rbs201507306k4.htm
 
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For July 30, 2015
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

 
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F X
  
Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________


Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes
   ___
No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

 
 
The following information was issued as a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 
 
 
 
 
 
Appendix 1
 
Capital and risk management
 

 
Appendix 1 Capital and risk management
 
 
Presentation of information
1
General overview
2
 
 
Capital management
Pillar 2A and MDA
5
Capital resources
7
Leverage exposure
8
Risk-weighted assets
9
 
 
Liquidity and funding risk
Liquidity risk
13
Funding risk
15
 
 
Credit risk
Loans and related credit metrics
17
Debt securities
22
Derivatives
23
Key loan portfolios
25
 
 
Market risk
Trading portfolios
34
Non-trading portfolios
36
 
 
Country risk
Key points
40
Country exposures
42
 
 
Presentation of information
The assets and liabilities of disposal groups are presented as single lines in the consolidated balance sheet as required by IFRS. As allowed by IFRS, exposures, measures and ratios in this Appendix include disposal groups, primarily relating to CFG and international private banking, on a line-by-line basis. A summary of this presentation is set out in Appendix 2.
 
The disclosures in this appendix supplement disclosures in Analysis of results - Balance sheet related key metrics and ratios; Impairment losses; Capital and leverage ratios. An overview by risk type is included in the General overview, supporting analyses and additional detailed commentary are included in specific risk sections.
 
Appendix 1 Capital and risk management
 
General overview*
RBS's main risks are described in Capital and risk management - Risk coverage in the 2014 Annual Report and Accounts. The table below is an overview of these risks, including any developments during H1 2015.
 
 
Risk type
Overview
Capital and leverage
·      RBS's CET1 ratio: continued to strengthen from 11.2% at the end of 2014 to 12.3% at 30 June 2015, an improvement of 110 basis points.
·      Key milestones were:
o  the reduction of CFG ownership interest to 40.8%; and
o  the continued run down of RCR and CIB assets.
·      RWAs: continued to decline with a £30 billion reduction from the 2014 year end to £326 billion, £26 billion above the year end 2015 target of £300 billion, following reductions in CIB (£19.1 billion) and RCR (£7.6 billion).
·      Leverage ratio (under the revised 2014 Basel III leverage ratio framework and the 2015 CRR Delegated Act): 4.6% compared with 4.2% at the end of 2014 reflecting capital strength and leverage exposure reduction, from £940 billion to £875 billion, principally in CIB.
·      RBS plans to issue £4-5 billion of end-point CRR compliant Additional Tier 1, of which £2 billion is planned to be issued in 2015.
Liquidity and funding
·      Liquidity position continues to be robust: the liquidity portfolio of £161 billion at 30 June 2015 covered short-term wholesale funding by more than six times. Excluding CFG, the liquidity portfolio was £148 billion. Short-term wholesale funding reduced to £25 billion, due to term debt maturities.
·      Liquidity portfolio increased by £10.8 billion in the six months to 30 June 2015 mainly driven by CIB and RCR run-down, Citizens share disposals and continuation of sales from RBS N.V. treasury portfolio.
·      Liquidity coverage ratio (LCR) improved by five percentage points to 117% since the year end; excluding Citizens the LCR was 118%. From 1 October 2015, RBS will be required by the PRA to have a LCR of at least 80%.
·      Net stable funding ratio (NSFR) at 30 June 2015 was 115% in total and 112%  excluding Citizens, broadly unchanged from 2014 year end.
·      The loan:deposit ratio fell to 92% at 30 June 2015, primarily reflecting asset reductions and a stable deposit base.
·      Based on its current assessment of the Financial Stability Board's proposals, RBS may issue £3-£5 billion of qualifying debt per annum between 2015 and 2019 to meet future total loss absorbing capacity requirements.
Conduct and legal
RBS continued to remediate historical conduct issues. RBS co-operated with global regulators on investigations into the foreign exchange market and the more significant penalties were settled. Litigation and conduct costs were £1.3 billion in H1 2015 compared with £0.25 billion in H1 2014. The conduct risk framework was further embedded in Conduct and Regulatory Affairs' new operating model, focussing assurance coverage and testing towards customer outcomes.
 
 
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
General overview* (continued)
 
 
Risk type
Overview
Credit
·      RBS's credit risk exposures continued to fall overall, with an improvement in credit quality and a net release of impairment provisions in H1 2015. RCR disposals - particularly in the commercial real estate sector in Ireland - contributed significantly to the reductions in exposure and to the provision release. These results also reflect benign economic and market conditions in the UK and Ireland, better liquidity and increased collateral values. Lower sector and asset/product class limits were implemented following the new CIB strategy.
·      The growth in UK PBB gross mortgage lending was within credit risk appetite and against a backdrop of sustained house price growth in 2015 that has outstripped earnings growth. Economic fundamentals continue to look strong, helping to underpin mild improvements in the UK housing and mortgage market.
·      From a low of US$45 per barrel in January 2015, oil prices recovered to US$61 per barrel by the end of June 2015. However, the market is still considered to be oversupplied and the outlook is uncertain. Risk appetite to the oil and gas sector was further reduced during H1 2015 following a review in March 2015, with continued focus on ensuring that the portfolio remains high investment grade.
·      Overall credit metrics strengthened in the first half of 2015 principally reflecting RCR disposals but also improvements in economic conditions: 
o  Credit risk RWAs fell by £23 billion or 8% to £273 billion at 30 June 2015 from
     £295 billion at the 2014 year end primarily reflecting CIB portfolio sales and
     risk reduction and RCR disposal strategy. 
o  Impairment provisions of £11.3 billion (2014 - £18.0 billion) covered risk      elements in lending (REIL) of £18.7 billion (2014 - £28.2 billion) by 60% (2014      - 64%).
o  CRE lending fell to £36.4 billion from £43.3 billion at the end of 2014, of which      £7.2 billion (2014 - £13.3 billion) was in REIL with provision coverage of 64%      (2014 - 68%).
Market
Average trading internal VaR decreased to £21.8 million (H1 2014 - £30.6 million; FY 2014 - £27.8 million), largely in credit spread VaR, reflecting the continued exit from the US asset-backed products trading business. Market risk RWAs decreased by £1.7 billion to £22.3 billion, driven by a decline in the standardised risk capital charge reflecting reduced securitisation exposures in the trading book, partly offset by a small increase in the Pillar 1 risk capital charge.
 
Non-trading interest rate VaR was lower as RBS positioned its structural interest rate closer to the neutral position prescribed by its risk management policy
 
 
*Not within the scope of Deloitte LLP's review report 

Appendix 1 Capital and risk management
 
General overview* (continued)
 
 
Risk type
Overview
Country
RBS continued to maintain a cautious stance as it becomes a UK-centred bank with a focus on Western Europe. Total eurozone net balance sheet exposure decreased by £12 billion or 12% to £85.6 billion in the first half of 2015. Eurozone periphery exposures decreased by £7.4 billion or 24%, to £24.0 billion. Most of this reduction was in Italy, driven by maturity of derivative transactions and higher short positions due to uncertainty around Greece, and in Ireland, reflecting RCR portfolio sales and currency movements. Total exposure to Greece was reduced from £0.4 billion to £110 million and £86 million after the effect of credit mitigation. Exposure to Russia remained under strict control and continued to be reviewed regularly against international sanctions.
Operational
The risks associated with RBS's transformation plan are being closely monitored. Separate to this activity, in June, there was a one or two day delay to payments applied to some customer accounts. A detailed investigation is underway into the root cause of the problem - the findings will be used to reduce the risk of recurrence.
Regulatory
The level of regulatory risk remained high, given the large volume of regulatory change still impacting the industry. Various legacy conduct issues also continued to be managed.
Reputational
The most material threats to RBS's reputation continued to be as a result of conduct and operational-related matters: RBS was the subject of investigations and review by a number of regulators, some of which resulted in fines and public censure. The failure of IT systems in June 2015 also impacted customers, with reputational damage to the bank.
Business
RBS further reduced its business risk profile by continuing to scale back CIB's business activities and by pursuing RCR's asset disposal strategy.
Strategic
2015 has seen further progress in RBS's shift towards the UK and the retail and commercial banking segments to achieve a lower risk profile. Capital ratios continued to increase further towards targets which, when attained, will provide RBS with increased strategic options
 

 
 
 
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Capital management
RBS aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements, and operates within an agreed risk appetite. The appropriate level of capital is determined based on the dual aims of: (i) meeting minimum regulatory capital requirements; and (ii) ensuring RBS maintains sufficient capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting its business franchises and funding capacity. For a description of the capital management framework, governance and basis of preparation refer to Capital management in the 2014 Annual Report and Accounts.
 
Pillar 2A and MDA
RBS's current Pillar 2A requirement is 3.4% of RWAs (31 December 2014 - 3.5%). From 1 January 2015, 56% of the total Pillar 2A or 1.9% of RWAs is required to be met from CET1 capital. Pillar 2A is a point in time regulatory assessment of the amount of capital that is required to be held to meet the overall financial adequacy rules. This PRA assessment may change over time, including as a result of at least an annual assessment and supervisory review of RBS's Internal Capital Adequacy Assessment Process (ICAAP); the latest ICAAP based on the end of 2014 data was completed in May 2015.
 
RBS's capital risk appetite framework, which informs its capital targets, includes consideration of the maximum distributable amount (MDA) requirements. These requirements are expected to be phased in from 2016, with full implementation by 2019.
 
Based on current capital requirements, on the illustrative assumption that current estimates of Pillar 2A remain constant, RBS estimates that its 'fully phased' CET1 MDA requirement would be 10.4% in 2019, assuming RBS's current risk profile is unchanged. It should be noted that this estimate does not reflect the anticipated impact of RBS's planned restructuring and balance sheet risk reduction programmes, changes in the regulatory framework or other factors that could impact target CET1 ratios. This estimated 2019 MDA requirement comprises:
 
●
4.5% Pillar 1 minimum CET1 ratio;
●
2.5% Capital conservation buffer;
●
1.9% Pillar 2A CET1 ratio; and
●
1.5% Global Systemically Important Institution buffer.
 
Based on the assumptions above, assuming a 13% steady state CET1 capital ratio is achieved, RBS currently estimates that it would have headroom of 2.6% to fully phased MDA trigger in 2019. This headroom will be subject to ongoing review to accommodate regulatory and other changes.

Appendix 1 Capital and risk management
 
Developments in prudential regulation
The European Union Capital Requirements Regulation (CRR) is in transition until 2019. Recent developments are set out below.
 
Capital
The Basel Committee on Banking Supervision (BCBS) has consulted on implementing capital floors, and the expectation is that the framework design will be based on a standardised methodology that is currently being revised.
 
Systemic capital buffers - Global Systemically Important Banks (G-SIB) are assessed according to methodology set out by BCBS, and an additional loss absorbency requirement has been set according to the size. An annual assessment of size is undertaken and RBS is currently required to hold a 1.5% buffer. Additional requirements are being set for domestic (D-SIB) by the EBA (up to 2%) and for ring-fenced banks by the Financial Policy Committee of the Bank of England (up to 3%).
 
BCBS is still considering its proposals on the possible inclusion of interest rate risk in the banking book within Pillar 1 capital rather than the existing Pillar 2 treatment. Similarly, there is a possibility that operational risk charges will be moved from Pillar 2 to Pillar 1 capital.
 
