Information  X 
Enter a valid email address

Royal Bk Scot.Grp. (RBS)

  Print      Mail a friend

Friday 02 August, 2019

Royal Bk Scot.Grp.

Interim Results 2019 - Part 2 of 2

RNS Number : 6640H
Royal Bank of Scotland Group PLC
02 August 2019
 

  

Appendix 1

 

Capital and risk management

 

 

Document navigation

The following are contained within this appendix:

Capital, liquidity and funding risk (pages 1 to 7);

 

 

Credit risk - Economic loss drivers(page 8);

 

Credit risk - Banking activities (page 9);

Credit risk - Banking activities segmental exposure (pages 10 to 12);

Credit risk - Banking activities sector analysis (pages 13 to 15);

Credit risk - Banking activities personal portfolio (pages 16 to 20);

 

 

Credit risk - Banking activities CRE (pages 21);

Credit risk - Banking activities flow statements (pages 22 to 28);

Credit risk - Asset quality (pages 29 to 33);

Credit risk - Trading activities (pages 34 to 36);

Credit risk - Cross border exposure (page 36);

Non-traded market risk (pages 37 to 41);

 

Traded market risk (page 41); and

 

Other risks (page 42)

 

 

Certain disclosures in this appendix are within the scope of EY's review report and are marked accordingly.

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk

 Key developments

The CET1 ratio decreased by 20 basis points to 16.0% as a result of the £2.0 billion attributable profit, offset by a foreseeable 5p ordinary dividend accrual of £0.6 billion, 12p special dividend of £1.4 billion and the impact of IFRS 16.

RWAs decreased by £0.2 billion in H1 2019. Credit risk decreased by £0.8 billion driven by the completion of the merger of Alawwal bank and SABB reducing credit risk by £4.6 billion, offset by increases in credit risk driven by the £1.3 billion uplift due to adoption of IFRS 16 from 1 January 2019, an increase due to PD calibrations affecting asset quality and growth in asset size. Counterparty credit risk increased primarily due to increased exposures.

The leverage ratio decreased to 5.2% driven by decreased capital.

The total loss absorbing capital ratio of 32.1% is above the BOE requirement of 24.0% by 1 January 2020.

In the first half of 2019, RBSG issued £3.0 billion new MREL eligible senior debt and redeemed a €1.0 billion Tier 2 security, with £0.5 billion of non-MREL RBSG senior debt also being repaid on maturity during the period.  In subsidiaries, NWB issued a £750 million covered bond and NatWest Markets Plc maintained active issuance programmes for senior unsecured and secured notes, with net issuance of around £3 billion in the period.

RBSG participation in the Bank of England's Term Funding Scheme reduced by £4 billion.

The liquidity coverage ratio decreased from 158% to 154% driven by reductions in NWM Plc's liquidity position due to seasonally low outflows at 31 December 2018.

The net stable funding ratio was relatively consistent at 140% compared to 141% for FY 2018.

 

 

     

Minimum capital requirements

The Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum ratios of capital to RWAs that the Group is expected to have to meet under the end-point CRR requirements applicable from 1 January 2019. These ratios apply at the consolidated group level. Different minimum capital requirements may apply to individual legal entities or sub-groups.

 

Minimum requirements

Type

CET1

Total Tier 1

Total capital

System wide

Pillar 1 minimum requirements

  4.5%

  6.0%

  8.0%

 

Capital conservation buffer

  2.5%

  2.5%

  2.5%

 

Countercyclical capital buffer (1)

  0.7%

  0.7%

  0.7%

 

G-SIB buffer (2)

  1.0%

  1.0%

  1.0%

Bank specific

Pillar 2A (4)

  2.0%

  2.7%

  3.6%

Total (excluding PRA buffer) (5)

 

10.7%

12.9%

15.8%

Capital ratios at 30 June 2019

 

16.0%

18.2%

20.9%

 

Notes:

(1)

The countercyclical capital buffer (CCyB) applied to UK designated assets is set by the Financial Policy Committee (FPC). The UK CCyB is currently 1.0% (effective from November 2018). The Republic of Ireland CCyB is currently 0.0%, the CBI have announced an increase to 1.0% effective July 2019. Foreign exposures may be subject to different CCyB rates depending on the rate set in those jurisdictions. Firm specific CCyB is based on a weighted average at CCyB's applicable to countries in which the Bank has exposures.

(2)

Globally systemically important banks (G-SIBs), as designated by the Financial Stability Board (FSB), are subject to an additional capital buffer of between 1.0% and 3.5%. In November 2018 the FSB announced that RBS is no longer a G-SIB. From 1 January 2020, RBS will be released from this global buffer requirement.

(3)

The Group will be subject to a systemic risk buffer (SRB) and this will apply at the ring-fenced bank sub-group level rather than at the consolidated group level. As from 1 August 2019 NWH will be subject to a Systemic Risk Buffer of 1.5%. Where the Systemic Risk Buffer is greater than the G-SII buffer, the PRA may require the consolidated group to hold a higher level of capital through the PRA buffer and Leverage Ratio Group add-on.

(4)

From 1 January 2015, UK banks have been required to meet at least 56% of its Pillar 2A capital requirement with CET1 capital and with balance with Additional Tier 1 and/or Tier 2 capital. Additional capital requirements under Pillar 2A may be specified by the PRA as a ratio or as an absolute value. The table sets out an implied ratio to cover the full value of Pillar 2A requirements.

(5)

The Group may be subject to a PRA buffer requirement as set by the PRA. The PRA buffer consists of two components:

- A risk management and governance buffer that is set as a scalar, up to 40% of the Pillar 1 and Pillar 2A requirements.

- A buffer to cover stress risks informed by the results of the BoE concurrent stress testing results.

- The PRA requires that the level of this buffer is not publicly disclosed.

(6)

The capital conservation buffer, the countercyclical capital buffer, the G-SIB buffer and systemic risk buffer (where applicable) make up the combined buffer. If the Group fails to meet the combined buffer requirement, it is subject to restrictions on distributions on CET1 instruments, discretionary coupons on AT1 instruments and on payment of variable remuneration or discretionary pension benefits. These restrictions are calculated by reference to the Group's Maximum Distributable Amount (MDA). Where a PRA buffer is applicable, the MDA trigger is below the PRA buffer and MDA restrictions are not automatically triggered if the Group fails to meet its PRA buffer. The MDA is calculated as the amount of interim or year-end profits not yet incorporated into CET1 capital multiplied by a factor ranging from 0 to 0.6 depending on the size of the CET1 shortfall against the combined buffer.

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Capital flow statement

Refer to Business performance summary - Capital and leverage for information on Capital, RWAs and leverage and the Pillar 3 supplement for capital and leverage relating to significant subsidiaries and also CRR templates. The table below analyses the movement in end-point CRR CET1, AT1 and Tier 2 capital for the half year ended 30 June 2019.

 

CET1

AT1

Tier 2

Total

 

£m

£m

£m

£m

At 1 January 2019

30,639 

4,051 

6,483 

41,173 

Profit for the year

711 

711 

Own credit

144 

144 

Share capital and reserve movements in respect of employee share schemes

49 

49 

Foreign exchange reserve

(296)

(296)

FVOCI reserves

(78)

(78)

Goodwill and intangibles deduction

(15)

(15)

Deferred tax assets

(129)

(129)

Prudential valuation adjustments

75 

75 

Expected loss less impairment

(72)

(72)

Net dated subordinated debt/grandfathered instruments

(1,400)

(1,400)

Foreign exchange movements

36 

36 

Foreseeable ordinary and special dividends

(728)

(728)

Other movements

(109)

(109)

At 30 June 2019

30,191 

4,051 

5,119 

39,361 

 

Risk-weighted assets

The table below analyses the movement in RWAs on the end-point CRR basis during the half year, by key drivers.

 

 

 

 

Counterparty

 

Operational

 

 

Credit risk

credit risk

Market risk

risk

Total RWAs

£bn

£bn

£bn

£bn

£bn

At 1 January 2019

137.9 

13.6 

14.8 

22.4 

188.7 

Foreign exchange movement

0.1 

0.1 

Business movements (1)

2.9 

0.4 

(0.4)

0.2 

3.1 

Risk parameter changes (2)

0.7 

0.1 

0.8 

Model updates (3)

0.2 

0.2 

0.4 

Other movements (4)

(4.7)

0.1 

(4.6)

At 30 June 2019

137.1 

14.2 

14.6 

22.6 

188.5 

 

The table below analyses segmental RWAs.

 

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

Ulster

 

Commercial

Private

 

NatWest

items

 

Total RWAs

UK PB

Bank RoI

 

Banking

Banking

RBSI

Markets

& other

Total

£bn

£bn

 

£bn

£bn

£bn

£bn

£bn

£bn

At 1 January 2019 *

34.3 

14.7 

 

78.4 

9.4 

6.9 

44.9 

0.1 

188.7 

Foreign exchange movement

 

0.1 

0.1 

Business movements (1)

1.4 

(0.1)

 

1.0 

0.3 

0.2 

0.3 

3.1 

Risk parameter changes (2)

1.3 

(0.4)

 

(0.2)

0.1 

0.8 

Model updates (3)

 

0.2 

0.2 

0.4 

Other movements (4)

 

(1.7)

(0.2)

(3.8)

1.1 

(4.6)

At 30 June 2019

37.0 

14.2 

 

77.8 

9.7 

6.9 

41.4 

1.5 

188.5 

 

 

 

 

 

 

 

 

 

 

Credit risk

29.3 

13.2 

 

68.5 

8.4 

6.1 

10.1 

1.5 

137.1 

Counterparty credit risk

0.1 

 

0.2 

0.1 

13.8 

14.2 

Market risk

0.1 

 

0.3 

14.2 

14.6 

Operational risk

7.5 

1.0 

 

8.8 

1.2 

0.8 

3.3 

22.6 

Total RWAs

37.0 

14.2 

 

77.8 

9.7 

6.9 

41.4 

1.5 

188.5 

*Restated. Refer to Note 1 of the main announcement for further details.

