(103)

-

-

-

-

(103)

Adjusted total income

3,671

428

 

3,139

582

460

1,092

545

9,917

Cost:income ratio

77.1%

96.3%

 

57.2%

60.3%

39.3%

94.0%

nm

67.5%

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

30 September 2018

 

 

 

 

 

 

 

 

 

Operating expenses

(2,110)

(419)

 

(1,723)

(335)

(174)

(1,149)

(1,266)

(7,176)

Operating lease depreciation

-

-

 

89

-

-

-

-

89

Adjusted operating expenses

(2,110)

(419)

 

(1,634)

(335)

(174)

(1,149)

(1,266)

(7,087)

Total income

3,808

463

 

3,486

577

439

1,290

281

10,344

Operating lease depreciation

-

-

 

(89)

-

-

-

-

(89)

Adjusted total income

3,808

463

 

3,397

577

439

1,290

281

10,255

Cost:income ratio

55.4%

90.5%

 

48.1%

58.1%

39.6%

89.1%

nm

69.1%

 

 

 

 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 


 

 

Appendix Non-IFRS performance measures

III. Cost:income ratio continued

 

 

 Personal & Ulster

 

Commercial & Private

 

 

 

 

 

UK

Ulster

 

 

 

 

 

 

 

 

Personal

 Bank

 

Commercial

Private

RBS

NatWest

Central items

RBS

 

Banking

RoI

 

Banking

Banking

International

Markets

& other

Group

Quarter ended

£m

£m

 

£m

£m

£m

£m

£m

£m

30 September 2019

 

 

 

 

 

 

 

 

 

Operating expenses

(1,601)

(131)

 

(638)

(119)

(62)

(348)

201

(2,698)

Operating lease depreciation

-

-

 

35

-

-

-

-

35

Adjusted operating expenses

(1,601)

(131)

 

(603)

(119)

(62)

(348)

201

(2,663)

Total income

1,224

145

 

1,077

198

150

150

(41)

2,903

Operating lease depreciation

-

-

 

(35)

-

-

-

-

(35)

Adjusted total income

1,224

145

 

1,042

198

150

150

(41)

2,868

Cost:income ratio

130.8%

90.3%

 

57.9%

60.1%

41.3%

232.0%

nm

92.9%

 

 

 

 

 

 

 

 

 

 

30 June 2019

 

 

 

 

 

 

 

 

 

Operating expenses

(594)

(145)

 

(622)

(115)

(60)

(344)

(282)

(2,162)

Operating lease depreciation

-

-

 

34

-

-

-

-

34

Adjusted operating expenses

(594)

(145)

 

(588)

(115)

(60)

(344)

(282)

(2,128)

Total income

1,202

138

 

1,083

191

159

686

621

4,080

Operating lease depreciation

-

-

 

(34)

-

-

-

-

(34)

Adjusted total income

1,202

138

 

1,049

191

159

686

621

4,046

Cost:income ratio

49.4%

105.1%

 

56.1%

60.2%

37.7%

50.1%

nm

52.6%

 

 

 

 

 

 

 

 

 

 

30 September 2018

 

 

 

 

 

 

 

 

 

Operating expenses

(819)

(167)

 

(583)

(110)

(60)

(478)

(224)

(2,441)

Operating lease depreciation

-

-

 

32

-

-

-

-

32

Adjusted operating expenses

(819)

(167)

 

(551)

(110)

(60)

(478)

(224)

(2,409)

Total income

1,257

151

 

1,096

195

155

569

219

3,642

Operating lease depreciation

-

-

 

(32)

-

-

-

-

(32)

Adjusted total income

1,257

151

 

1,064

195

155

569

219

3,610

Cost:income ratio

65.2%

110.6%

 

51.8%

56.4%

38.7%

84.0%

nm

66.7%

* Restated. Refer to Note 1 for further details.

IV. Net interest margin

 

 

Nine months ended or as at

 

Quarter ended or as at

 

30 September

30 September

 

30 September

30 June

30 September

 

2019 

2018 

 

2019 

2019 

2018 

 

£m

£m

 

£m

£m

£m

RBS net interest income

6,010

6,480

 

2,006

1,971

2,154

NWM net interest income

184

(82)

 

62

91

(15)

Net interest income excluding NWM

6,194

6,398

 

2,068

2,062

2,139

Annualised net interest income

8,035

8,664

 

7,959

7,906

8,546

Annualised net interest income excluding NWM

8,281

8,554

 

8,205

8,271

8,486

Average interest earning assets (IEA)

445,068

435,218

 

454,429

444,800

443,092

NWM average IEA

35,065

26,989

 

38,616

34,436

26,705

Bank average IEA excluding NWM

410,003

408,229

 

415,813

410,364

416,387

 

 

 

 

 

 

 

Net interest margin

1.81%

1.99%

 

1.75%

1.78%

1.93%

Bank net interest margin (RBS NIM excluding NWM)

2.02%

2.10%

 

1.97%

2.02%

2.04%

 

V. Loan:deposit ratio

 

 

As at

 

30 September

30 June

31 December

 

2019 

2019 

2018 

 

£bn

£bn

 £bn

Loans to customers - amortised cost

319.5

310.6

305.1

Customer deposits

369.7

361.6

360.9

Loan:deposit ratio (%)

86%

86%

85%

 

Legal Entity Identifier: 2138005O9XJIJN4JPN90

 


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