A comprehensive review by BCBS into the market risk framework (Fundamental Review of the Trading Book) is likely to result in changes to the banking book/trading book boundary, replacing VaR with an expected shortfall model and new, more risk sensitive standardised methodologies which will need to be calculated for the entire book, regardless of whether a firm has permission to use a modelled approach.
 
BCBS has finalised rules for the capital requirements of securitisation positions. There is a new hierarchy of methods, as well as changes to the methodologies. The new rules, effective from 1 January 2018, aim to reduce reliance on credit rating agencies, although their use will still be permitted subject to local approval, reduce cliff effects seen in the current rules, and enhance risk sensitivity.
 
PRA has published a new approach to setting Pillar 2 capital requirements, replacing the capital planning buffer with a 'PRA buffer'. Broadly this follows the consultation paper of January 2015.
 
Disclosure requirements required by regulators will be more frequent, more extensive and much more standardised (Pillar 3). BCBS requirements will be introduced from the end of 2016 and the more detailed EU requirements are being phased in during late 2015.
 
Leverage ratio
The PRA is consulting on implementation of a UK leverage ratio framework, expected to come into force from 2016, which will incorporate a systemic capital buffer and a countercyclical buffer when establishing the minimum leverage ratio for banks. There will also be disclosures and related measurement bases for exposures.
 
Recovery & resolution planning
The Financial Stability Board is continuing impact studies on Total Loss Absorbency Capacity (TLAC) for G-SIBs with an expectation of final proposals to be issued in late 2015 for implementation in 2019. Minimum requirement for eligible liabilities (MREL) is the EU equivalent of TLAC but is not restricted to G-SIBs. The required amount will be set on a case by case basis by resolution authorities, with the Bank of England proposing that MREL be aligned to TLAC.

Appendix 1 Capital and risk management
 
 
Capital resources
              
 
End-point CRR basis (1)
  
PRA transitional basis (1)
 
30 June
31 March
31 December
  
30 June
31 March
31 December
2015 
2015 
2014 
  
2015 
2015 
2014 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Shareholders' equity (excluding
              
  non-controlling interests)
              
 Shareholders' equity
56,064 
56,808 
57,246 
  
56,064 
56,808 
57,246 
 Preference shares - equity
(4,313)
(4,313)
(4,313)
  
(4,313)
(4,313)
(4,313)
 Other equity instruments
(634)
(634)
(784)
  
(634)
(634)
(784)
 
51,117 
51,861 
52,149 
  
51,117 
51,861 
52,149 
               
Regulatory adjustments and deductions
              
 Own credit
345 
609 
500 
  
345 
609 
500 
 Defined benefit pension fund
              
   adjustment
(250)
(245)
(238)
  
(250)
(245)
(238)
 Cash flow hedging reserve
(435)
(1,109)
(1,029)
  
(435)
(1,109)
(1,029)
 Deferred tax assets
(1,206)
(1,140)
(1,222)
  
(1,206)
(1,140)
(1,222)
 Prudential valuation adjustments
(366)
(393)
(384)
  
(366)
(393)
(384)
 Goodwill and other intangible assets
(7,198)
(7,619)
(7,781)
  
(7,198)
(7,619)
(7,781)
 Expected losses less impairments
(1,319)
(1,512)
(1,491)
  
(1,319)
(1,512)
(1,491)
 Other regulatory adjustments
(635)
(327)
(585)
  
(612)
(305)
(855)
               
 
(11,064)
(11,736)
(12,230)
  
(11,041)
(11,714)
(12,500)
               
CET1 capital
40,053 
40,125 
39,919 
  
40,076 
40,147 
39,649 
               
Additional Tier 1 (AT1) capital
              
 Qualifying instruments and related
              
   share premium subject to phase out
- 
- 
- 
  
6,709 
5,092 
5,820 
 Qualifying instruments issued by
              
   subsidiaries and held by third parties
- 
- 
- 
  
- 
1,114 
1,648 
               
AT1 capital
- 
- 
- 
  
6,709 
6,206 
7,648 
               
Tier 1 capital
40,053 
40,125 
39,919 
  
46,785 
46,353 
47,117 
               
Qualifying Tier 2 capital
              
 Qualifying instruments and related
              
   share premium
5,433 
5,734 
5,542 
  
10,141 
6,254 
6,136 
 Qualifying instruments issued by
              
   subsidiaries and held by third parties
2,748 
2,955 
3,175 
  
3,432 
6,716 
7,490 
               
Tier 2 capital
8,181 
8,689 
8,717 
  
13,573 
12,970 
13,626 
               
Total regulatory capital
48,234 
48,814 
48,636 
  
60,358 
59,323 
60,743 
 
 
 
Note:
 
(1)
Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014. All regulatory adjustments and deductions to CET1 have been applied in full for the end-point CRR basis with the exception of unrealised gains on available-for-sale (AFS) securities which has been included from 2015 for the PRA transitional basis.
 
Appendix 1 Capital and risk management
 
Capital resources (continued)
 
Capital flow statement*
The table below analyses the movement in end-point CRR CET1 and Tier 2 capital for the half year ended 30 June 2015.
 
 
CET1
Tier 2
Total
 
£m
£m
£m
       
At 1 January 2015
39,919 
8,717 
48,636 
Loss for the year net of movements in fair value of own credit
(308)
- 
(308)
Share capital and reserve movements in respect of employee share schemes
161 
- 
161 
Ordinary shares issued
150 
- 
150 
Foreign exchange reserve
(1,166)
- 
(1,166)
AFS reserves
(55)
- 
(55)
Decrease in goodwill and intangibles deduction
583 
- 
583 
Deferred tax assets
16 
- 
16 
Prudential valuation adjustments
18 
- 
18 
Excess of expected loss over impairment provisions
172 
- 
172 
Dated subordinated debt issues/(maturities)
- 
(50)
(50)
Net dated subordinated debt/grandfathered instruments
- 
(76)
(76)
Foreign exchange movements
- 
(400)
(400)
Other movements
563 
(10)
553 
       
At 30 June 2015
40,053 
8,181 
48,234 
 
Leverage exposure
 
Basis of preparation*
The leverage exposure set out on page 24 of the main announcement is based on the revised 2014 Basel III leverage ratio framework and the 2015 CRR Delegated Act. Additional analysis of derivative notionals and undrawn commitments, two of the major components contributing to the leverage exposure is set out below.
 
The table below analyses the derivative notionals by maturity for contracts other than credit derivatives, and credit derivatives by qualifying and non-qualifying.
 
         
Credit derivatives (2)
  
 
Derivatives other than credit derivatives (1)
    
Non-
  
 
<1 year
1-5 years
>5 years
  
Qualifying
qualifying
Total
Derivative notionals
£bn
£bn
£bn
  
£bn
£bn
£bn
30 June 2015
              
Interest rate
9,642 
6,631 
3,850 
      
20,123 
Exchange rate
3,403 
505 
288 
      
4,196 
Equity
42 
16 
2 
      
60 
Credit
        
78 
22 
100 
               
Total
13,087 
7,152 
4,140 
  
78 
22 
24,479 
               
31 December 2014
              
               
Interest rate
11,069 
10,423 
5,839 
      
27,331 
Exchange rate
3,649 
720 
306 
      
4,675 
Equity
42 
33 
2 
      
77 
Commodities
1 
- 
- 
      
1 
Credit
        
99 
26 
125 
               
Total
14,761 
11,176 
6,147 
  
99 
26 
32,209 
 
Notes:
 
(1)
Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements.
(2)
The PFE on credit derivatives is based on add-on factors determined by the asset quality of the referenced instrument. Qualifying credit derivatives attract a PFE add-on of 5% and have reference securities issued by public sector entities, multilateral development banks or other investment grade issuers. Non-qualifying credit derivatives attract a PFE add-on of 10%.
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management

Leverage exposure (continued)
 
 
Weighted undrawn commitments*
                
   
Ulster
Commercial
Private
  
Central
      
UK PBB
Bank
Banking
Banking
CIB
items
CFG
RCR
Total
30 June 2015
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
                   
Unconditionally cancellable items (1)
3.2 
0.4 
1.2 
0.1 
3.6 
2.6 
1.8 
- 
12.9 
Items with a 20% CCF
0.1 
- 
0.4 
- 
2.0 
0.1 
0.3 
- 
2.9 
Items with a 50% CCF
5.4 
0.6 
15.0 
0.7 
22.5 
0.8 
7.9 
0.3 
53.2 
Items with a 100% CCF
0.1 
0.1 
2.2 
0.4 
7.7 
3.6 
1.4 
0.2 
15.7 
                   
 
8.8 
1.1 
18.8 
1.2 
35.8 
7.1 
11.4 
0.5 
84.7 
                   
31 December 2014
                  
                   
Unconditionally cancellable items (1)
3.1 
0.1 
1.0 
0.2 
2.4 
- 
1.8 
- 
8.6 
Items with a 20% CCF
0.4 
- 
0.7 
0.1 
3.2 
- 
0.4 
- 
4.8 
Items with a 50% CCF
4.8 
1.0 
9.8 
1.4 
36.8 
1.6 
7.8 
0.5 
63.7 
Items with a 100% CCF
0.1 
0.3 
2.2 
0.8 
10.2 
3.9 
1.5 
0.3 
19.3 
                   
 
8.4 
1.4 
13.7 
2.5 
52.6 
5.5 
11.5 
0.8 
96.4 
 
Note:
 
(1)
Based on a 10% credit conversion factor.

Risk-weighted assets*
The tables below analyse the movement in RWAs on the end-point CRR basis during H1 2015, by key drivers.
 
 
Credit risk RWAs
 
Non-counterparty 
Counterparty 
Total
 
£bn 
£bn 
£bn 
       
At 1 January 2015
264.7 
30.4 
295.1 
Foreign exchange movement
(3.5)
0.1 
(3.4)
Business movements
(12.9)
(3.3)
(16.2)
Risk parameter changes
(4.1)
- 
(4.1)
Methodology changes
(0.2)
- 
(0.2)
Model updates
0.7 
(0.1)
0.6 
Other changes
0.3 
0.4 
0.7 
       
At 30 June 2015
245.0 
27.5 
272.5 
       
Modelled (1)
143.7 
24.2 
167.9 
Non-modelled
101.3 
3.3 
104.6 
       
 
245.0 
27.5 
272.5 
 
 
 
Market risk RWAs
Operational
  
 
CIB
Other
Total
risk RWAs
Total
 
£bn 
£bn 
£bn 
£bn 
£bn 
           
At 1 January 2015
18.9 
5.1 
24.0 
36.8 
60.8 
Business and market movements
(0.8)
(0.9)
(1.7)
(5.2)
(6.9)
           
At 30 June 2015
18.1 
4.2 
22.3 
31.6 
53.9 
           
Modelled (1)
15.4 
3.3 
18.7 
- 
18.7 
Non-modelled
2.7 
0.9 
3.6 
31.6 
35.2 
           
 
18.1 
4.2 
22.3 
31.6 
53.9 
 
Note:
 
(1)
Modelled refers to advanced internal ratings (AIRB) basis for non-counterparty credit risk, internal model method (IMM) for counterparty credit risk, and value-at-risk and related models for market risk. These principally relate to CIB (£71.8 billion) and Commercial Banking (£50.5 billion).
 
 
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Risk-weighted assets* (continued)
 
The table below analyses the movement in end-point CRR RWAs by segment during the half year.
                   