 

(1)

Included within business movements is the £1.3 billion uplift in credit risk due to adoption of IFRS 16 from 1 January 2019.

(2)

Risk parameter changes relate to asset quality metrics of customers and counterparties such as probability of default (PD) and loss given default (LGD).

(3)

Model updates relates primarily to revision in LGD models for the UK mid-corporate portfolios.

(4)

Other primarily reflects the reduction following the Alawwal bank merger. Other also reflects assets which have transferred between Commercial Banking, RBSI, Central items and NatWest Markets.

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Capital resources (Within the scope of EY's review report)

 

 

30 June 2019

 

31 December 2018

 

 

PRA

 

 

PRA

End-point

transitional

 

End-point

transitional

 

CRR basis

basis

 

CRR basis

basis

 

£m

£m

 

£m

£m

Shareholders' equity (excluding non-controlling interests)

 

 

 

 

 

 Shareholders' equity

46,221 

46,221 

 

45,736 

45,736 

 Preference shares - equity

(496)

(496)

 

(496)

(496)

 Other equity instruments

(4,058)

(4,058)

 

(4,058)

(4,058)

 

41,667 

41,667 

 

41,182 

41,182 

Regulatory adjustments and deductions

 

 

 

 

 

 Own credit

(261)

(261)

 

(405)

(405)

 Defined benefit pension fund adjustment

(400)

(400)

 

(394)

(394)

 Cash flow hedging reserve

(117)

(117)

 

191 

191 

 Deferred tax assets

(869)

(869)

 

(740)

(740)

 Prudential valuation adjustments

(419)

(419)

 

(494)

(494)

 Goodwill and other intangible assets

(6,631)

(6,631)

 

(6,616)

(6,616)

 Expected losses less impairments

(726)

(726)

 

(654)

(654)

 Foreseeable ordinary and special dividends

(2,053)

(2,053)

 

(1,326)

(1,326)

 Other regulatory adjustments

 

(105)

(105)

 

(11,476)

(11,476)

 

(10,543)

(10,543)

CET1 capital

30,191 

30,191 

 

30,639 

30,639 

Additional Tier 1 (AT1) capital

 

 

 

 

 

 Qualifying instruments and related share premium

4,051 

4,051 

 

4,051 

4,051 

 Qualifying instruments and related share premium subject to phase out

1,398 

 

1,393 

 Qualifying instruments issued by subsidiaries and held by third parties

 

 

 

 

 

   subject to phase out

140 

 

140 

AT1 capital

4,051 

5,589 

 

4,051 

5,584 

Tier 1 capital

34,242 

35,780 

 

34,690 

36,223 

Qualifying Tier 2 capital

 

 

 

 

 

 Qualifying instruments and related share premium

4,969 

5,054 

 

6,301 

6,386 

 Qualifying instruments issued by subsidiaries and held by third parties

150 

1,498 

 

182 

1,565 

Tier 2 capital

5,119 

6,552 

 

6,483 

7,951 

Total regulatory capital

39,361 

42,332 

 

41,173 

44,174 

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Loss absorbing capital 

The following table illustrates the components of estimated loss absorbing capital (LAC) in RBSG plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.

 

30 June 2019

 

31 December 2018

 

 

Balance

 

 

 

 

Balance

 

 

 

Par

sheet

Regulatory

LAC

 

Par

sheet

Regulatory

LAC

 

value (1)

value

value (2)

value (3)

 

value (1)

value

value (2)

value (3)

£bn

£bn

£bn

£bn

 

£bn

£bn

£bn

£bn

CET1 capital (4)

30.2 

30.2 

30.2 

30.2 

 

30.6 

30.6 

30.6 

30.6 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR compliant AT1

 

 

 

 

 

 

 

 

 

  of which: RBSG (holdco)

4.0 

4.0 

4.0 

4.0 

 

4.0 

4.0 

4.0 

4.0 

  of which: RBSG operating subsidiaries (opcos)

 

 

4.0 

4.0 

4.0 

4.0 

 

4.0 

4.0 

4.0 

4.0 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR non compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

1.4 

1.6 

1.4 

0.5 

 

1.4 

1.6 

1.4 

0.5 

  of which: opcos

0.1 

0.1 

0.1 

0.1 

 

0.1 

0.1 

0.1 

0.1 

 

1.5 

1.7 

1.5 

0.6 

 

1.5 

1.7 

1.5 

0.6 

 

 

 

 

 

 

 

 

 

 

Tier 2 capital: end-point CRR compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

5.9 

6.1 

5.0 

4.3 

 

6.8 

6.7 

6.3 

5.1 

  of which: opcos

0.5 

0.5 

0.3 

0.5 

 

0.5 

0.5 

0.3 

0.5 

 

6.4 

6.6 

5.3 

4.8 

 

7.3 

7.2 

6.6 

5.6 

 

 

 

 

 

 

 

 

 

 

Tier 2 capital: end-point CRR non compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

0.1 

0.1 

0.1 

0.1 

 

0.1 

0.1 

0.1 

0.1 

  of which: opcos

1.6 

2.0 

1.3 

1.7 

 

1.9 

2.0 

1.4 

1.6 

 

1.7 

2.1 

1.4 

1.8 

 

2.0 

2.1 

1.5 

1.7 

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt securities issued by:

 

 

 

 

 

 

 

 

 

  RBSG holdco

19.4 

20.0 

19.2 

 

16.8 

16.8 

15.5 

  RBS opcos

20.6 

20.5 

 

17.1 

16.9 

 

40.0 

40.5 

19.2 

 

33.9 

33.7 

15.5 

Total

83.8 

85.0 

42.4 

60.6 

 

79.3 

79.3 

44.2 

58.0 

 

 

 

 

 

 

 

 

 

 

RWAs

 

 

 

188.5 

 

 

 

 

188.7 

CRR leverage exposure

 

 

 

659.1 

 

 

 

 

644.5 

 

 

 

 

 

 

 

 

 

 

LAC as a ratio of RWAs

 

 

 

32.1%

 

 

 

 

30.7%

LAC as a ratio of CRR leverage exposure

 

 

 

9.2%

 

 

 

 

9.0%

 

 

 

 

 

 

 

 

 

 

Notes:

(1)

Par value reflects the nominal value of securities issued.

(2)

Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.

(3)

LAC value reflects RBS's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such RBS estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.

(4)

Corresponding shareholders' equity was £46.2 billion (31 December 2018 - £45.7 billion).

(5)

Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Funding sources (Within the scope of EY's review report)

The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9 but excludes derivative cash collateral.

 

 

30 June 2019

 

31 December 2018

Short-term

Long-term

 

 

Short-term

Long-term

 

 

less than

more than

 

 

less than

more than

 

1 year

1 year

Total

 

1 year

1 year

Total

£m

£m

£m

 

£m

£m

£m

Personal and corporate deposits

 

 

 

 

 

 

 

Personal (1)

180,503 

1,376 

181,879 

 

178,293 

1,499 

179,792 

Corporate (2)

132,323 

272 

132,595 

 

131,575 

142 

131,717 

 

312,826 

1,648 

314,474 

 

309,868 

1,641 

311,509 

 

 

 

 

 

 

 

 

Financial institutions deposits

 

 

 

 

 

 

 

Banks (3)

6,581 

13,315 

19,896 

 

6,758 

15,865 

22,623 

Non-bank financial institutions (NBFI) (4)

46,977 

1,092 

48,069 

 

46,800 

564 

47,364 

 

53,558 

14,407 

67,965 

 

53,558 

16,429 

69,987 

 

 

 

 

 

 

 

 

Debt securities in issue

 

 

 

 

 

 

 

Commercial papers (CPs) and certificates of deposits (CDs)

3,192 

16 

3,208 

 

3,157 

3,157 

Medium-term notes

7,651 

29,662 

37,313 

 

4,928 

25,596 

30,524 

Covered bonds

1,252 

4,888 

6,140 

 

5,367 

5,367 

Securitisations

1,215 

1,215 

 

1,375 

1,375 

 

12,095 

35,781 

47,876 

 

8,085 

32,338 

40,423 

 

 

 

 

 

 

 

 

Subordinated liabilities

134 

9,674 

9,808 

 

299 

10,236 

10,535 

 

 

 

 

 

 

 

 

Repos (5)

 

 

 

 

 

 

 

Sovereign

1,479 

1,479 

 

405 

405 

Financial institutions

34,431 

424 

34,855 

 

29,664 

29,664 

Corporate

472 

472 

 

291 

291 

 

36,382 

424 

36,806 

 

30,360 

30,360 

 

 

 

 

 

 

 

 

Total funding

414,995 

61,934 

476,929 

 

402,170 

60,644 

462,814 

 

 

 

 

 

 

 

 

Of which: available in resolution (6)

25,943 

25,943 

 

22,909 

22,909 

 

 

 

 

 

 

 

 

CET 1 capital

 

 

30,191 

 

 

 

30,639 

CRR Leverage exposure

 

 

659,105 

 

 

 

644,498 

Funded assets

 

 

584,274 

 

 

 

560,886 

 

 

 

 

 

 

 

 

Funding coverage of CET 1 capital

 

 

16 

 

 

 

15 

Funding as a % of leverage exposure

 

 

72%

 

 

 

72%

Funding as a % of funded assets

 

 

82%

 

 

 

83%

Funding available in resolution as a % of CET1 capital

 

 

86%

 

 

 

75%

Funding available in resolution as a % of leverage exposure

 

 

4%

 

 

 

4%

 

Notes:

(1)   Includes £104 million (31 December 2018 - £206 million) of DFV deposits included in other financial liabilities balance sheet.