   
Ulster
Commercial
Private
  
Central
      
 
UK PBB
Bank
Banking
Banking
CIB
 items
CFG
RCR
Total
Total RWAs
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
                   
At 1 January 2015
42.8 
23.8 
64.0 
11.5 
107.1 
16.3 
68.4 
22.0 
355.9 
Foreign exchange movement
- 
(1.5)
(0.3)
0.1 
(1.0)
- 
(0.3)
(0.4)
(3.4)
Business movements
(0.6)
(0.4)
1.1 
(0.8)
(18.3)
(0.6)
1.7 
(5.2)
(23.1)
Risk parameter changes (1)
(1.3)
(0.7)
(0.2)
- 
0.3 
(0.2)
- 
(2.0)
(4.1)
Methodology changes (2)
- 
- 
(0.2)
- 
- 
- 
- 
- 
(0.2)
Model updates (3)
(0.2)
- 
- 
- 
1.4 
(0.6)
- 
- 
0.6 
Other changes
0.3 
- 
2.5 
(1.0)
(1.5)
0.4 
- 
- 
0.7 
                   
At 30 June 2015
41.0 
21.2 
66.9 
9.8 
88.0 
15.3 
69.8 
14.4 
326.4 
                   
Credit risk
                  
  - non-counterparty
32.0 
19.6 
60.7 
8.2 
38.6 
14.1 
64.0 
7.8 
245.0 
  - counterparty
- 
0.1 
- 
- 
22.9 
0.6 
0.9 
3.0 
27.5 
Market risk
- 
- 
- 
0.1 
18.1 
0.1 
- 
4.0 
22.3 
Operational risk
9.0 
1.5 
6.2 
1.5 
8.4 
0.5 
4.9 
(0.4)
31.6 
                   
Total RWAs
41.0 
21.2 
66.9 
9.8 
88.0 
15.3 
69.8 
14.4 
326.4 
 
Key points
 
·
RWAs fell by £29.5 billion to £326.4 billion in the first half of 2015 principally in CIB and RCR.
·
CIB reduced RWAs by £19 billion to £88 billion in line with expected business run-off as it implemented the new strategy. These reductions included:
 
○
regional loan portfolio disposals and run-offs (£6.8 billion), including US corporate loan portfolio sales to Mizuho (£3.2 billion);
 
○
US asset-backed product exit (£2.3 billion);
 
○
other trading portfolio disposals (£2.1 billion);
 
○
restructuring of certain derivative transactions (£1.7 billion); and
 
○
run down of the trade finance in GTS in line with contractual maturities (£3.2 billion).
·
RCR disposal and run-off strategy continued to progress, resulting in RWA reductions of £7.6 billion.
·
Improvements in credit quality metrics contributed to RWA decreases in Ulster Bank and UK PBB.
·
Sterling strengthening against the euro and US dollar resulted in lower RWAs in Ulster Bank and CIB.
·
Commercial Banking RWAs at 30 June 2015 included the transfer of UK Corporate coverage from CIB (£2.3 billion) and Private Banking RBSI (£1.5 billion).
·
Annual recalculation of operational risk resulted in a £5.2 billion RWA reduction, primarily £3.4 billion in CIB and £0.4 billion in both UK PBB and Private Banking.
·
In terms of RWA density for AIRB portfolios:
 
○
other sovereign density decreased from 25% to 17% following the sale of term loans in RCR;
 
○
non-bank financial institution density increased from 38% to 45% primarily reflecting close-out of a large low risk-weighted exposure and implementation of new LGD and PD models;
 
○
commercial property RWA density increased overall principally due to the impact of RCR disposals, including defaulted assets; and
 
○
the increase in RWA density for oil and gas and mining and metal sectors reflected implementation of the new large corporate PD model for mining exposures.
 
 
 
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Risk-weighted assets* (continued)
 
EAD and RWA density  
The tables below show exposure at default (EAD) after credit risk mitigation (CRM), RWAs, and related RWA density by sector cluster.
 
                       
 
EAD post CRM (1,2)
  
RWAs (1)
  
RWA density
 
AIRB
STD
Total 
  
AIRB
STD
Total 
  
AIRB
STD
Total 
30 June 2015
£m 
£m 
£m 
  
£m 
£m 
£m 
  
%
%
%
                       
Sector cluster
                      
Sovereign
                      
Central banks
47,477 
55,729 
103,206 
  
1,868 
1 
1,869 
  
4 
- 
2 
Central government
16,564 
12,287 
28,851 
  
1,652 
162 
1,814 
  
10 
1 
6 
Other sovereign
3,958 
7,473 
11,431 
  
671 
327 
998 
  
17 
4 
9 
                       
Total sovereign
67,999 
75,489 
143,488 
  
4,191 
490 
4,681 
  
6 
1 
3 
                       
Financial institutions (FI)
                      
Banks
27,831 
2,387 
30,218 
  
12,822 
569 
13,391 
  
46 
24 
44 
Other FI (2)
35,420 
20,727 
56,147 
  
15,982 
9,380 
25,362 
  
45 
45 
45 
SSPEs (3)
14,282 
2,326 
16,608 
  
5,480 
4,078 
9,558 
  
38 
175 
58 
                       
Total FI
77,533 
25,440 
102,973 
  
34,284 
14,027 
48,311 
  
44 
55 
47 
                       
Corporates
                      
Property
                      
  - UK
42,808 
3,493 
46,301 
  
21,824 
3,478 
25,302 
  
51 
100 
55 
  - Ireland
4,077 
15 
4,092 
  
912 
15 
927 
  
22 
100 
23 
  - Other Western Europe
3,526 
484 
4,010 
  
1,520 
503 
2,023 
  
43 
104 
50 
  - US
1,036 
8,024 
9,060 
  
519 
8,059 
8,578 
  
50 
100 
95 
  - RoW
1,639 
361 
2,000 
  
1,115 
335 
1,450 
  
68 
93 
73 
                       
Total property
53,086 
12,377 
65,463 
  
25,890 
12,390 
38,280 
  
49 
100 
58 
Natural resources
                      
  - Oil and gas
11,145 
2,043 
13,188 
  
5,401 
1,856 
7,257 
  
48 
91 
55 
  - Mining and metals
2,438 
613 
3,051 
  
2,058 
641 
2,699 
  
84 
105 
88 
  - Other
13,793 
974 
14,767 
  
5,227 
759 
5,986 
  
38 
78 
41 
Transport
                      
  - Shipping
6,322 
2,731 
9,053 
  
4,186 
2,745 
6,931 
  
66 
101 
77 
  - Other
19,794 
3,091 
22,885 
  
8,310 
2,734 
11,044 
  
42 
88 
48 
Manufacturing
25,070 
8,408 
33,478 
  
10,801 
8,219 
19,020 
  
43 
98 
57 
Retail and leisure
21,388 
8,095 
29,483 
  
12,786 
7,981 
20,767 
  
60 
99 
70 
Services
21,919 
7,973 
29,892 
  
12,901 
8,028 
20,929 
  
59 
101 
70 
TMT (4)
10,131 
2,785 
12,916 
  
5,513 
2,671 
8,184 
  
54 
96 
63 
                       
Total corporates
185,086 
49,090 
234,176 
  
93,073 
48,024 
141,097 
  
50 
98 
60 
                       
Personal
                      
Mortgages
                      
  - UK
117,153 
7,803 
124,956 
  
10,123 
3,188 
13,311 
  
9 
41 
11 
  - Ireland
13,992 
35 
14,027 
  
11,416 
16 
11,432 
  
82 
46 
81 
  - Other Western Europe
198 
324 
522 
  
16 
136 
152 
  
8 
42 
29 
  - US
132 
20,629 
20,761 
  
10 
10,061 
10,071 
  
8 
49 
49 
  - RoW
422 
724 
1,146 
  
37 
284 
321 
  
9 
39 
28 
                       
Total mortgages
131,897 
29,515 
161,412 
  
21,602 
13,685 
35,287 
  
16 
46 
22 
Other personal
30,446 
17,239 
47,685 
  
12,366 
12,801 
25,167 
  
41 
74 
53 
                       
Total personal
162,343 
46,754 
209,097 
  
33,968 
26,486 
60,454 
  
21 
57 
29 
Other items
4,118 
17,885 
22,003 
  
2,364 
15,543 
17,907 
  
57 
87 
81 
                       
Total
497,079 
214,658 
711,737 
  
167,880 
104,570 
272,450 
  
34 
49 
38 
                       
For the notes to this table refer to the following page.
            
                       
*Not within the scope of Deloitte LLP's review report
          
 
Appendix 1 Capital and risk management
 
Risk-weighted assets*: EAD and RWA density (continued)
 
 
 
EAD post CRM (1,2)
  
RWAs (1)
  
RWA density
 
AIRB
STD
Total 
  
AIRB
STD
Total 
  
AIRB
STD
Total 
31 December 2014
£m 
£m 
£m 
  
£m 
£m 
£m 
  
%
%
%
                       
Sector cluster
                      
Sovereign
                      
Central banks
44,007 
50,539 
94,546 
  
1,632 
78 
1,710 
  
4 
- 
2 
Central government
16,373 
9,944 
26,317 
  
1,775 
61 
1,836 
  
11 
1 
7 
Other sovereign
4,936 
6,548 
11,484 
  
1,250 
386 
1,636 
  
25 
6 
14 
                       
Total sovereign
65,316 
67,031 
132,347 
  
4,657 
525 
5,182 
  
7 
1 
4 
                       
Financial institutions (FI)
                      
Banks
32,777 
2,081 
34,858 
  
15,089 
488 
15,577 
  
46 
23 
45 
Other FI (2)
41,420 
22,535 
63,955 
  
15,585 
9,960 
25,545 
  
38 
44 
40 
SSPEs (3)
17,504 
2,634 
20,138 
  
6,216 
4,410 
10,626 
  
36 
167 
53 
                       
Total FI
91,701 
27,250 
118,951 
  
36,890 
14,858 
51,748 
  
40 
55 
44 
                       
Corporates
                      
Property
                      
  - UK
48,081 
3,463 
51,544 
  
23,736 
3,390 
27,126 
  
49 
98 
53 
  - Ireland
7,541 
31 
7,572 
  
1,283 
33 
1,316 
  
17 
106 
17 
  - Other Western Europe
4,625 
431 
5,056 
  
2,321 
445 
2,766 
  
50 
103 
55 
  - US
1,334 
7,481 
8,815 
  
722 
7,551 
8,273 
  
54 
101 
94 
  - RoW
2,048 
284 
2,332 
  
1,296 
249 
1,545 
  
63 
88 
66 
                       
Total property
63,629 
11,690 
75,319 
  
29,358 
11,668 
41,026 
  
46 
100 
54 
Natural resources
                      
  - Oil and gas
15,704 
1,876 
17,580 
  
6,864 
1,665 
8,529 
  
44 
89 
49 
  - Mining and metals
3,744 
635 
4,379 
  
2,602 
660 
3,262 
  
69 
104 
74 
  - Other
16,173 
1,070 
17,243 
  
6,367 
861 
7,228 
  
39 
80 
42 
Transport
                      
  - Shipping
8,332 
2,571 
10,903 
  
5,790 
2,575 
8,365 
  
69 
100 
77 
  - Other
21,268 
3,297 
24,565 
  
9,176 
2,865 
12,041 
  
43 
87 
49 
Manufacturing
29,450 
8,430 
37,880 
  
12,673 
8,257 
20,930 
  
43 
98 
55 
Retail and leisure
24,564 
8,262 
32,826 
  
14,940 
8,027 
22,967 
  
61 
97 
70 
Services
23,489 
8,426 
31,915 
  
13,327 
8,350 
21,677 
  
57 
99 
68 
TMT (4)
13,555 
2,790 
16,345 
  
7,079 
2,806 
9,885 
  
52 
101 
60 
                       
Total corporates
219,908 
49,047 
268,955 
  
108,176 
47,734 
155,910 
  
49 
97 
58 
                       
Personal
                      
Mortgages
                      
  - UK
113,884 
7,794 
121,678 
  
10,651 
3,121 
13,772 
  
9 
40 
11 
  - Ireland
15,544 
37 
15,581 
  
13,137 
18 
13,155 
  
85 
49 
84 
  - Other Western Europe
193 
311 
504 
  
16 
124 
140 
  
8 
40 
28 
  - US
131 
21,088 
21,219 
  
10 
10,352 
10,362 
  
8 
49 
49 
  - RoW
407 
589 
996 
  
39 
232 
271 
  
10 
39 
27 
                       
Total mortgages
130,159 
29,819 
159,978 
  
23,853 
13,847 
37,700 
  
18 
46 
24 
Other personal
31,628 
15,971 
47,599 
  
13,233 
11,805 
25,038 
  
42 
74 
53 
                       
Total personal
161,787 
45,790 
207,577 
  
37,086 
25,652 
62,738 
  
23 
56 
30 
Other items
4,465 
18,363 
22,828 
  
3,012 
16,580 
19,592 
  
67 
90 
86 
                       
Total
543,177 
207,481 
750,658 
  
189,821 
105,349 
295,170 
  
35 
51 
39 
 
Notes:
 