(2)   Includes £1,027 million (31 December 2018 - £428 million) of HFT deposits included in trading liabilities.

(3)   Includes £519 million (31 December 2018 - £267 million) of HFT deposits included in trading liabilities on the balance sheet. Includes £10 billion (31 December 2018 - £14 billion) relating to Term Funding Scheme participation and £1.8 billion (31 December 2018 - £1.8 billion) relating to RBS's participation in central bank financing operations under the European Central Bank's Targeted Long-term refinancing operations.

(4)   Includes £789 million (31 December 2018 - £1,093 million) of HFT deposits included in trading liabilities and nil (31 December 2018 - £7 million) of DFV deposits included in other financial liabilities on the balance sheet.

(5)   Includes HFT repos of £32,087 million (31 December 2018 - £25,645 million) and amortised cost repos of £4,719 million (31 December 2018 - £4,715 million).

(6)   Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £19 billion (31 December 2018 - £16 billion) under debt securities in issue (senior MREL) and £7 billion (31 December 2018 - £7 billion) under subordinated liabilities.

 

 

 

 

 

 

h

 

 

Appendix 1 Capital and risk management

Capital, liquidity and funding risk continued

Liquidity portfolio (Within the scope of EY's review report)

The table below shows the liquidity portfolio by product, liquidity value and by carrying value.

 

 

Liquidity value

 

30 June 2019

31 December 2018

 

 

UK DoL

 

 

 

UK DoL

 

RBSG (1)

Sub (2)

NWM Plc

 

RBSG (1)

Sub (2)

NWM Plc

 

£m

£m

£m

 

£m

£m

£m

Cash and balances at central banks

83,979 

56,173 

12,783 

 

83,781 

59,745 

11,005 

Central and local government bonds

 

 

 

 

 

 

 

  AAA rated governments

5,914 

2,458 

1,532 

 

8,188 

4,386 

615 

  AA- to AA+ rated governments

 

 

 

 

 

 

 

    and US agencies

41,013 

30,427 

4,260 

 

35,683 

25,845 

5,256 

  Below AA rated governments

1,594 

1,274 

 

 

48,521 

32,885 

7,066 

 

43,871 

30,231 

5,871 

 

 

 

 

 

 

 

 

Primary liquidity

132,500 

89,058 

19,849 

 

127,652 

89,976 

16,876 

Secondary liquidity (3)

70,575 

69,652 

344 

 

70,231 

69,642 

344 

Total liquidity value

203,075 

158,710 

20,193 

 

197,882 

159,618 

17,220 

 

 

 

 

 

 

 

 

Total carrying value

232,653 

187,874 

20,408 

 

225,039 

186,340 

17,388 

 

Notes:

(1)

RBSG includes UK DoLSub, NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include RBS International, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(2)

UK DoLSub comprises RBSG's four licensed deposit-taking UK banks within the ring-fenced bank: National Westminster Bank Plc, The Royal Bank of Scotland

plc, Coutts & Co and Ulster Bank Limited.

(3)

Secondary liquidity represents assets pre-positioned with central bank refinancing facilities. 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.

 

 

Appendix 1 Capital and risk management

Credit risk

Economic loss drivers (Within the scope of EY's review report)

A full description of the framework for incorporating economic loss drivers in to IFRS9 ECL calculations is provided in the Group's 2018 Annual Report & Accounts. It includes a description of the approach adopted on multiple economic scenarios for both Personal and Wholesale portfolios.

 

The table and commentary below provides an update on the base case economics used at June 2019, and also the multiple economic scenarios used for Personal portfolios.

 

The average over the five year horizon (2019 to 2023) for the central base case and two upside and downside scenarios used for ECL modelling are set out below.

 

 

30 June 2019

 

31 December 2018

 

Upside 2

Upside 1

Base case

Downside 1

Downside 2

 

Upside 2

Upside 1

Base case

Downside 1

Downside 2

 

 %

 %

 %

 %

 %

 

%

%

 %

%

 %

UK

 

 

 

 

 

 

 

 

 

 

 

GDP - change

2.5 

2.2 

1.6 

1.3 

0.9 

 

2.6 

2.3 

1.7 

1.5 

1.1 

Unemployment

3.2 

3.7 

4.7 

5.4 

6.5 

 

3.3 

3.8 

5.0 

5.6 

6.9 

House Price Inflation - change

4.7 

3.7 

1.7 

1.0 

(0.9)

 

4.3 

3.3 

1.7 

1.1 

(0.5)

Bank of England base rate

1.3 

1.2 

1.0 

0.1 

 

1.7 

1.3 

1.1 

0.5 

 

 

 

 

 

 

 

 

 

 

 

 

Republic of Ireland

 

 

 

 

 

 

 

 

 

 

 

GDP - change

5.3 

4.3 

3.5 

3.1 

2.4 

 

4.3 

3.6 

3.0 

3.1 

2.8 

Unemployment

4.1 

4.5 

5.1 

5.9 

6.7 

 

4.2 

4.6 

5.2 

6.0 

6.8 

House Price Inflation - change

10.0 

7.3 

3.9 

2.8 

(0.1)

 

9.2 

6.8 

4.0 

3.2 

0.8 

European Central Bank base rate

1.5 

0.8 

0.1 

 

1.3 

0.8 

0.3 

 

 

 

 

 

 

 

 

 

 

 

 

World GDP - change

3.9 

3.4 

2.8 

2.5 

2.0 

 

3.6 

3.2 

2.7 

2.5 

2.3 

 

 

 

 

 

 

 

 

 

 

 

 

Probability weight

12.7 

14.8 

30.0 

29.7 

12.7 

 

12.8 

17.0 

30.0 

25.6 

14.6 

 

Probability weightings of scenarios (Within the scope of EY's review report) 

RBS's approach to IFRS 9 multiple economic scenarios in Personal involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights to those scenarios. This involves the following steps:

Scenario selection - Two upside and two downside scenarios from Moody's inventory of scenarios were chosen. The aim is to obtain downside scenarios that are not as severe as stress tests, so typically they have a severity of around one in ten and one in five of approximate likelihood, along with corresponding upsides.

Severity assessment - Having selected the most appropriate scenarios their severity is then assessed based on the behaviour of UK GDP by calculating a variety of measures such as average growth, deviation from baseline and peak to trough falls. These measures are compared against a set of 1,000 model runs, following which, a percentile in the distribution is established which most closely corresponds to the scenario.

Probability assignment - Having established the relevant percentile points, probability weights are assigned to ensure that the scenarios produce an unbiased result. If the severity assessment step shows the scenarios to be broadly symmetric, then this will result in a symmetric probability weight (same probability weight above and below the base case). However, if the downsides are not as extreme as the upsides, then a higher probability weight is allocated to the downsides to ensure the unbiasedness requirement is satisfied. This adjustment is made purely to restore unbiasedness, not to address any relative skew in the distribution of risks in the economic outlook.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities

Introduction

This section covers the credit risk profile of RBS's banking activities. Banking activities include a small number of portfolios that were carried at fair value.

 

Financial instruments within the scope of the IFRS 9 ECL framework (Within the scope of EY's review report) 

Refer to Note 8 of the main announcement for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.

 

Financial assets

Of the total third party £485.1 billion AC and FVOCI balance (gross of ECL), £472 billion or 97% was within the scope of the IFRS 9 ECL framework and comprised by stage: Stage 1 £438.8 billion; Stage 2 £25.9 billion; and Stage 3 £7.3 billion (31 December 2018 - £463.9 billion of which Stage 1 £430.1 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion). Total assets within IFRS 9 ECL scope comprised the following by balance sheet caption and stage:

Loans: £325 billion of which Stage 1 £292 billion; Stage 2 £25.7 billion; and Stage 3 £7.3 billion (31 December 2018 - £319.8 billion of which Stage 1 £286.0 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion).

Other financial assets: £147 billion of which Stage 1 £146.8 billion; Stage 2 £0.2 billion; and Stage 3 nil (31 December 2018 - £144.1 billion of which Stage 1 £144.1 billion; Stage 2 nil; and Stage 3 nil).

 

Those assets outside the framework were as follows:

Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £10.1 billion. These were assessed as having no ECL unless there was evidence that they were credit impaired.

Equity shares of £1.1 billion as not within the IFRS 9 ECL framework by definition. 

Fair value adjustments of £1.1 billion on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope.

Group-originated securitisations, where ECL was captured on the underlying loans of £0.4 billion.

Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer's linked current account of £0.4 billion

 

Contingent liabilities and commitments

In addition to contingent liabilities and commitments disclosed in Note 12 of the main announcement, reputationally-committed limits are also included in the scope of the IFRS 9 ECL framework. These are offset by £4 billion out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £177.4 billion comprised Stage 1; £171.3 billion; Stage 2 £5.4 billion; and Stage 3 £0.7 billion.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - segment analysis (Within the scope of EY's review report) 

The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.