(1)
Regulatory permissions to model counterparty credit risk exposure is independent from the scope of applying AIRB methodology. As such, standardised EAD and RWA will incorporate an element of modelled counterparty credit risk exposure.
(2)
Exposure at default post credit risk mitigation reflects an estimate of the extent to which a bank will be exposed under a specific facility, in the event of the default of a counterparty; AIRB: advanced internal ratings based; STD: standardised.
(3)
Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks.
(4)
Securitisation structured purpose entities primarily relate to securitisation related vehicles.
(5)
Telecommunications, media and technology.
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Liquidity and funding risk
Liquidity and funding risk is the risk that RBS is unable to meet its financial obligations, including financing wholesale maturities or customer deposit withdrawals, as and when they fall due. The risk arises through the maturity transformation role that banks perform. It is dependent on RBS specific factors such as maturity profile, composition of sources and uses of funding, the quality and size of the liquidity portfolio as well as broader market factors, such as wholesale market conditions alongside depositor and investor behaviour. For a description of the liquidity and funding risk framework, governance and basis of preparation refer to Capital and risk management - Liquidity and funding risk in the 2014 Annual Report and Accounts.
 
Liquidity and related metrics*
The table below sets out the key liquidity and related metrics monitored by RBS.
 
 
 
30 June 2015
    
   
RBS
31 March
31 December
RBS
 excluding CFG
2015 
2014 
         
Liquidity portfolio
£161bn
£148bn
£157bn
£151bn
Stressed outflow coverage (SCR) (1)
215%
235%
187%
186%
LCR (2)
117%
118%
112%
112%
NSFR (3)
115%
112%
110%
112%
Loan:deposit ratio
92%
91%
95%
95%
 
Notes:
 
(1)
RBS's liquidity risk appetite is measured by reference to the liquidity portfolio as a percentage of stressed contractual and behavioural outflows under the worst of three internal severe stress scenarios (a market-wide stress, an idiosyncratic stress and a combination of both) in accordance with PRA guidance on Individual Liquidity Adequacy Assessment.
(2)
Within the EU, the LCR is due to come into effect from 1 October 2015 on a phased basis, and replace the current PRA regime from this date. RBS monitors the LCR based on its internal interpretations of the EU Delegated Act rules for the implementation of the LCR. Consequently, RBS's ratio may change over time and may not be comparable with those of other financial institutions.
(3)
Pending further guidelines from the EU and the PRA, RBS uses its own interpretation of the proposals from the BCBS recommendations to calculate the NSFR. Consequently RBS's ratio may change over time and may not be comparable with those of other financial institutions. The ratio is due to come into effect from 1 January 2018.
 
Liquidity portfolio
The table below shows RBS's liquidity portfolio by product, liquidity value and carrying value. Liquidity value is lower than carrying value as it is stated after discounts applied by the Bank of England and other central banks to instruments, within the secondary liquidity portfolio, eligible for discounting.
 
 
 
Liquidity value
 
Period end
  
Average 
 
UK DLG (1)
CFG 
Other 
Total 
  
Quarter
H1 2015
30 June 2015
£m 
£m 
£m 
£m 
  
£m 
£m 
               
Cash and balances at central banks
73,218 
1,183 
1,406 
75,807 
  
71,113 
66,392 
Central and local government bonds
              
  AAA rated governments
3,932 
12 
1,033 
4,977 
  
5,609 
6,529 
  AA- to AA+ rated governments and US agencies
10,202 
9,845 
2,852 
22,899 
  
21,154 
20,285 
  Below AA rated governments
- 
- 
- 
- 
  
80 
91 
  Local government
- 
- 
- 
- 
  
- 
24 
               
 
14,134 
9,857 
3,885 
27,876 
  
26,843 
26,929 
               
Primary liquidity
87,352 
11,040 
5,291 
103,683 
  
97,956 
93,321 
Secondary liquidity (2)
54,667 
2,085 
1,022 
57,774 
  
57,586 
57,024 
               
Total liquidity value
142,019 
13,125 
6,313 
161,457 
  
155,542 
150,345 
               
Total carrying value
177,485 
14,199 
7,262 
198,946 
      
 
For the notes to this table refer to the following page.
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Liquidity portfolio (continued)
 
 
Liquidity value
 
Period end
  
Average 
 
UK DLG (1)
CFG
Other
Total
  
Quarter
Year
31 December 2014
£m
£m
£m
£m
  
£m
£m
               
Cash and balances at central banks
66,409 
1,368 
633 
68,410 
  
61,777 
61,956 
Central and local government bonds
              
  AAA rated governments and US agencies
5,609 
- 
2,289 
7,898 
  
8,729 
5,935 
  AA- to AA+ rated governments
6,902 
9,281 
1,448 
17,631 
  
16,589 
12,792 
  Below AA rated governments
- 
- 
100 
100 
  
- 
- 
  Local government
- 
- 
82 
82 
  
79 
21 
               
 
12,511 
9,281 
3,919 
25,711 
  
25,397 
18,748 
               
Primary liquidity
78,920 
10,649 
4,552 
94,121 
  
87,174 
80,704 
Secondary liquidity (2)
53,055 
2,290 
1,189 
56,534 
  
57,582 
56,017 
               
Total liquidity value
131,975 
12,939 
5,741 
150,655 
  
144,756 
136,721 
               
Total carrying value
167,016 
13,914 
6,055 
186,985 
      
 
Notes:
 
(1)
The PRA regulated UK Defined Liquidity Group (UK DLG) comprises the RBS's five licensed deposit-taking UK banks: The Royal Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank Limited, Coutts & Company and Adam & Company. In addition, certain of RBS's significant operating subsidiaries - RBS N.V., Citizens Financial Group Inc. and Ulster Bank Ireland Limited - hold liquidity portfolios of liquid assets that comply with local regulations that may differ from PRA rules.
(2)
Comprises assets eligible for discounting at the Bank of England and other central banks.
 

Appendix 1 Capital and risk management
 
Funding risk
The composition of RBS's balance sheet is a function of the broad array of product offerings and diverse markets served by its businesses. Active management of both asset and liability portfolios is designed to optimise the liquidity profile, while ensuring adequate coverage of all cash requirements under extreme stress conditions.
 
The table below summarises the key funding metrics.
 
                   
 
Short-term wholesale
  
Total wholesale
  
Net inter-bank
funding (1)
funding
funding (2)
 
Excluding
Including
  
Excluding
Including
  
Deposits
Loans (3)
Net
 derivative
 derivative
 derivative
 derivative
 inter-bank
collateral
 collateral
collateral
 collateral
 funding
 
£bn
£bn
  
£bn
£bn
  
£bn
£bn
£bn
                   
30 June 2015
25.0 
47.0 
  
76.4 
98.4 
  
13.5 
(12.3)
1.2 
31 March 2015
27.2 
55.3 
  
84.0 
112.1 
  
14.3 
(14.8)
(0.5)
31 December 2014
27.8 
53.3 
  
90.5 
116.0 
  
15.4 
(13.3)
2.1 
30 September 2014
31.4 
53.9 
  
94.4 
116.9 
  
16.5 
(18.2)
(1.7)
30 June 2014
33.6 
55.1 
  
101.6 
123.1 
  
17.7 
(19.3)
(1.6)
 
Notes:
 
(1)
Short-term wholesale funding is funding with a residual maturity of less than one year.
  
(2)
Excludes derivative cash collateral.
  
(3)
Principally short-term balances.
  
               
The table below shows RBS's principal funding sources excluding repurchase agreements (repos).
               
 
30 June 2015
  
31 December 2014
 
Short-term 
Long-term 
    
Short-term 
Long-term 
  
 
less than 
more than 
Total 
  
less than 
more than 
Total 
1 year 
1 year 
1 year 
1 year 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Deposits by banks
              
 derivative cash collateral
21,993 
- 
21,993 
  
25,503 
- 
25,503 
 other deposits
11,938 
1,521 
13,459 
  
13,137 
2,294 
15,431 
               
 
33,931 
1,521 
35,452 
  
38,640 
2,294 
40,934 
Debt securities in issue
              
 commercial paper
154 
- 
154 
  
625 
- 
625 
 certificates of deposit
1,413 
196 
1,609 
  
1,695 
149 
1,844 
 medium-term notes
7,842 
22,199 
30,041 
  
7,741 
29,007 
36,748 
 covered bonds
2,625 
3,861 
6,486 
  
1,284 
5,830 
7,114 
 securitisations
8 
4,699 
4,707 
  
10 
5,564 
5,574 
               
 
12,042 
30,955 
42,997 
  
11,355 
40,550 
51,905 
Subordinated liabilities
1,057 
18,852 
19,909 
  
3,274 
19,857 
23,131 
               
Notes issued
13,099 
49,807 
62,906 
  
14,629 
60,407 
75,036 
               
Wholesale funding
47,030 
51,328 
98,358 
  
53,269 
62,701 
115,970 
               
Customer deposits
              
 derivative cash collateral (1)
11,133 
- 
11,133 
  
13,003 
- 
13,003 
 financial institution deposits
47,274 
1,547 
48,821 
  
46,359 
1,422 
47,781 
 personal deposits
188,191 
5,337 
193,528 
  
185,781 
6,121 
191,902 
 corporate deposits
157,200 
1,832 
159,032 
  
159,782 
2,403 
162,185 
               
Total customer deposits
403,798 
8,716 
412,514 
  
404,925 
9,946 
414,871 
               
Total funding excluding repos
450,828 
60,044 
510,872 
  
458,194 
72,647 
530,841 
               
Of which CFG:
              
Wholesale funding
4,529 
1,332 
5,861 
        
Total customer deposits
62,064 
1,727 
63,791 
        
Total funding excluding repos
66,593 
3,059 
69,652 
        
                   
 
Note:
 
(1)
Cash collateral includes £10,220 million (31 December 2014 - £12,036 million) from financial institutions.
 