 

 

Ulster

Commercial

Private

 

 

Central items

 

 

UK PB

Bank RoI

Banking

Banking

RBSI

NWM

& other

Total

30 June 2019

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost

 

 

 

 

 

 

 

 

Stage 1

137,384 

19,684 

90,287 

14,198 

15,011 

9,539 

5,881 

291,984 

Stage 2

13,515 

1,638 

9,237 

531 

426 

229 

129 

25,705 

Stage 3

1,827 

2,171 

2,340 

173 

99 

715 

7,325 

 

152,726 

23,493 

101,864 

14,902 

15,536 

10,483 

6,010 

325,014 

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

99 

28 

123 

12 

280 

Stage 2

417 

56 

187 

10 

682 

Stage 3

710 

588 

926 

19 

16 

81 

2,340 

 

1,226 

672 

1,236 

40 

22 

99 

3,302 

ECL provisions coverage (2)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.07 

0.14 

0.14 

0.08 

0.03 

0.08 

0.10 

0.10 

Stage 2 (%)

3.09 

3.42 

2.02 

1.69 

0.47 

4.37 

0.78 

2.65 

Stage 3 (%)

38.86 

27.08 

39.57 

10.98 

16.16 

11.33 

31.95 

 

0.80 

2.86 

1.21 

0.27 

0.14 

0.94 

0.12 

1.02 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (3)

181 

(21)

202 

(3)

(3)

(36)

323 

Stage 1

(53)

(24)

(55)

(5)

(3)

(2)

(140)

Stage 2

103 

(38)

38 

(1)

(2)

101 

Stage 3

131 

41 

219 

(32)

362 

ECL loss rate - annualised (basis points)

23.70 

(17.88)

39.66 

(4.03)

(3.86)

(68.68)

9.98 

19.88 

Amounts written-off

90 

72 

276 

11 

452 

31 December 2018*

 

 

 

 

 

 

 

 

Loans - amortised cost

 

 

 

 

 

 

 

 

Stage 1

134,836 

17,822 

91,034 

13,750 

13,383 

8,196 

6,964 

285,985 

Stage 2

13,245 

2,080 

9,518 

531 

289 

407 

27 

26,097 

Stage 3

1,908 

2,308 

2,448 

225 

101 

728 

7,718 

 

149,989 

22,210 

103,000 

14,506 

13,773 

9,331 

6,991 

319,800 

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

101 

35 

124 

13 

285 

Stage 2

430 

114 

194 

10 

12 

763 

Stage 3

597 

638 

942 

20 

17 

106 

2,320 

 

1,128 

787 

1,260 

43 

26 

124 

3,368 

ECL provisions coverage (2)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.07 

0.20 

0.14 

0.09 

0.04 

0.07 

0.10 

Stage 2 (%)

3.25 

5.48 

2.04 

1.88 

1.04 

2.95 

2.92 

Stage 3 (%)

31.29 

27.64 

38.48 

8.89 

16.83 

14.56 

30.06 

 

0.75 

3.54 

1.22 

0.30 

0.19 

1.33 

1.05 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (3)

339 

15 

147 

(6)

(2)

(92)

(3)

398 

ECL loss rate - annualised (basis points)

22.60 

6.75 

14.27 

(4.14)

(1.45)

(98.60)

(4.29)

12.45 

Amounts written-off

445 

372 

572 

89 

1,494 

*Restated. Refer to Note 1 of the main announcement for further details.

Notes:

(1)   Includes £4 million (31 December 2018 - £5 million) related to assets at FVOCI.

(2)   ECL provisions coverage is ECL provisions divided by loans - amortised cost.

(3)   Includes a £30 million charge (31 December 2018 - £3 million charge) related to other financial assets, of which nil (31 December 2018 - £1 million charge) related to assets at FVOCI; and a £28 million charge (31 December 2018 - £31 million release) related to contingent liabilities.

 

Key points

Total ECL provisions reduced slightly in the first half of 2019. The reduced ECL requirement in Stage 1 and Stage 2 performing exposures offset a small increased provisioning requirement in Stage 3 exposures. The ECL requirement arising from the economic uncertainty associated with Brexit is formally reviewed by the Provisions Committee at the end of each quarter. As at the end of H1 2019, the modelled impact remained unchanged from the year end at £101 million.

In UK PB, the ECL levels remained broadly stable in Stage 1 and Stage 2 with the increase in Stage 3 including the effect of a loss rate model adjustment on unsecured lending. In addition, the value of new defaults was higher than write-offs and debt repayments by customers, and unlike in 2018, there were no debt sales in H1 2019.

In Ulster Bank RoI, the reduction in ECL was driven by ongoing improvements in the portfolio performance and the completion of the remainder of the Bank's 2018 sale of non-performing loans in H1 2019.

In Commercial Banking, the ECL balance reduced marginally with write-offs of legacy positions more than offsetting the small number of significant individual charges during the period.

The impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of between 30 and 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges within Commercial Banking.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics (Within the scope of EY's review report) 

The table below shows gross loans and ECL, by segment and stage, within the scope of the ECL framework.

 

Gross loans

 

ECL provisions (2)

 

 

Stage 2 (1)

 

 

 

 

Stage 2 (1)

 

 

 

Stage 1

≤30 DPD

>30 DPD

Total

Stage 3

Total

 

Stage 1

≤30 DPD

>30 DPD

Total

Stage 3

Total

30 June 2019

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

£m

UK PB

137,384 

12,900 

615 

13,515 

1,827 

152,726 

 

99 

371 

46 

417 

710 

1,226 

Ulster Bank RoI

19,684 

1,583 

55 

1,638 

2,171 

23,493 

 

28 

51 

56 

588 

672 

Personal (3)

11,304 

1,082 

37 

1,119 

2,000 

14,423 

 

23 

26 

490 

525 

Wholesale

8,380 

501 

18 

519 

171 

9,070 

 

19 

28 

30 

98 

147 

Commercial Banking

90,287 

8,891 

346 

9,237 

2,340 

101,864 

 

123 

181 

187 

926 

1,236 

Private Banking

14,198 

356 

175 

531 

173 

14,902 

 

12 

19 

40 

Personal

11,324 

203 

51 

254 

157 

11,735 

 

15 

22 

Wholesale

2,874 

153 

124 

277 

16 

3,167 

 

18 

RBS International

15,011 

417 

426 

99 

15,536 

 

16 

22 

Personal

2,610 

36 

43 

86 

2,739 

 

12 

14 

Wholesale

12,401 

381 

383 

13 

12,797 

 

NatWest Markets

9,539 

229 

229 

715 

10,483 

 

10 

10 

81 

99 

Central items and other

5,881 

129 

129 

6,010 

 

Total loans

291,984 

24,505 

1,200 

25,705 

7,325 

325,014 

 

280 

620 

62 

682 

2,340 

3,302 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

162,622 

14,221 

710 

14,931 

4,070 

181,623 

 

113 

398 

49 

447 

1,227 

1,787 

Wholesale

129,362 

10,284 

490 

10,774 

3,255 

143,391 

 

167 

222 

13 

235 

1,113 

1,515 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018*

 

 

 

 

 

 

 

 

 

 

 

 

 

UK PB

134,836 

12,521 

725 

13,245 

1,908 

149,989 

 

101 

382 

48 

430 

597 

1,128 

Ulster Bank RoI

17,822 

1,968 

112 

2,080 

2,308 

22,210 

 

35 

103 

11 

114 

638 

787 

Personal (3)

11,059 

1,353 

105 

1,458 

2,153 

14,670 

 

13 

73 

11 

84 

530 

627 

Wholesale

6,763 

615 

622 

155 

7,540 

 

22 

30 

30 

108 

160 

Commercial Banking

91,034 

9,087 

430 

9,518 

2,448 

103,000 

 

124 

186 

194 

942 

1,260 

Private Banking

13,750 

380 

151 

531 

225 

14,506 

 

13 

10 

20 

43 

Personal

10,803 

183 

25 

208 

203 

11,214 

 

17 

25 

Wholesale

2,947 

197 

126 

323 

22 

3,292 

 

18 

RBS International

13,383 

274 

15 

289 

101 

13,773 

 

17 

26 

NatWest Markets

8,196 

407 

407 

728 

9,331 

 

12 

12 

106 

124 

Central items and other

6,964 

27 

27 

6,991 

 

Total loans

285,985 

24,664 

1,433 

26,097 

7,718 

319,800 

 

285 

691 

72 

763 

2,320 

3,368 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

159,553 

14,106 

865 

14,971 

4,351 

178,875 

 

122 

458 

59 

517 

1,158 

1,797 

Wholesale

126,432 

10,558 

568 

11,126 

3,367 

140,925 

 

163 

233 

13 

246 

1,162 

1,571 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Restated. Refer to Note 1 of the main announcement for further details.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Segmental loans and impairment metrics (Within the scope of EY's review report)

The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.

 

 

ECL provisions coverage

 

ECL

 

 

Stage 2 (1,2)

 

 

 

Total

 

Amounts

 

Stage 1

≤30 DPD

>30 DPD

Total

Stage 3

Total

 

charge

Loss rate

written-off

30 June 2019

%

%

%

%

%

%

 

£m

basis points

£m

UK PB

0.07 

2.88 

7.48 

3.09 

38.86 

0.80 

 

181 

23.70 

90 

Ulster Bank RoI

0.14 

3.22 

9.09 

3.42 

27.08 

2.86 

 

(21)

(17.88)

72 

Personal (3)

0.08 

2.13 

8.11 

2.32 

24.50 

3.64 

 

(10)

(13.87)

64 

Wholesale

0.23 

5.59 

11.11 

5.78 

57.31 

1.62 

 

(11)

(24.26)

Commercial Banking

0.14 

2.04 

1.73 

2.02 

39.57 

1.21 

 

202 

39.66 

276 

Private Banking

0.08 

1.12 

2.86 

1.69 

10.98 

0.27 

 

(3)

(4.03)

Personal

0.04 

1.48 

1.18 

9.55 

0.19 

 

(3)

(5.11)

Wholesale

0.28 

0.65 

4.03 

2.17 

25.00 

0.57 

 

RBS International

0.03 

0.48 

0.47 

16.16 

0.14 

 

(3)

(3.86)

Personal

0.04 

2.78 

2.33 

13.95 

0.51 

 

(1)

(7.30)

Wholesale

0.02 

0.26 

0.26 

30.77 

0.06 

 

(2)

(3.13)

NatWest Markets

0.08 

4.37 

4.37 

11.33 

0.94 

 

(36)

(68.68)

11 

Central items and other

0.10 

0.78 

0.78 

0.12 

 

9.98 

Total loans

0.10 

2.53 

5.17 

2.65 

31.95 

1.02 

 

323 

19.88 

452 

Of which:

 

 

 

 

 

 

 

 

 

 

Personal

0.07 

2.80 

6.90 

2.99 

30.15 

0.98 

 

167 

18.39 

157 

Wholesale

0.13 

2.16 

2.65 

2.18 

34.19 

1.06 

 

156 

21.76 

295 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018*

 

 

 

 

 

 

 

 

 

 

UK PB

0.07 

3.05 

6.62 

3.25 

31.29 

0.75 

 

339 

22.6 

445 

Ulster Bank RoI

0.20 

5.23 

9.82 

5.48 

27.64 

3.54 

 

15 

6.8 

372 

Personal (3)

0.12 

5.40 

10.48 

5.76 

24.62 

4.27 

 

20 

13.6 

343 

Wholesale

0.33 

4.88 

4.82 

69.68 

2.12 

 

(5)

(6.6)

29 

Commercial Banking

0.14 

2.05 

1.86 

2.04 

38.48 

1.22 

 

147 

14.3 

572 

Private Banking

0.09 

1.32 

3.31 

1.88 

8.89 

0.30 

 

(6)

(4.1)

Personal

0.05 

1.64 

1.44 

8.37 

0.22 

 

(6)

(5.4)

Wholesale

0.27 

1.02 

3.97 

2.17 

13.64 

0.55 

 

RBS International

0.04 

1.09 

1.04 

16.83 

0.19 

 

(2)

(1.5)

NatWest Markets

0.07 

2.95 

2.95 

14.56 

1.33 

 

(92)

(98.6)

89 

Central items and other

 

(3)

(4.3)

Total loans excluding

 

 

 

 

 

 

 

 

 

 

   balances at central banks

0.10 

2.80 

5.02 

2.92 

30.06 

1.05 

 

398 

12.5 

1,494 

Personal

0.08 

3.25 

6.82 

3.45 

26.61 

1.00 

 

354 

19.8 

776 

Wholesale

0.13 

2.21 

2.29 

2.21 

34.51 

1.11 

 

44 

3.1 

718 

Total loans

0.08 

2.80 

5.02 

2.92 

30.06 

0.83 

 

398 

9.8 

1,494 

 

 

 

 

 

 

 

 

 

 

 

*Restated. Refer to Note 1 of the main announcement for further details.

Notes:

(1)   30 DPD - 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for significant increase in credit risk.

(2)   ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.

(3)   Includes a £1 million charge and a £1 million write off (31 December 2018 - £1 million and £3 million) related to the business banking portfolio in Ulster Bank RoI.

(4)   Balances at central banks in scope for ECL are £84.1 billion (31 December 2018 - £87.2 billion). ECL provision related to these balances is £3 million (31 December 2018 - £2 million).

 

Key points

For UK PB, the annualised loss rate of 24 basis points compared to 23 basis points for 2018, with the impairment charge for underlying new defaults broadly stable in H1 2019. The overall coverage level increased slightly driven by the uplift in Stage 3 which included the effect of a loss rate model adjustment on unsecured lending. The reduction in the total value of Stage 3 exposures reflected a methodology refinement in the mortgage portfolio.

In Ulster Bank RoI, the P&L benefited from a provision release due to improvements in the portfolio performance reflective of the prevailing macro economic environment.

In Commercial Banking, the loss rate of 40 basis points increased from 2018 reflecting a small number of individual charges and a reduction in the level of impairment releases. The coverage level remained stable at 1.21%.

In NatWest Markets, the negative loss rate reflected the impact of impairment releases on the legacy portfolio and included a £27 million gain on purchased or originated credit impaired assets.

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis (Within the scope of EY's review report)

The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region based on the country of operation of the customer.

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

30 June 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

167,499 

4,181 

9,943 

181,623 

 

36,918 

71,708 

27,035 

7,730 

143,391 

 

325,014 

  - UK

152,515 

4,085 

9,467 

166,067 

 

33,910 

59,111 

17,312 

3,428 

113,761 

 

279,828 

  - RoI

14,119 

96 

223 

14,438 

 

1,225 

4,131 

194 

3,662 

9,212 

 

23,650 

  - Other Europe

274 

90 

364 

 

1,387 

3,927 

4,308 

334 

9,956 

 

10,320 

  - RoW

591 

163 

754 

 

396 

4,539 

5,221 

306 

10,462 

 

11,216 

Loans by asset quality (2,3)

167,499 

4,181 

9,943 

181,623 

 

36,918 

71,708 

27,035 

7,730 

143,391 

 

325,014 

  - AQ1-AQ4

105,736 

24 

1,070 

106,830 

 

15,740 

23,161 

25,792 

7,574 

72,267 

 

179,097 

  - AQ5-AQ8

57,317 

3,955 

7,935 

69,207 

 

19,548 

46,230 

1,219 

150 

67,147 

 

136,354 

  - AQ9

1,144 

62 

310 

1,516 

 

114 

605 

722 

 

2,238 

  - AQ10

3,302 

140 

628 

4,070 

 

1,516 

1,712 

22 

3,255 

 

7,325 

Loans by stage

167,499 

4,181 

9,943 

181,623 

 

36,918 

71,708 

27,035 

7,730 

143,391 

 

325,014 

  - Stage 1

152,647 

2,831 

7,144 

162,622 

 

33,252 

61,854 

26,537 

7,719 

129,362 

 

291,984 

  - Stage 2

11,550 

1,210 

2,171 

14,931 

 

2,150 

8,142 

476 

10,774 

 

25,705 

  - Stage 3

3,302 

140 

628 

4,070 

 

1,516 

1,712 

22 

3,255 

 

7,325 

Weighted average 12 months PDs *

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.33 

4.15 

2.84 

0.55 

 

0.73 

0.91 

0.12 

0.07 

0.71 

 

0.61 

  - Basel (%)

0.83 

3.82 

4.02 

1.06 

 

0.98 

1.59 

0.22 

0.08 

1.07 

 

1.07 

ECL provisions by geography

739 

224 

824 

1,787 

 

424 

1,050 

32 

1,515 

 

3,302 

  - UK

236 

221 

805 

1,262 

 

361 

681 

17 

1,065 

 

2,327 

  - RoI

503 

19 

525 

 

40 

116 

158 

 

683 

  - Other Europe

 

21 

139 

12 

173 

 

173 

  - RoW

 

114 

119 

 

119 

ECL provisions by stage

739 

224 

824 

1,787 

 

424 

1,050 

32 

1,515 

 

3,302 

  - Stage 1

16 

36 

61 

113 

 

44 

103 

11 

167 

 

280 

  - Stage 2

96 

100 

251 

447 

 

41 

185 

235 

 

682 

  - Stage 3

627 

88 

512 

1,227 

 

339 

762 

12 

1,113 

 

2,340 

ECL provisions coverage (%)

0.44 

5.36 

8.29 

0.98 

 

1.15 

1.46 

0.12 

0.12 

1.06 

 

1.02 

  - Stage 1 (%)

0.01 

1.27 

0.85 

0.07 

 

0.13 

0.17 

0.04 

0.12 

0.13 

 

0.10 

  - Stage 2 (%)

0.83 

8.26 

11.56 

2.99 

 

1.91 

2.27 

1.89 

2.18 

 

2.65 

  - Stage 3 (%)

18.99 

62.86 

81.53 

30.15 

 

22.36 

44.51 

54.55 

34.19 

 

31.95 

ECL charge

26 

138 

167 

 

22 

134 

(2)

156 

 

323 

ECL loss rate (%)

1.24 

2.78 

0.18 

 

0.12 

0.37 

(0.01)

0.05 

0.22 

 

0.20 

Amounts written-off

71 

35 

51 

157 

 

173 

112 

10 

295 

 

452 

Other financial assets by asset quality (3)

 

710 

12,490 

133,781 

146,981 

 

146,981 

  - AQ1-AQ4

 

115 

11,825 

133,781 

145,721 

 

145,721 

  - AQ5-AQ8

 

587 

659 

1,246 

 

1,246 

  - AQ9

 

11 

 

11 

  - AQ10

 

 

Off-balance sheet

12,883 

16,768 

12,390 

42,041 

 

16,230 

53,157 

26,949 

39,064 

135,400 

 

177,441 

Loan commitments

12,883 

16,768 

12,380 

42,031 

 

15,538 

50,061 

25,356 

39,064 

130,019 

 

172,050 

Financial guarantees

10 

10 

 

692 

3,096 

1,593 

5,381 

 

5,391 

Off-balance sheet by asset quality (3)

12,883 

16,768 

12,390 

42,041 

 

16,230 

53,157 

26,949 

39,064 

135,400 

 

177,441 

  - AQ1-AQ4

11,830 

309 

9,455 

21,594 

 

11,983 

36,462 

25,443 

39,049 

112,937 

 

134,531 

  - AQ5-AQ8

1,043 

16,166 

2,924 

20,133 

 

4,125 

16,349 

1,504 

15 

21,993 

 

42,126 

  - AQ9

11 

16 

 

88 

96 

 

112 

  - AQ10 (4)

289 

298 

 

114 

258 

374 

 

672 

 

 

 

 

 