 
Appendix 1 Capital and risk management
 
Funding risk (continued)
Repos totalled £68.8 billion at 30 June 2015, of which £2.4 billion related to CFG compared with £64.6 billion and £2.4 billion respectively at 31 December 2014.
 
Customer deposits insured through deposit guarantee schemes totalled £163 billion (2014 - £160 billion), the more material of them being UK Financial Services Compensation Scheme (FSCS), £113 billion (2014 - £112 billion); US Federal Insurance Corporation relating to CFG, £40 billion (2014 - £37 billion) and Republic of Ireland's Deposit Guarantee Scheme, £6 billion (2014 - £7 billion). FSCS deposit protection will decrease from the current limit of £85,000 to £75,000 with effect from 1 January 2016.
 
RBS is currently subject to the UK bank levy on its consolidated liabilities and equity after taking account of certain exemptions such as regulatory Tier 1 capital, insured deposits and liabilities subject to legally enforceable netting arrangements. The July 2015 Budget Statement, proposed a phased reduction of the bank levy rate from the existing rate of 0.21% to 0.18% from 1 January 2016 and subsequent annual reductions to 0.1% from January 2021. There will also be a change in the bank levy's scope from 1 January 2021, such that UK headquartered banks will be subject to bank levy only on their UK balance sheet liabilities. Total liabilities at 30 June 2015 excluding CFG were £829 billion (2014 - £919 billion) of which 82% (2014 - 81%) related to transactions recorded in UK offices.
 
Appendix 1 Capital and risk management
 
Credit risk
Credit risk is the risk of financial loss due to the failure of a customer or counterparty to meet its obligation to settle outstanding amounts. For a description of the bank's credit risk framework, governance, policies and methodologies refer to Capital and risk management - Credit risk in the 2014 Annual Report and Accounts.
 

Loans and related credit metrics
The tables below show gross loans and advances (excluding reverse repos) and related credit metrics by segment.Risk elements in lending (REIL) comprise impaired loans and accruing loans past due 90 days or more as to principal or interest. Impaired loans are all loans (including loans subject to forbearance) for which an impairment provision has been established. For collectively-assessed loans, impairment loss provisions are not allocated to individual loans and the entire portfolio is included in impaired loans. Accruing loans past due 90 days or more comprise loans past due 90 days where no impairment loss is expected.
 
       
Credit metrics
    
 
Gross loans to
REIL
Provisions
REIL as a %
  
Provisions
YTD
  
of gross
Provisions
as a % of
Impairment
YTD
loans to
as a %
gross loans
losses/
Amounts
Banks
Customers
customers
of REIL
to customers
(releases)
written-off
30 June 2015
£m
£m
£m
£m
%
%
%
£m
£m
                   
UK PBB
1,023 
130,688 
3,232 
2,131 
2.5 
66 
1.6 
(17)
439 
Ulster Bank
2,495 
22,603 
4,190 
2,410 
18.5 
58 
10.7 
(52)
46 
                   
PBB
3,518 
153,291 
7,422 
4,541 
4.8 
61 
3.0 
(69)
485 
                   
Commercial Banking
510 
91,009 
2,284 
898 
2.5 
39 
1.0 
27 
120 
Private Banking
1,176 
13,520 
150 
47 
1.1 
31 
0.3 
(3)
1 
                   
CPB
1,686 
104,529 
2,434 
945 
2.3 
39 
0.9 
24 
121 
                   
CIB
13,717 
57,956 
221 
143 
0.4 
65 
0.2 
(29)
28 
Central items
2,385 
2,039 
1 
1 
- 
100 
- 
(2)
- 
CFG
1,438 
61,960 
1,240 
532 
2.0 
43 
0.9 
89 
156 
RCR
567 
11,006 
7,396 
5,141 
67.2 
69 
46.7 
(355)
4,981 
                   
 
23,311 
390,781 
18,714 
11,303 
4.8 
60 
2.9 
(342)
5,771 
                   
31 December 2014
                  
                   
UK PBB
641 
129,848 
3,778 
2,604 
2.9 
69 
2.0 
268 
728 
Ulster Bank
1,381 
24,719 
4,775 
2,711 
19.3 
57 
11.0 
(365)
131 
                   
PBB
2,022 
154,567 
8,553 
5,315 
5.5 
62 
3.4 
(97)
859 
                   
Commercial Banking
486 
86,008 
2,506 
955 
2.9 
38 
1.1 
77 
436 
Private Banking
972 
16,599 
226 
76 
1.4 
34 
0.5 
(5)
37 
                   
CPB
1,458 
102,607 
2,732 
1,031 
2.7 
38 
1.0 
72 
473 
                   
CIB
16,910 
72,957 
197 
206 
0.3 
105 
0.3 
(7)
- 
Central items
2,178 
619 
7 
6 
1.1 
86 
1.0 
(12)
55 
CFG
1,728 
60,142 
1,330 
536 
2.2 
40 
0.9 
194 
300 
RCR
516 
21,909 
15,400 
10,946 
70.3 
71 
50.0 
(1,320)
3,591 
                   
 
24,812 
412,801 
28,219 
18,040 
6.8 
64 
4.4 
(1,170)
5,278 
 
Appendix 1 Capital and risk management
 
Loans and related credit metrics (continued)
 
Key points
 
·
Loans to banks decreased by £1.5 billion with a strategy-driven reduction of £3.2 billion in CIB, which was partially offset by some increases in other segments. Liquidity management saw an increase in Ulster Bank of £1.1 billion and £0.4 billion in UK PBB.
   
·
Customer loans fell by £22.0 billion: CIB decreased by £15.0 billion and RCR by £10.9 billion;  Commercial Banking and UK PBB saw net growth of £5.0 billion and £0.8 billion respectively.
   
·
Risk elements in lending (REIL) at £18.7 billion was 4.8% of gross customer loans, a significant improvement on the £28.2 billion (or 6.8%) six months ago. This reflects the success of RCR's disposal strategy, particularly in relation to Irish assets. REIL is now covered 60% by impairment provisions, lower than 64% as a result of the disposals.
   
·
In UK PBB, gross customer loans increased by £0.8 billion to £130.7 billion. Mortgage lending was up by £2.2 billion, £1.8 billion in Q2 2015, reflecting targeted growth partially offset by decreases in unsecured lending. Impairments and credit metrics continued to improve. REIL as a percentage of gross loans fell from 2.9% to 2.5% due to repayments of £494 million, reflecting improved asset quality and write-offs of £439 million. Impairment release reflected recoveries on the back of improved economic conditions.
   
·
Ulster Bank: gross customers lending was £2.1 billion lower primarily driven by the weakening euro. Significant growth in new lending volumes was more than offset by continued customer deleveraging including a reduction in the tracker mortgage portfolio. Improved economic conditions and lower observable defaults have resulted in recoveries contributing to an impairment release of £52 million.
   
·
In Commercial Banking, gross customer lending increased by £5.0 billion, of which £2.4 billion related to transfers from Private Banking and £2.1 billion to transfers from CIB, partially offset by a £0.5 billion decrease in legacy portfolios. REIL as a percentage of gross loans continued to decrease falling from 2.9% to 2.5%. The overall reduction in REIL reflects a low number of new individual cases.
   
·
CIB: gross loans fell by £15.0 billion largely through asset disposals throughout the regions, repayments and exit of non-strategic clients in GTS and included sectors such as oil and gas and shipping. There were also transfers to Commercial Banking (£2.1 billion). REIL increases were seen in shipping, electric and gas sectors.
   
·
CFG gross loans to customers increased by £1.8 billion or 3.0% to £62.0 billion, reflecting growth in the retail and wholesale portfolio. Impairments and REIL were broadly unchanged.
   
·
RCR saw a significant reduction in gross customer loans - £6.5 billion in commercial real estate, £3.3 billion in other corporate and £1.1 billion in asset finance - as the execution of its disposal and run-down strategy continued. REIL fell by £8.0 billion to £7.4 billion and provisions decreased by £5.8 billion to £5.1 billion as a consequence. This contributed to the significant improvements in credit metrics in both RCR and RBS overall.
 
 
Appendix 1 Capital and risk management
 
Loans and related credit metrics: Risk elements in lending
 
               
RBS
    
 
UK
Ulster
Commercial
Private
  
Central
  
excluding
    
 
PBB
Bank
Banking
Banking
CIB
items
CFG
RCR
RCR
Total
 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                     
At 1 January 2015
3,778 
4,775 
2,506 
226 
197 
7 
1,330 
12,819 
15,400 
28,219 
Currency translation
                    
  and other adjustments
(17)
(384)
91 
(80)
(18)
(6)
(5)
(419)
(784)
(1,203)
Additions
687 
294 
397 
10 
90 
- 
140 
1,618 
692 
2,310 
Transfers (1)
(121)
- 
4 
1 
- 
- 
- 
(116)
(5)
(121)
Transfers to
                    
  performing book
(162)
(41)
(93)
- 
- 
- 
- 
(296)
(28)
(324)
Repayments
                    
  and disposals
(494)
(408)
(501)
(6)
(20)
- 
(69)
(1,498)
(2,898)
(4,396)
Amounts written-off
(439)
(46)
(120)
(1)
(28)
- 
(156)
(790)
(4,981)
(5,771)
                     
At 30 June 2015
3,232 
4,190 
2,284 
150 
221 
1 
1,240 
11,318 
7,396 
18,714 
 
Note:
 
(1)
Represents transfers between REIL and potential problem loans.
 
Impairment provisions
The movement in loan impairment provisions by segment is shown in the table below.
 
               
RBS
    
 
UK
Ulster
Commercial
Private
  
Central 
  
excluding 
    
 
PBB
Bank
 Banking
Banking
CIB
items 
CFG
RCR
RCR
Total
 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                     
At 1 January 2015
2,604 
2,711 
955 
76 
206 
6 
536 
7,094 
10,946 
18,040 
Currency translation 
                    
  and other adjustments
(7)
(209)
37 
(24)
(10)
(3)
(5)
(221)
(466)
(687)
Disposal of subsidiaries
- 
- 
- 
- 
- 
- 
(1)
(1)
- 
(1)
Amounts written-off
(439)
(46)
(120)
(1)
(28)
- 
(156)
(790)
(4,981)
(5,771)
Recoveries of amounts 
                    
  previously written-off
21 
24 
8 
- 
4 
- 
69 
126 
22 
148 
Charged to income statement
                    
  - continuing operations
(17)
(52)
27 
(3)
(29)
(2)
- 
(76)
(355)
(431)
  - discontinued operations
- 
- 
- 
- 
- 
- 
89 
89 
- 
89 
Unwind of discount
(31)
(18)
(9)
(1)
- 
- 
- 
(59)
(25)
(84)
                     
At 30 June 2015
2,131 
2,410 
898 
47 
143 
1 
532 
6,162 
5,141 
11,303 
                     
Individually assessed
                    
  - banks
- 
- 
- 
- 
1 
- 
- 
1 
25 
26 
  - customers
6 
32 
481 
44 
111 
1 
82 
757 
4,966 
5,723 
Collectively assessed
1,890 
2,118 
329 
- 
- 
- 
171 
4,508 
100 
4,608 
Latent
235 
260 
88 
3 
31 
- 
279 
896 
50 
946 
                     
 
2,131 
2,410 
898 
47 
143 
1 
532 
6,162 
5,141 
11,303 

Appendix 1 Capital and risk management
 
Loans and related credit metrics: Loans, REIL, provisions and impairments
The tables below show gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and geography (by location of lending office).
 