*Not within the scope of EY's review report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis (Within the scope of EY's review report) 

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

31 December 2018

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

165,081 

4,216 

9,578 

178,875 

 

36,707 

72,240 

25,011 

6,967 

140,925 

 

319,800 

  - UK

150,233 

4,112 

9,117 

163,462 

 

33,855 

60,657 

11,611 

3,089 

109,212 

 

272,674 

  - RoI

14,350 

104 

233 

14,687 

 

1,114 

3,733 

392 

2,497 

7,736 

 

22,423 

  - Other Europe

102 

67 

169 

 

1,395 

3,760 

5,903 

1,088 

12,146 

 

12,315 

  - RoW

396 

161 

557 

 

343 

4,090 

7,105 

293 

11,831 

 

12,388 

Loans by asset quality (2,3)

165,081 

4,216 

9,578 

178,875 

 

36,707 

72,240 

25,011 

6,967 

140,925 

 

319,800 

  - AQ1-AQ4

104,989 

35 

1,040 

106,064 

 

16,133 

22,587 

22,397 

6,802 

67,919 

 

173,983 

  - AQ5-AQ8

55,139 

3,990 

7,736 

66,865 

 

18,815 

47,651 

2,574 

161 

69,201 

 

136,066 

  - AQ9

1,287 

69 

239 

1,595 

 

74 

359 

438 

 

2,033 

  - AQ10

3,666 

122 

563 

4,351 

 

1,685 

1,643 

35 

3,367 

 

7,718 

Loans by stage

165,081 

4,216 

9,578 

178,875 

 

36,707 

72,240 

25,011 

6,967 

140,925 

 

319,800 

  - Stage 1

149,760 

2,851 

6,942 

159,553 

 

33,145 

61,844 

24,502 

6,941 

126,432 

 

285,985 

  - Stage 2

11,655 

1,243 

2,073 

14,971 

 

1,877 

8,753 

474 

22 

11,126 

 

26,097 

  - Stage 3

3,666 

122 

563 

4,351 

 

1,685 

1,643 

35 

3,367 

 

7,718 

Weighted average 12 months PDs *

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.32 

4.03 

2.77 

0.54 

 

0.75 

0.97 

0.14 

0.06 

0.75 

 

0.62 

  - Basel (%)

0.84 

3.52 

3.50 

1.04 

 

0.95 

1.43 

0.23 

0.06 

1.01 

 

1.03 

ECL provisions by geography

839 

230 

728 

1,797 

 

588 

941 

41 

1,571 

 

3,368 

  - UK

237 

227 

707 

1,171 

 

518 

615 

27 

1,161 

 

2,332 

  - RoI

602 

21 

626 

 

43 

125 

170 

 

796 

  - Other Europe

 

22 

53 

10 

85 

 

85 

  - RoW

 

148 

155 

 

155 

ECL provisions by stage

839 

230 

728 

1,797 

 

588 

941 

41 

1,571 

 

3,368 

  - Stage 1

23 

38 

61 

122 

 

43 

107 

12 

163 

 

285 

  - Stage 2

150 

120 

247 

517 

 

39 

200 

246 

 

763 

  - Stage 3

666 

72 

420 

1,158 

 

506 

634 

22 

1,162 

 

2,320 

ECL provisions coverage (%)

0.51 

5.46 

7.60 

1.00 

 

1.60 

1.30 

0.16 

0.01 

1.11 

 

1.05 

  - Stage 1 (%)

0.02 

1.33 

0.88 

0.08 

 

0.13 

0.17 

0.05 

0.01 

0.13 

 

0.10 

  - Stage 2 (%)

1.29 

9.65 

11.92 

3.45 

 

2.08 

2.28 

1.48 

2.21 

 

2.92 

  - Stage 3 (%)

18.17 

59.02 

74.60 

26.61 

 

30.03 

38.59 

62.86 

34.51 

 

30.06 

ECL charge

57 

87 

210 

354 

 

30 

13 

(2)

44 

 

398 

ECL loss rate (%)

0.03 

2.06 

2.19 

0.20 

 

0.08 

0.02 

0.01 

(0.03)

0.03 

 

0.12 

Amounts written-off

368 

79 

329 

776 

 

292 

395 

31 

718 

 

1,494 

Other financial assets by asset quality (3)

 

105 

652 

8,838 

134,546 

144,141 

 

144,141 

  - AQ1-AQ4

 

105 

10 

8,110 

134,546 

142,771 

 

142,771 

  - AQ5-AQ8

 

642 

721 

1,363 

 

1,363 

  - AQ9

 

 

  - AQ10

 

 

Off-balance sheet

13,228 

16,613 

12,229 

42,070 

 

16,044 

52,730 

28,761 

29,277 

126,812 

 

168,882 

Loan commitments

13,228 

16,613 

12,229 

42,070 

 

15,335 

48,569 

26,684 

29,276 

119,864 

 

161,934 

Financial guarantees

 

709 

4,161 

2,077 

6,948 

 

6,948 

Off-balance sheet by asset quality (3)

13,228 

16,613 

12,229 

42,070 

 

16,044 

52,730 

28,761 

29,277 

126,812 

 

168,882 

  - AQ1-AQ4

12,116 

422 

9,103 

21,641 

 

11,945 

36,134 

27,364 

29,262 

104,705 

 

126,346 

  - AQ5-AQ8

1,101 

15,900 

3,116 

20,117 

 

3,928 

16,390 

1,397 

15 

21,730 

 

41,847 

  - AQ9

10 

19 

 

46 

52 

 

71 

  - AQ10 (4)

10 

283 

293 

 

165 

160 

325 

 

618 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Not within the scope of EY's review report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

(1)    Includes £0.6 billion (31 December 2018 - £0.7 billion) secured lending in Private Banking, in line with ECL calculation methodology.

(2)    AQ10 includes £0.7 billion (31 December 2018 - £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3.

(3)    AQ bandings are based on Basel PDs and mapping is as follows:

 

Internal asset quality band

Probability of default range

Indicative S&P rating

AQ1

0% - 0.034%

AAA to AA

AQ2

0.034% - 0.048%

AA to AA-

AQ3

0.048% - 0.095%

A+ to A

AQ4

0.095% - 0.381%

BBB+ to BBB-

AQ5

0.381% - 1.076%

BB+ to BB

AQ6

1.076% - 2.153%

BB- to B+

AQ7

2.153% - 6.089%

B+ to B

AQ8

6.089% - 17.222%

B- to CCC+

AQ9

17.222% - 100%

CCC to C

AQ10

100%

D

 

(4)    £0.3 billion (December 2018 - £0.3 billion) AQ10 Personal balances primarily relate to loan commitments, the draw down of which is effectively prohibited.

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Portfolio summary - sector analysis (Within the scope of EY's review report)

Wholesale forbearance

The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on the next page. 

 

FI

Property

Sovereigns

Other corporate

Total

30 June 2019

£m

£m

£m

£m

£m

Forbearance (flow)

284 

1,594 

1,881 

Heightened Monitoring and Risk of Credit Loss

88 

1,082 

3,771 

4,941 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

Forbearance (flow)

14 

305 

2,247 

2,566 

Heightened Monitoring and Risk of Credit Loss

100 

503 

16 

4,145 

4,764 

 

Key points

·      Loans by stage - The percentage of exposure in Stage 1 and Stage 2 was broadly unchanged from the 2018 year end. The reduction in value of mortgage Stage 3 exposures included a methodology change in the UK PB portfolio and also the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019.

·      Weighted average 12 months PDs - In Wholesale, Basel PDs, which are based on a through-the-cycle approach, tend to be higher than point-in-time best estimate IFRS 9 PDs, which reflect the current state in the economic cycle. Basel PDs also include an element of conservatism associated with the regulatory capital framework. In Personal, the Basel PDs, which are point-in-time estimates, also tend to be higher also reflecting conservatism (conservatism is higher in mortgages than other products), and an element of default rate under-prediction in the IFRS 9 PD models. This overall default rate under-prediction was mitigated by net ECL modelling overlays of approximately £30 million at H1 2019, pending model calibrations being implemented. The IFRS 9 PD for credit cards was higher than the Basel equivalent and reflected the relative sensitivity of the IFRS 9 model to forward-looking economic drivers, as well as an IFRS 9 model over-prediction mitigated within the ECL overlay.

·      ECL provision by stage and coverage - The majority of ECL by value in both Personal and Wholesale was in Stage 3. Provision coverage was progressively higher by stage reflecting the lifetime nature of losses in both Stage 2 and Stage 3. In the Personal portfolio, provision coverage was materially lower in mortgages relative to credit cards and other personal unsecured products reflecting the secured nature of the facilities. For Wholesale exposures, security and enterprise value mitigated losses in Stage 3.

·      In mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in the Ulster Bank RoI business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019. The increase in ECL and provision coverage on Other personal included the effect of a loss rate model adjustment.

·      The ECL impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of 30 to 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges.

 

·      Completed Wholesale forbearance in the six months to 30 June 2019 was £1.9 billion compared to £2.6 billion for the full year 2018. Forbearance during the period was largely driven by Services, Retail & Leisure, Property and Transport sectors. The volume of customers completing forbearance was similar to 2018. However, exposure levels increased due to a small number of entities with large exposures. The portfolio continues to be monitored closely with targeted sector reviews.