                     
       
Credit metrics
    
30 June 2015
      
REIL as a
Provisions
Provisions
  
Impairment
  
Gross
    
% of gross
as a %
as a % of
  
losses/
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans
  
(releases)
written-off
£m
£m
£m
%
%
%
  
£m
£m
                   
Central and local government
7,644 
15 
10 
0.2 
67 
0.1 
  
9 
- 
Finance
37,464 
258 
172 
0.7 
67 
0.5 
  
(5)
52 
Personal
- mortgages
150,222 
4,951 
1,319 
3.3 
27 
0.9 
  
17 
120 
 
- unsecured
30,187 
1,705 
1,389 
5.6 
81 
4.6 
  
144 
351 
Property
44,127 
7,105 
4,559 
16.1 
64 
10.3 
  
(45)
3,952 
Construction
5,639 
489 
335 
8.7 
69 
5.9 
  
(44)
216 
of which: CRE
36,396 
7,191 
4,608 
19.8 
64 
12.7 
  
(65)
3,948 
Manufacturing
20,127 
351 
243 
1.7 
69 
1.2 
  
4 
65 
Finance leases (1)
13,835 
119 
90 
0.9 
76 
0.7 
  
(3)
16 
Retail, wholesale and repairs
16,860 
655 
444 
3.9 
68 
2.6 
  
- 
173 
Transport and storage
11,233 
625 
254 
5.6 
41 
2.3 
  
- 
252 
Health, education and leisure
14,995 
512 
234 
3.4 
46 
1.6 
  
- 
122 
Hotels and restaurants
7,475 
581 
315 
7.8 
54 
4.2 
  
10 
240 
Utilities
4,698 
100 
45 
2.1 
45 
1.0 
  
(15)
20 
Other
26,275 
1,220 
922 
4.6 
76 
3.5 
  
(83)
183 
Latent
- 
- 
946 
- 
- 
- 
  
(331)
n/a
                   
Customers
390,781 
18,686 
11,277 
4.8 
60 
2.9 
  
(342)
5,762 
                   
Geographic regional analysis
                  
UK - residential mortgages
115,661 
1,235 
174 
1.1 
14 
0.2 
  
15 
23 
      - personal lending
14,964 
1,454 
1,254 
9.7 
86 
8.4 
  
84 
287 
      - property
34,009 
3,760 
1,768 
11.1 
47 
5.2 
  
65 
1,957 
      - construction
3,915 
398 
245 
10.2 
62 
6.3 
  
48 
169 
      - other
112,252 
2,431 
1,684 
2.2 
69 
1.5 
  
(295)
474 
                     
Total
  
280,801 
9,278 
5,125 
3.3 
55 
1.8 
  
(83)
2,910 
                     
Europe - residential mortgages
14,052 
2,801 
1,001 
19.9 
36 
7.1 
  
(42)
16 
            - personal lending
1,171 
57 
52 
4.9 
91 
4.4 
  
(6)
3 
            - property
3,967 
3,271 
2,747 
82.5 
84 
69.2 
  
(101)
1,993 
            - construction
1,251 
86 
86 
6.9 
100 
6.9 
  
(91)
47 
            - other
12,515 
1,658 
1,510 
13.2 
91 
12.1 
  
(86)
615 
                     
Total
  
32,956 
7,873 
5,396 
23.9 
69 
16.4 
  
(326)
2,674 
                     
US - residential mortgages
20,508 
915 
144 
4.5 
16 
0.7 
  
44 
81 
      - personal lending
12,306 
177 
66 
1.4 
37 
0.5 
  
66 
61 
      - property
5,574 
50 
20 
0.9 
40 
0.4 
  
(8)
2 
      - construction
450 
- 
- 
- 
- 
- 
  
(1)
- 
      - other
29,505 
157 
346 
0.5 
220 
1.2 
  
(32)
12 
                     
Total
  
68,343 
1,299 
576 
1.9 
44 
0.8 
  
69 
156 
                     
RoW - residential mortgages
1 
- 
- 
- 
- 
- 
  
- 
- 
        - personal lending
1,746 
17 
17 
1.0 
100 
1.0 
  
- 
- 
        - property
577 
24 
24 
4.2 
100 
4.2 
  
(1)
- 
        - construction
23 
5 
4 
21.7 
80 
17.4 
  
- 
- 
        - other
6,334 
190 
135 
3.0 
71 
2.1 
  
(1)
22 
                     
Total
  
8,681 
236 
180 
2.7 
76 
2.1 
  
(2)
22 
                     
Customers
390,781 
18,686 
11,277 
4.8 
60 
2.9 
  
(342)
5,762 
                     
Banks
23,311 
28 
26 
0.1 
93 
0.1 
  
- 
9 
 
Note:
 
(1)
Includes instalment credit.
 
Appendix 1 Capital and risk management
 
Loans and related credit metrics: Loans, REIL, provisions and impairments (continued)
 
                   
       
Credit metrics
    
31 December 2014
      
REIL as a
Provisions
Provisions
Impairment
  
Gross
    
% of gross
as a %
as a % of
losses/
Amounts
loans
REIL
Provisions
loans
of REIL
gross loans
(releases)
written-off
£m
£m
£m
%
%
%
£m
£m
                 
Central and local government
9,079 
1 
1 
- 
100 
- 
(1)
- 
Finance
39,611 
364 
234 
0.9 
64 
0.6 
(5)
23 
Personal
- mortgages
150,572 
5,634 
1,521 
3.7 
27 
1.0 
36 
236 
 
- unsecured
29,155 
1,964 
1,585 
6.7 
81 
5.4 
401 
737 
Property
51,546 
13,021 
8,918 
25.3 
68 
17.3 
(1,083)
2,625 
Construction
5,657 
971 
612 
17.2 
63 
10.8 
76 
202 
of which: CRE
43,317 
13,345 
9,027 
30.8 
68 
20.8 
(1,067)
2,750 
Manufacturing
22,035 
461 
322 
2.1 
70 
1.5 
(26)
188 
Finance leases (1)
14,030 
156 
113 
1.1 
72 
0.8 
- 
75 
Retail, wholesale and repairs
18,498 
956 
645 
5.2 
67 
3.5 
106 
160 
Transport and storage
14,299 
1,146 
500 
8.0 
44 
3.5 
37 
211 
Health, education and leisure
15,932 
734 
366 
4.6 
50 
2.3 
9 
349 
Hotels and restaurants
7,969 
1,094 
574 
13.7 
52 
7.2 
(40)
109 
Utilities
4,825 
156 
85 
3.2 
54 
1.8 
16 
5 
Other
29,593 
1,519 
1,208 
5.1 
80 
4.1 
(10)
349 
Latent
- 
- 
1,316 
- 
- 
- 
(676)
- 
                 
Customers
412,801 
28,177 
18,000 
6.8 
64 
4.4 
(1,160)
5,269 
                 
Geographic regional analysis
              
UK - residential mortgages
113,521 
1,394 
191 
1.2 
14 
0.2 
(23)
76 
     - personal lending
15,923 
1,674 
1,452 
10.5 
87 
9.1 
290 
546 
     - property
37,547 
6,026 
3,676 
16.0 
61 
9.8 
(221)
1,917 
     - construction
4,098 
676 
361 
16.5 
53 
8.8 
(1)
175 
     - other
113,782 
3,287 
2,467 
2.9 
75 
2.2 
(146)
847 
                   
Total
  
284,871 
13,057 
8,147 
4.6 
62 
2.9 
(101)
3,561 
                   
Europe - residential mortgages
15,629 
3,268 
1,178 
20.9 
36 
7.5 
(10)
10 
            - personal lending
1,051 
76 
66 
7.2 
87 
6.3 
9 
66 
            - property
8,021 
6,907 
5,197 
86.1 
75 
64.8 
(862)
699 
            - construction
1,055 
289 
245 
27.4 
85 
23.2 
78 
24 
            - other
19,104 
2,860 
2,361 
15.0 
83 
12.4 
(440)
561 
                   
Total
  
44,860 
13,400 
9,047 
29.9 
68 
20.2 
(1,225)
1,360 
                   
US - residential mortgages
                
     - residential mortgages
21,203 
957 
150 
4.5 
16 
0.7 
69 
150 
     - personal lending
11,164 
195 
49 
1.7 
25 
0.4 
102 
125 
     - property
5,332 
64 
19 
1.2 
30 
0.4 
2 
7 
     - construction
413 
1 
1 
0.2 
100 
0.2 
- 
1 
     - other
31,338 
200 
342 
0.6 
171 
1.1 
1 
39 
                   
Total
  
69,450 
1,417 
561 
2.0 
40 
0.8 
174 
322 
                   
RoW - residential mortgages
219 
15 
2 
6.8 
13 
0.9 
- 
- 
        - personal lending
1,017 
19 
18 
1.9 
95 
1.8 
- 
- 
        - property
646 
24 
26 
3.7 
108 
4.0 
(2)
2 
        - construction
91 
5 
5 
5.5 
100 
5.5 
(1)
2 
        - other
11,647 
240 
194 
2.1 
81 
1.7 
(5)
22 
                   
Total
  
13,620 
303 
245 
2.2 
81 
1.8 
(8)
26 
                 
Customers
412,801 
28,177 
18,000 
6.8 
64 
4.4 
(1,160)
5,269 
                 
Banks
24,812 
42 
40 
0.2 
95 
0.2 
(10)
9 
 
Note:
 
(1)
Includes instalment credit.
 
 
Appendix 1 Capital and risk management
 
Debt securities
The table below shows debt securities by issuer, IFRS measurement classifications and external rating. Ratings are based on the lowest of Standard & Poor's, Moody's and Fitch. US central and local government includes US federal agencies. The other financial institutions category includes US government-sponsored agencies and securitisation entities, the latter principally relating to asset-backed securities (ABS).
 
 
Central and local government
Banks
Other
Corporate
Total
    
financial
  
Of which
UK
US
Other
institutions
  
ABS
30 June 2015
£m
£m
£m
£m
£m
£m
£m
  
£m
                   
Held-for-trading (HFT)
4,352 
4,624 
23,129 
1,446 
5,100 
825 
39,476 
  
982 
Designated as at fair value
- 
- 
109 
- 
1 
- 
110 
  
- 
Available-for-sale (AFS)
7,021 
12,631 
10,721 
1,916 
13,506 
147 
45,942 
  
18,937 
Loans and receivables
- 
- 
- 
249 
2,541 
122 
2,912 
  
2,496 
Held-to-maturity (HTM)
4,932 
- 
- 
- 
- 
- 
4,932 
  
- 
                   
Long positions
16,305 
17,255 
33,959 
3,611 
21,148 
1,094 
93,372 
  
22,415 
                   
AAA
- 
6 
9,366 
1,867 
5,827 
- 
17,066 
  
4,707 
AA to AA+
16,305 
17,249 
10,695 
422 
9,997 
101 
54,769 
  
15,037 
A to AA-
- 
- 
9,204 
1,058 
2,303 
198 
12,763 
  
476 
BBB- to A-
- 
- 
4,537 
64 
828 
247 
5,676 
  
434 
Non-investment grade
- 
- 
157 
49 
1,045 
514 
1,765 
  
862 
Unrated
- 
- 
- 
151 
1,148 
34 
1,333 
  
899 
                   
 
16,305 
17,255 
33,959 
3,611 
21,148 
1,094 
93,372 
  
22,415 
                   
Of which US agencies
- 
6,945 
- 
- 
8,077 
- 
15,022 
  
14,202 
                   
Short positions (HFT)
(6,104)
(4,897)
(12,123)
(531)
(736)
(163)
(24,554)
  
- 
                   
Available-for-sale
                  
Gross unrealised gains
353 
185 
290 
6 
266 
6 
1,106 
  
286 
Gross unrealised losses
(9)
(151)
(10)
(1)
(131)
(1)
(303)
  
(213)
                   
31 December 2014
                  
                   
Held-for-trading
6,218 
7,709 
24,451 
1,499 
7,372 
1,977 
49,226 
  
3,559 
Designated as at fair value
- 
- 
111 
2 
4 
- 
117 
  
- 
Available-for-sale
4,747 
11,011 
11,058 
3,404 
14,585 
161 
44,966 
  
18,884 
Loans and receivables
- 
- 
- 
185 
2,774 
137 
3,096 
  
2,734 
Held-to-maturity
4,537 
- 
- 
- 
- 
- 
4,537 
  
- 
                   
Long positions
15,502 
18,720 
35,620 
5,090 
24,735 
2,275 
101,942 
  
25,177 
                   
AAA
- 
6 
15,533 
1,319 
6,086 
77 
23,021 
  
4,762 
AA to AA+
15,502 
18,714 
9,879 
283 
12,215 
117 
56,710 
  
16,956 
A to AA-
- 
- 
4,958 
2,670 
2,534 
340 
10,502 
  
688 
BBB- to A-
- 
- 
4,822 
277 
1,184 
772 
7,055 
  
853 
Non-investment grade
- 
- 
331 
61 
1,247 
603 
2,242 
  
1,060 
Unrated
- 
- 
97 
480 
1,469 
366 
2,412 
  
858 
                   
 
15,502 
18,720 
35,620 
5,090 
24,735 
2,275 
101,942 
  
25,177 
                   
Of which US agencies
- 
6,222 
- 
- 
10,860 
- 
17,082 
  
16,053 
                   
Short positions (HFT)
(4,167)
(6,413)
(10,276)
(557)
(674)
(731)
(22,818)
  
- 
                   
Available-for-sale
                  
Gross unrealised gains
451 
210 
541 
8 
361 
6 
1,577 
  
389 
Gross unrealised losses
(1)
(117)
(3)
(1)
(158)
(2)
(282)
  
(257)

Appendix 1 Capital and risk management
 
Debt securities (continued)
 
Key points
 
·
HFT: Holdings of government and ABS decreased, principally in US bonds, following continuing exits from US asset-backed products business, focus on balance sheet and RWA reduction and risk mitigation. The decrease in other government bonds was driven by a decrease in Germany as bund yields reached historic lows in Q1 2015, largely offset by higher Japanese treasury bills, reflecting favourable rates, used for collateral upgrades. The increase in short positions (largely Italy, Germany and Spain) reflected hedging of reverse repo collateral following liquidity concerns and uncertainty around Greece. The increase in UK government short positions reflected positioning ahead of expected interest rate rise.
   
·
AFS: Holdings of UK and US government bonds increased due to purchases by Treasury reflecting liquidity portfolio mix management and price optimisation. CFG switched from asset-backed securities to US government bonds as part of RWA and liquidity coverage ratio management.
   
·
Market concerns and consequent lower bond prices resulted in lower gross unrealised gains and higher gross unrealised losses relating to AFS debt securities. Lower gains also reflected sales and redemptions in Treasury.

 
Derivatives
 
The table below shows derivatives by type of contract. The master netting agreements and collateral shown below do not result in a net presentation on the balance sheet under IFRS.
 
                 
 
30 June 2015
  
31 December 2014
  
 
Notional (1)
Assets
Liabilities
  
Notional (1)
Assets
Liabilities
  
 
£bn
£m
£m
  
£bn
£m
£m
  
                 
Interest rate (2)
20,123 
216,983 
204,738 
  
27,331 
269,912 
259,971 
  
Exchange rate
4,196 
61,566 
65,228 
  
4,675 
78,707 
83,781 
  
Credit
100 
1,704 
1,681 
  
125 
2,254 
2,615 
  
Equity and commodity
60 
2,032 
2,133 
  
78 
3,119 
3,582 
  
                 
   
282,285 
273,780 
    
353,992 
349,949 
  
Counterparty mark-to-market netting
  
(228,780)
(228,780)
    
(295,315)
(295,315)
  
Cash collateral
  
(28,295)
(25,627)
    
(33,272)
(30,203)
  
Securities collateral
  
(6,999)
(8,299)
    
(7,013)
(14,437)
  
                 
Net exposure
  
18,211 
11,074 
    
18,392 
9,994 
  
                 
Net exposure by sector
                
Banks
  
1,357 
2,065 
    
1,875 
1,534 
  
Other financial institutions
  
6,205 
5,313 
    
4,035 
3,721 
  
Corporate
  
9,820 
3,585 
    
11,186 
4,382 
  
Government
  
829 
111 
    
1,296 
357 
  
                 
   
18,211 
11,074 
    
18,392 
9,994 
  
                 
Net exposure by region of counterparty
              
UK
  
9,708 
4,524 
    
9,037 
3,233 
  
Europe
  
4,818 
2,395 
    
5,628 
3,521 
  
US
  
1,344 
1,867 
    
1,544 
1,280 
  
RoW
  
2,341 
2,288 
    
2,183 
1,960 
  
                 
   
18,211 
11,074 
    
18,392 
9,994 
  
 
 
 
 
Notes:
 
(1)
Includes exchange traded contracts of £2,620 billion (31 December 2014 - £2,436 billion) principally interest rate. Trades are generally closed out daily hence carrying values were insignificant; assets £3 million (31 December 2014 - £8 million); liabilities £81 million (31 December 2014 - £119 million).
(2)
Interest rate notional includes £12,007 billion (31 December 2014 - £18,452 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are offset.

Appendix 1 Capital and risk management
 
Derivatives (continued)
 
Key points
 
·
Over-the-counter derivative notionals reduced from £29.8 trillion to £21.9 trillion in the six months to 30 June 2015 reflecting active participation in trade compression cycles, as well as targeted bilateral tear-ups.
·
The carrying value of derivative assets and liabilities at 30 June 2015 have been materially impacted by changes in market rates:
 
○
Interest rate contracts: Fair values decreased by approximately 20% in the first half of 2015 due to an upward shift in yields, based on the expectation of interest rate rises in the US and UK. Eurozone yields also increased following favourable economic outlook.
 
○
Foreign exchange contracts: Fair value decreases from targeted tear-ups and risk reductions have more than offset the impact of US dollar strengthening against the euro (9%) and Japanese yen (3%).
 
○
Credit derivatives: fair values decreased despite widening credit spreads due to Greek debt crisis concerns as RBS continued to de-risk the credit default swap portfolio.
 
 
Appendix 1 Capital and risk management
 
Key loan portfolios*
The internal measure used for credit risk management is credit risk assets (CRA) and consists of lending, derivatives after the effect of enforceable netting arrangements and contingent obligations.
 
The table below summarises CRA by sector and geographic region.
 
 
30 June 2015
  
Wholesale
    
 
Banks and
    
Natural
Retail and
    
Of which:
Personal
other FIs
Sovereign
Property
resources
leisure
Other
Total
  RCR
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                   
UK
 130,302 
25,382 
50,922 
39,438 
8,099 
14,618 
40,062 
308,823 
7,168 
Western Europe (excl. UK)
 15,113 
33,644 
11,025 
7,523 
3,232 
2,418 
11,485 
84,440 
6,241 
North America
 33,113 
12,779 
22,465 
7,308 
5,057 
5,945 
19,892 
106,559 
556 
RoW (1)
 3,383 
9,916 
3,599 
1,511 
3,703 
597 
11,933 
34,642 
2,936 
                   
Total
 181,911 
81,721 
88,011 
55,780 
20,091 
23,578 
83,372 
534,464 
16,901 
                   
of which: RCR
90 
2,621 
30 
7,458 
2,746 
796 
3,160 
16,901 
n/a
                   
Flow into forbearance (2)
1,625 
88 
- 
1,934 
412 
454 
902 
5,415 
 1,420 
of which: RCR
- 
11 
- 
1,060 
36 
145 
168 
1,420 
n/a
                   
AQ10
7,477 
715 
1 
8,003 
258 
1,278 
2,397 
20,129 
7,662 
of which: RCR
75 
304 
- 
5,540 
150 
483 
1,110 
7,662 
n/a
 
 
31 December 2014
                  
                   
UK
129,091 
27,560 
45,308 
44,401 
7,825 
15,539 
40,199 
309,923 
11,579 
Western Europe (excl. UK)
16,802 
37,156 
6,855 
11,858 
4,030 
3,221 
13,162 
93,084 
12,159 
North America
32,449 
13,367 
27,162 
6,846 
7,070 
5,736 
21,642 
114,272 
851 
RoW (1)
2,406 
13,406 
3,039 
1,875 
5,685 
1,188 
17,187 
44,786 
5,061 
                   
Total
180,748 
91,489 
82,364 
64,980 
24,610 
25,684 
92,190 
562,065 
29,650 
                   
of which: RCR
203 
3,587 
536 
14,819 
2,910 
1,828 
5,767 
29,650 
n/a
                   
Flow into forbearance (2)
4,350 
60 
- 
5,416 
377 
984 
1,956 
13,143 
4,839 
of which: RCR
- 
29 
- 
3,551 
28 
535 
696 
4,839 
n/a
                   
AQ10
8,424 
638 
1 
14,743 
263 
2,329 
3,662 
30,060 
16,099 
of which: RCR
182 
423 
- 
11,886 
112 
1,355 
2,141 
16,099 
n/a
 
Notes:
 
(1)
Rest of World comprises Asia Pacific, Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.
(2)
Completed during the period.
 
 
Key points
 
·
The CRA decrease reflected a continued focus on risk reduction and improving overall credit quality.
   
·
CRA decreased in all regions and sectors except sovereign where CRA increased by 7%, reflecting   Treasury activity. UK CRA (excluding RCR) increased by 1%, in personal (mainly mortgage lending).
   
·
For wholesale loans, the flow into forbearance decreased during H1 2015 compared with H2 2014 in line with improving market conditions and RCR's disposal strategy. Of the total forbearance granted, 54% related to non-performing loans with a provision coverage of 48% (2014 - 62%).
·
The property sector remained the most significant contributor to the forborne portfolio. There was an increase in forbearance granted in the natural resources sector driven by counterparties in the oil and gas sector (refer to page 28 for further sector information).
   
·
RCR is on track to complete its targeted run-down by the end of 2015, with CRA down by 43% to £16.9 billion. Non-performing exposures decreased significantly to £7.7 billion (2014 - £16.1 billion) driven by the disposal strategy and the improving economic climate.
 
*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management
 
Key loan portfolios* (continued)
The following key portfolios are discussed in more detail: commercial real estate (within property); oil and gas (within natural resources); shipping (within other); and personal portfolios.
 