·      Heightened Monitoring and Risk of Credit Loss - The volume of customers classified as Heightened Monitoring or Risk of Credit Loss remained similar to December 2018 with exposure increasing from £4.8 billion to £4.9 billion in the period to 30 June 2019. The increase in exposures was driven by the Heightened Monitoring portfolio. With ongoing economic and political uncertainty, key wholesale sectors continue to be reviewed at senior credit forums with business appetite and underwriting standards tightened where necessary.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

UK

Ulster

Private

 

 

 

UK

Ulster

Private

 

 

 

PB

Bank RoI

Banking

RBSI

Total

 

PB

Bank RoI

Banking

RBSI

Total

Personal lending

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

Mortgages

140,929 

14,181 

9,474 

2,661 

167,245 

 

138,250 

14,361 

9,082 

2,684 

164,377 

of which:

 

 

 

 

 

 

 

 

 

 

 

  Owner occupied

125,719 

13,070 

8,302 

1,756 

148,847 

 

122,642 

13,105 

7,953 

1,781 

145,481 

  Buy-to-let

15,210 

1,111 

1,172 

905 

18,398 

 

15,608 

1,256 

1,129 

903 

18,896 

  Interest only - variable

7,062 

179 

3,585 

431 

11,257 

 

8,358 

188 

3,871 

489 

12,906 

  Interest only - fixed

12,632 

10 

4,275 

226 

17,143 

 

12,229 

12 

3,636 

187 

16,064 

  Mixed (1)

6,088 

63 

22 

6,175 

 

6,036 

68 

18 

6,124 

  Impairment provision (2)

215 

502 

13 

735 

 

212 

602 

16 

835 

Other personal lending (3)

12,179 

317 

1,654 

52 

14,202 

 

11,633 

330 

1,676 

55 

13,694 

 Impairment provision (2)

1,003 

22 

17 

1,043 

 

909 

25 

19 

954 

Total personal lending

153,108 

14,498 

11,128 

2,713 

181,447 

 

149,883 

14,691 

10,758 

2,739 

178,071 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage LTV ratios

 

 

 

 

 

 

 

 

 

 

 

  - Total portfolio

57%

61%

56%

58%

57%

 

56%

62%

56%

58%

57%

    - Stage 1

57%

58%

56%

57%

57%

 

56%

58%

56%

57%

56%

    - Stage 2

59%

66%

56%

66%

60%

 

58%

67%

58%

55%

59%

    - Stage 3

56%

74%

58%

91%

67%

 

55%

77%

58%

99%

69%

  - Buy-to-let

53%

63%

53%

53%

54%

 

53%

64%

53%

53%

54%

    - Stage 1

52%

60%

53%

53%

53%

 

53%

58%

53%

52%

53%

    - Stage 2

58%

68%

58%

48%

59%

 

57%

72%

53%

57%

60%

    - Stage 3

59%

76%

61%

67%

68%

 

58%

78%

68%

75%

71%

Gross new mortgage lending

13,957 

612 

1,015 

173 

15,757 

 

29,555 

1,015 

1,846 

353 

32,769 

of which:

 

 

 

 

 

 

 

 

 

 

 

  Owner occupied exposure

13,480 

606 

929 

113 

15,128 

 

28,608 

1,004 

1,689 

241 

31,542 

  Weighted average LTV

70%

75%

64%

73%

70%

 

69%

73%

62%

68%

69%

  Buy-to-let exposure

477 

86 

60 

628 

 

947 

11 

157 

112 

1,227 

  Weighted average LTV

62%

59%

57%

64%

61%

 

61%

57%

55%

61%

60%

  Interest only variable rate

13 

309 

325 

 

43 

697 

13 

753 

  Interest only fixed rate

567 

500 

30 

1,097 

 

1,189 

764 

43 

1,996 

  Mixed (1)

461 

461 

 

912 

913 

Mortgage forbearance

 

 

 

 

 

 

 

 

 

 

 

Forbearance flow

254 

169 

435 

 

446 

210 

11 

16 

683 

Forbearance stock

1,289 

2,429 

12 

3,737 

 

1,338 

2,645 

17 

4,008 

  Current

683 

1,265 

10 

1,962 

 

724 

1,291 

14 

2,035 

  1-3 months in arrears

351 

204 

559 

 

350 

261 

612 

  >3 months in arrears

255 

960 

1,216 

 

264 

1,093 

1,362 

 

Notes:

(1)

Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.

(2)

For UK PB this excludes a non material amount of provisions held on relatively small legacy portfolios.

(3)

Other lending comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. Other Lending excludes loans that that are commercial in nature.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

Key points

The overall credit risk profile of the Personal portfolio, and its performance against credit risk appetite, remained stable during 2019. 

 

 

In UK PB, lending grew by £2.7 billion in the first six months with new lending partly offset by mortgage redemptions and repayments. In Ulster Bank RoI, the reduction in the mortgage portfolio was primarily driven by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019, as well as portfolio amortisation and redemptions outweighing new lending in the first half of 2019.

 

 

New mortgage lending was higher than in H1 2018. The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, loan-to-income ratios, buy-to-let concentrations, new-build concentrations and credit quality. Underwriting standards were maintained during the period.

 

 

Mortgage growth was driven by the owner-occupied portfolio. New mortgages in the buy-to-let portfolio remained subdued as tax and regulatory changes in the UK affected borrower activity.

 

 

The mortgage portfolio loan-to-value ratio increased slightly in the UK, reflecting slower UK house price growth.

 

 

The stock of lending in Greater London and the South East was 42% of the UK PB portfolio. (31 December 2018 - 42%). The average weighted loan-to-value for these regions was 52% (31 December 2018 - 51%) compared to 57% for all regions.

 

 

By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced, driven by fewer buy-to-let mortgages and low volumes of owner occupier interest only new business.

 

 

As at 30 June 2019, 85% of customers in the UK PB mortgage portfolio were on fixed rates (47% on five-year deals). In addition, 97% of all new mortgage completions were fixed-rate deals (62% of which were five-year deals), as customers sought to minimise the impact of potential rate rises.

 

 

The growth in unsecured lending during the first six months of 2019 was driven by the UK PB unsecured loans portfolio. The bank also reintroduced 0% balance transfer credit cards during the period which has increased credit card exposure. Unsecured new business increased 2% in the first half of 2019 (compared to H2 2018), reflecting product offering differences, pricing initiatives, and increased marketing activity.

 

 

Unsecured credit quality improved modestly, reflecting active portfolio management with tightening implemented across loan and credit card portfolios in H1 2019 to ensure that performance of higher risk customers remained within risk appetite.

 

 

     

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

Mortgage LTV distribution by stage

The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value.

 

Mortgages

 

 

 

ECL provisions

 

ECL provisions coverage (2)

 

 

Not within

 

 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

Gross new

 

 

 

 

 

 

 

 

 

 

UK PB

Stage 1

Stage 2

Stage 3

scope

Total

 

lending

 

Stage 1

Stage 2

Stage 3

Total (1)

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

£m

£m

£m

£m

£m

 

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

46,571 

3,362 

511 

140 

50,584 

 

2,045 

 

18 

63 

82 

 

0.5 

12.3 

0.2 

>50% and ≤70%

44,371 

3,679 

465 

40 

48,555 

 

3,873 

 

25 

38 

65 

 

0.7 

8.2 

0.1 

>70% and ≤80%

21,454 

1,702 

153 

23,317 

 

3,578 

 

12 

12 

26 

 

0.7 

8.0 

0.1 

>80% and ≤90%

13,419 

1,191 

84 

14,698 

 

3,868 

 

12 

22 

 

1.0 

9.7 

0.1 

>90% and ≤100%

3,210 

241 

25 

3,481 

 

511 

 

 

2.0 

11.8 

0.2 

>100% and ≤110%

50 

36 

96 

 

 

 

0.1 

4.3 

17.5 

3.2 

>110% and ≤130%

57 

36 

104 

 

 

 

0.1 

5.4 

24.1 

3.9 

>130% and ≤150%

22 

23 

51 

 

 

 

0.1 

5.7 

15.4 

4.4 

>150%

17 

 

 

 

0.1 

5.2 

30.6 

10.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total with LTVs

129,158 

10,279 

1,266 

200 

140,903 

 

13,875 

 

77 

130 

215 

 

0.7 

10.3 

0.2 

Other

22 

26 

 

82 

 

 

0.1 

4.5 

48.1 

2.2 

Total

129,180 

10,282 

1,267 

200 

140,929 

 

13,957 

 

77 

130 

215 

 

0.7 

10.3 

0.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

47,111 

3,423 

516 

153 

51,203 

 

4,779 

 

16 

64 

82 

 

0.5 

12.4 

0.2 

>50% and ≤70%

44,037 

3,632 

459 

49 

48,177 

 

8,535 

 

23 

39 

64 

 

0.6 

8.5 

0.1 

>70% and ≤80%

20,345 

1,490 

135 

15 

21,985 

 

7,434 

 

11 

11 

23 

 

0.7 

8.1 

0.1 

>80% and ≤90%

12,733 

1,118 

81 

12 

13,944 

 

7,524 

 

12 

22 

 

1.1 

10.0 

0.2 

>90% and ≤100%

2,343 

178 

24 

2,552 

 

1,104 

 

 

2.4 

12.1 

0.3 

>100% and ≤110%

57 

35 

101 

 

 

 

0.1 

4.6 

14.1 

2.8 

>110% and ≤130%

53 

41 

105 

 

 

 

0.1 

5.4 

14.6 

3.4 

>130% and ≤150%

23 

23 

52 

 

 

 

0.1 

6.2 

13.4 

4.3 

>150%

15 

 

 

 

0.1 

6.2 

17.3 

7.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total with LTVs

126,705 

9,949 

1,241 

239 

138,134 

 

29,376 

 

72 

129 

209 

 

0.7 

10.4 

0.2 

Other

96 

13 

116 

 

179 

 

 

4.7 

53.5 

2.6 

Total

126,801 

9,962 

1,245 

242 

138,250 

 

29,555 

 

73 

131 

212 

 

0.7 

10.5 

0.2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report) 

 

 

Mortgages

 

ECL provisions

 

ECL provisions coverage (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ulster Bank RoI

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

4,120 

333 

518 

4,971 

 

79 

86 

 

1.4 

15.2 

1.7 

>50% and ≤70%

3,537 

252 

448 

4,237 

 

70 

75 

 

1.4 

15.6 

1.8 

>70% and ≤80%

1,392 

134 

233 

1,759 

 

48 

51 

 

1.5 

20.6 

2.9 

>80% and ≤90%

1,077 

121 

241 

1,439 

 

61 

64 

 

0.1 

1.8 

25.4 

4.4 

>90% and ≤100%

540 

97 

204 

841 

 

64 

66 

 

0.1 

1.9 

31.1 

7.8 

>100% and ≤110%

247 

59 

158 

464 

 

52 

54 

 

0.1 

2.9 

33.2 

11.7 

>110% and ≤130%

149 

44 

168 

361 

 

69 

70 

 

0.2 

3.2 

40.9 

19.5 

>130% and ≤150%

19 

51 

78 

 

25 

25 

 

0.3 

5.9 

49.3 

33.1 

>150%

21 

31 

 

11 

11 

 

0.3 

10.2 

52.7 

36.3 

Total with LTVs

11,089 

1,050 

2,042 

14,181 

 

18 

479 

502 

 

0.1 

1.7 

23.4 

3.5 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

3,818 

374 

463 

4,655 

 

40 

46 

 

1.4 

8.6 

1.0 

>50% and ≤70%

3,567 

365 

459 

4,391 

 

10 

47 

59 

 

2.7 

10.3 

1.3 

>70% and ≤80%

1,564 

190 

241 

1,995 

 

11 

52 

64 

 

0.1 

5.5 

21.5 

3.2 

>80% and ≤90%

1,059 

184 

272 

1,515 

 

15 

82 

99 

 

0.2 

8.3 

30.2 

6.5 

>90% and ≤100%

570 

154 

261 

985 

 

17 

99 

118 

 

0.4 

11.1 

37.7 

11.9 

>100% and ≤110%

197 

80 

207 

484 

 

10 

85 

97 

 

0.9 

12.8 

41.1 

20.1 

>110% and ≤130%

51 

35 

179 

265 

 

84 

90 

 

0.8 

16.6 

47.0 

34.0 

>130% and ≤150%

37 

47 

 

20 

21 

 

0.3 

19.1 

54.7 

45.2 

>150%

10 

13 

24 

 

 

2.1 

27.2 

58.9 

33.5 

Total with LTVs

10,841 

1,388 

2,132 

14,361 

 

10 

76 

516 

602 

 

0.1 

5.4 

24.2 

4.2 

 

Notes:

(1)   Excludes a non-material amount of provisions held on relatively small legacy portfolios.

(2)   ECL provisions coverage is ECL provisions divided by drawn exposure.

 

Key points

The UK mortgage portfolio LTV ratio increased slightly reflecting slower UK house price growth. In Ulster Bank RoI the small changes to portfolio level LTVs were mainly driven by the implementation of an enhanced indexation methodology that improves the granularity of information at individual mortgage account level.

 

 

ECL coverage rates increased through the LTV bands with both UK PB and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK PB included the effect of the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity, and also discounting expected recoveries over time. Similarly in Ulster Bank RoI, the relatively high coverage level in the lower LTV bands is driven by the implementation of a new modelling methodology that applies higher losses to these LTV bands.

 

 

Appendix 1 Capital and risk management

Credit risk - Banking activities continued

Personal portfolio (Within the scope of EY's review report)

UK PB Mortgage LTV distribution by region

 

 

 

 

 

 

 

 

 

 

 

 

 

50%

80%

100%

 

 

Weighted

 

 

 

 

≤50%

≤80%

≤100%

≤150%

>150%

Total

average LTV

Other

Total

Total

LTV ratio value

£m

£m

£m

£m

£m

£m

%

£m

£m

%

30 June 2019

 

 

 

 

 

 

 

 

 

 

South East

13,336 

18,064 

4,099 

11 

35,510 

56 

35,518 

25 

Greater London

13,792 

9,442 

837 

24,075 

47 

24,079 

17 

Scotland

3,591 

5,987 

1,188 

10,768 

58 

10,769 

North West

4,029 

7,830 

2,140 

14,004 

60 

14,007 

10 

South West

4,265 

7,089 

1,323 

12,684 

57 

12,686 

West Midlands

2,791 

5,653 

1,735 

10,184 

61 

10,185 

Rest of the UK

8,780 

17,807 

6,856 

218 

17 

33,678 

63 

33,685 

24 

Total

50,584 

71,872 

18,178 

252 

17 

140,903 

57 

26 

140,929 

100 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

 

 

 

 

South East

14,699 

17,147 

2,843 

34,697 

53 

27 

34,724 

25 

Greater London

12,928 

9,614 

1,298 

23,843 

48 

19 

23,862 

17 

Scotland

3,205 

5,612 

1,844 

11 

10,672 

60 

10,680 

North West

4,163 

7,756 

1,970 

13,895 

59 

12 

13,907 

10 

South West

4,231 

6,843 

1,292 

12,374 

57 

12,383 

West Midlands

3,036 

5,642 

1,192 

9,874 

58 

9,881 

Rest of the UK

8,942 

17,548 

6,056 

217 

16 

32,779 

62 

34 

32,813 

24 

Total

51,204 

70,162 

16,495 

257 

16 

138,134 

56 

116 

138,250 

100 

 

Commercial real estate (CRE)

The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly at senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of guarantee or letter or credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral.

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

UK

RoI

Other

Total

 

UK

RoI

Other

Total

By geography and sub sector (1)

£m

£m

£m

£m

 

£m

£m

£m

£m

Investment

 

 

 

 

 

 

 

 

 

Residential (2)

4,571 

382 

27 

4,980 

 

4,426 

363 

54 

4,843 

Office (3)

3,014 

150 

621 

3,785 

 

2,889 

164 

651 

3,704 

Retail (4)

5,239 

52 

126 

5,417 

 

5,168 

40 

92 

5,300 

Industrial (5)

2,351 

54 

106 

2,511 

 

2,270 

51 

176 

2,497 

Mixed/other (6)

3,340 

214 

38 

3,592 

 

3,221 

180 

123 

3,524 

 

18,515 

852 

918 

20,285 

 

17,974 

798 

1,096 

19,868 

 

 

 

 

 

 

 

 

 

 

Development

 

 

 

 

 

 

 

 

 

Residential (2)

2,639 

152 

20 

2,811 

 

2,715 

122 

124 

2,961 

Office (3)

118 

118 

 

192 

192 

Retail (4)

103 

111 

 

94 

102 

Industrial (5)

120 

122 

 

119 

12 

133 

Mixed/other (6)

27 

30 

 

32 

34 

 

3,007 

164 

21 

3,192 

 

3,152 

133 

137 

3,422 

 

 

 

 

 

 

 

 

 

 

Total

21,522 

1,016 

939 

23,477 

 

21,126 

931 

1,233 

23,290 

 

Notes:

(1)

Geographical splits are based on country of collateral risk.

(2)

Residential properties including houses, flats and student accommodation.

(3)

Office properties including offices in central business districts, regional headquarters and business parks.

(4)

Retail properties including high street retail, shopping centres, restaurants, bars and gyms.

(5)

Industrial properties including distribution centres, manufacturing and warehouses. 

(6)

Mixed usage or other properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. 

 

 

Appendix 1 Capital and risk management

Credit risk: Banking activities continued

Commercial real estate

CRE LTV distribution by stage (Within the scope of EY's review report) 

The table below shows CRE current exposure and related ECL by LTV band.

 

Current exposure (gross of provisions) (1,2)

 

ECL provisions

 

ECL provisions coverage (4)

 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

scope (3)

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2019

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

8,836 

264 

45 

794 

9,939 

 

12 

25 

 

0.1 

1.8 

26.3 

0.3 

>50% and ≤70%

4,674 

464 

79 

781 

5,998 

 

12 

24 

 

0.1 

1.3 

14.9 

0.5 

>70% and ≤80%

266 

92 

36 

15 

409 

 

11 

 

0.3 

1.1 

24.8 

2.7 

>80% and ≤90%

70 

22 

101 

 

 

0.4 

4.7 

16.3 

4.2 

>90% and ≤100%

14 

24 

43 

 

12 

13 

 

0.7 

15.1 

50.4 

29.3 

>100% and ≤110%

24 

12 

40 

 

 

0.4 

5.0 

36.1 

11.7 

>110% and ≤130%

13 

12 

114 

143 

 

29 

30 

 

0.7 

5.0 

24.7 

20.9 

>130% and ≤150%

15 

 

 

1.0 

14.1 

48.4 

20.2 

>150%

37 

30 

72 

 

20 

21 

 

0.6 

10.8 

68.4 

29.3 

Total with LTVs

13,941 

855 

367 

1,597 

16,760 

 

15 

15 

104 

134 

 

0.1 

1.7 

28.2 

0.9 

Total portfolio average LTV (%)

44%

55%

101%

48%

46%

 

n/a

n/a

n/a

n/a

 

n/a

n/a

n/a

n/a

Other (5)

2,217 

283 

716 

309 

3,525 

 

51 

58 

 

0.1 

1.6 

7.1 

1.8 

Development (6)

2,667 

194 

144 

187 

3,192 

 

10 

73 

86 

 

0.4 

1.7 

50.8 

2.9 

Total

18,824 

1,332 

1,227 

2,093 

23,477 

 

28 

22 

228 

278 

 

0.2 

1.6 

18.6 

1.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018