 
Commercial real estate (CRE)
The CRE sector comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders). The analysis of lending below is gross of impairment provisions and excludes rate risk management and contingent obligations
 
 
 
Investment
  
Development
  
 
Commercial
Residential
Total 
  
Commercial
Residential
Total 
Total
By geography
£m
£m
£m
  
£m
£m
£m
£m
                 
30 June 2015
                
UK (excluding NI (1))
15,959 
4,351 
20,310 
  
541 
3,393 
3,934 
24,244 
Ireland (ROI and NI (1))
1,519 
312 
1,831 
  
614 
2,022 
2,636 
4,467 
Western Europe (other)
947 
29 
976 
  
110 
22 
132 
1,108 
US
4,489 
1,362 
5,851 
  
- 
5 
5 
5,856 
RoW (1)
415 
16 
431 
  
41 
249 
290 
721 
                 
 
23,329 
6,070 
29,399 
  
1,306 
5,691 
6,997 
36,396 
                 
31 December 2014
                
                 
UK (excluding NI (1))
17,327 
4,757 
22,084 
  
600 
3,446 
4,046 
26,130 
Ireland (ROI and NI (1))
2,864 
740 
3,604 
  
1,499 
4,469 
5,968 
9,572 
Western Europe (other)
1,222 
53 
1,275 
  
189 
24 
213 
1,488 
US
4,063 
1,358 
5,421 
  
- 
59 
59 
5,480 
RoW (1)
406 
22 
428 
  
34 
185 
219 
647 
                 
 
25,882 
6,930 
32,812 
  
2,322 
8,183 
10,505 
43,317 
 
Note:
 
(1)
ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.
 
Key points                                                    
 
·
Overall gross CRE lending fell in the first half of 2015 mostly in RCR (£6.5 billion) due to asset sales, repayments, and write-offs. 
   
·
The RCR portfolio contains legacy CIB, Commercial Bank and Ulster Bank assets and now represents 17% of the total portfolio (2014 - 29%). Geographically, 57% (£3.5 billion) of the remaining RCR portfolio is located in Ireland (ROI and NI), with the UK (excluding NI) accounting for 28% (£1.7 billion) and the remainder (£1.0 billion) in Western Europe and the RoW.   
   
·
The reduction of the commercial investment UK sub-sector is almost entirely driven by reductions of £1.3 billion in RCR. RCR divestments in the development sub-sector have also led to the portfolio being more weighted towards the investment sub-sector.
   
·
The increase in US exposure was predominantly driven by higher business volumes in CFG, in line with risk appetite and business strategy. 
 
 
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Key loan portfolios*: Commercial real estate (continued)
 
 
 
RBS excluding RCR
  
RCR
  
Total
LTV ratio by value
  
Non-
      
Non-
      
Non-
  
Performing
 performing
Total
  
Performing
 performing
Total
Performing
 performing
Total
£m
 £m
£m
  
£m
 £m
£m
£m
 £m
£m
                       
30 June 2015
                      
<= 50%
10,147 
139 
10,286 
  
243 
18 
261 
  
10,390 
157 
10,547 
> 50% and <= 70%
8,500 
249 
8,749 
  
387 
87 
474 
  
8,887 
336 
9,223 
> 70% and <= 90%
1,944 
356 
2,300 
  
76 
391 
467 
  
2,020 
747 
2,767 
> 90% and <= 100%
374 
106 
480 
  
79 
42 
121 
  
453 
148 
601 
> 100% and <= 110%
185 
145 
330 
  
42 
173 
215 
  
227 
318 
545 
> 110% and <= 130%
174 
156 
330 
  
29 
385 
414 
  
203 
541 
744 
> 130% and <= 150%
77 
128 
205 
  
2 
120 
122 
  
79 
248 
327 
> 150%
331 
410 
741 
  
44 
1,582 
1,626 
  
375 
1,992 
2,367 
                       
Total with LTVs
21,732 
1,689 
23,421 
  
902 
2,798 
3,700 
  
22,634 
4,487 
27,121 
Minimal security (1)
13 
38 
51 
  
- 
1,206 
1,206 
  
13 
1,244 
1,257 
Other
6,316 
420 
6,736 
  
16 
1,266 
1,282 
  
6,332 
1,686 
8,018 
                       
Total
28,061 
2,147 
30,208 
  
918 
5,270 
6,188 
  
28,979 
7,417 
36,396 
                       
Total portfolio
                      
  average LTV (2)
56%
140%
62%
  
74%
287%
236%
  
56%
232%
85%
 
 
31 December 2014
                      
                       
<= 50%
9,833 
220 
10,053 
  
300 
45 
345 
  
10,133 
265 
10,398 
> 50% and <= 70%
8,750 
301 
9,051 
  
602 
173 
775 
  
9,352 
474 
9,826 
> 70% and <= 90%
2,285 
409 
2,694 
  
220 
554 
774 
  
2,505 
963 
3,468 
> 90% and <= 100%
343 
134 
477 
  
41 
116 
157 
  
384 
250 
634 
> 100% and <= 110%
168 
148 
316 
  
56 
211 
267 
  
224 
359 
583 
> 110% and <= 130%
326 
201 
527 
  
49 
438 
487 
  
375 
639 
1,014 
> 130% and <= 150%
135 
128 
263 
  
6 
404 
410 
  
141 
532 
673 
> 150%
305 
495 
800 
  
65 
4,160 
4,225 
  
370 
4,655 
5,025 
                       
Total with LTVs
22,145 
2,036 
24,181 
  
1,339 
6,101 
7,440 
  
23,484 
8,137 
31,621 
Minimal security (1)
33 
38 
71 
  
- 
3,168 
3,168 
  
33 
3,206 
3,239 
Other
5,956 
546 
6,502 
  
34 
1,921 
1,955 
  
5,990 
2,467 
8,457 
                       
Total
28,134 
2,620 
30,754 
  
1,373 
11,190 
12,563 
  
29,507 
13,810 
43,317 
                       
Total portfolio
                      
  average LTV (2)
56%
133%
62%
  
75%
338%
291%
  
57%
287%
116%
 
Notes:
 
(1)
Total portfolio average LTV is presented net of loans with minimal security given that the anticipated recovery rate is less than 10%. Provisions are marked against these loans where required to reflect the relevant asset quality and recovery profile.
(2)
Weighted average by exposure.
 
Key points
 
·
The reductions in the higher LTV bands occurred mostly in the RCR book originated by Ulster Bank, Commercial Banking and CIB, reflecting valuation improvements, reductions through repayments, asset sales and write-offs - principally for non-performing assets.
   
·
Interest payable by customers on performing loans secured by investment property was covered 1.8x (2014 - 1. 6x) and 3.1x (2014 - 2.9x) within RCR and rest of RBS, respectively. 
 
 
*Not within the scope of Deloitte LLP's review report
 

 
Appendix 1 Capital and risk management
 
Key loan portfolios* (continued)
 
Oil and gas
RBS's exposure to oil and gas sector in terms of CRA and total exposure (including committed but undrawn facilities), is set out below.
 
 
30 June 2015
  
31 December 2014
 
CRA
Total
  
CRA
Total
By segment
£m
£m
  
£m
£m
           
CIB
5,311 
12,801 
  
8,297 
20,278 
Commercial Banking
1,033 
2,202 
  
671 
1,035 
CFG
1,362 
2,323 
  
1,251 
2,134 
RCR
257 
295 
  
352 
457 
Others
63 
200 
  
101 
243 
           
 
8,026 
17,821 
  
10,672 
24,147 
 
The tables below provide a breakdown of CIB's oil and gas sector exposure which represents 72% of RBS's exposure to this sector (including committed but undrawn exposure) split by sub-sector and geography. The analysis is based on RBS's sector concentration framework.
 
 
   
Western
          
   
 Europe
North
Asia
Latin
    
 
UK
(excl. UK)
America
America
Pacific
CEEMA (1)
Total
30 June 2015
£m
£m
£m
£m
£m
£m
£m
               
Producers (incl. integrated oil companies)
285 
903 
2,129 
231 
118 
594 
4,260 
Oilfield service providers
312 
801 
701 
252 
- 
138 
2,204 
Other wholesale and trading activities
147 
486 
465 
747 
- 
47 
1,892 
Refineries
1 
102 
2,022 
287 
21 
6 
2,439 
Pipelines
1 
372 
1,542 
36 
- 
55 
2,006 
               
 
746 
2,664 
6,859 
1,553 
139 
840 
12,801 
               
Including committed undrawn exposures
              
               
Of which: exploration and production
5 
43 
1,131 
99 
43 
- 
1,321 
               
31 December 2014
              
               
Producers (incl. integrated oil companies)
833 
1,101 
4,822 
263 
115 
848 
7,982 
Oilfield service providers
153 
675 
1,007 
742 
- 
535 
3,112 
Other wholesale and trading activities
295 
794 
683 
907 
- 
122 
2,801 
Refineries
1 
177 
2,700 
591 
141 
67 
3,677 
Pipelines
96 
48 
2,359 
49 
33 
121 
2,706 
               
 
1,378 
2,795 
11,571 
2,552 
289 
1,693 
20,278 
               
Including committed undrawn exposures
              
Of which: exploration and production
145 
3 
3,118 
115 
150 
37 
3,568 
 
Note:
 
(1)
Includes exposures to Central and Eastern Europe as well as the Middle East and Africa.
 
  
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Key loan portfolios*: Oil and gas (continued)
 
Key points
 
·
Overall exposure decreased by £2.6 billion (CRA) and £6.3 billion (total exposure), in line with strategy as a result of active portfolio management and asset disposals, principally in CIB. The small increase in CPB reflected transfers from CIB.
·
The price of crude oil recovered from a low of US$45 per barrel in January 2015 to US$61 per barrel at 30 June 2015. The price of natural gas is not highly correlated to oil prices and is determined regionally. US natural gas prices have been relatively stable compared with the recent price of crude oil. 
·
Exposures continue to be closely managed through ongoing customer and sub-sector reviews, and stress testing. Risk appetite was reduced during 2014 with further reductions in 2015 (in part due to asset disposals). Further stress analysis of the portfolio was carried out in 2015 and limits were again reduced with a continued focus on ensuring that the portfolio remains heavily weighted towards investment grade customers. As part of the bank's strategic review, limits for Americas and Asia-Pacific have been significantly reduced.
·
The sub-sector in which a customer operates is a primary consideration for assessing credit risk. Current areas of focus for stress testing and more active credit risk management include those customers involved in exploration and production (E&P) and oilfield service providers. E&P customers represent approximately 10% of CIB's exposure to the oil and gas sector. 
·
Customers involved in E&P are most immediately exposed to the oil price decline. At 30 June 2015, 97% of these were within the producers sub-sector. Companies involved in this area have already introduced capital spending reductions to conserve cash. In turn, this reduced spending is likely to have an adverse impact on oilfield service providers. This is due to the E&P companies buying less products and services from the oilfield service providers, and demanding lower prices for those they do purchase.
·
The other principal components of CIB's exposure to producers are Integrated Oil Companies (IOCs) and National Oil Companies (NOCs). IOCs and NOCs are less vulnerable to the oil price decline due to scale, diversification and in the case of NOC, explicit support from governments.
·
At 30 June 2015 78% (2014 - 83%) of the CIB total portfolio exposure was investment grade (AQ1-AQ4 or equivalent to BBB- and above). 
·
The committed lending exposure included legal commitments to syndicated bank facilities, with tenors up to five years. These committed facilities are for general corporate purposes - including funding operating needs and capital expenditures - and are available as long as counterparties comply with the terms of the credit agreement. Contingent obligations relate to guarantees, letters of credit and suretyships provided to customers.
·
RBS had no high-yield bond or loan underwriting positions as at 30 June 2015 (2014 - US$86 million high-yield loan underwritings in the Americas).
·
There has been a small number of forbearance events, usually involving the relaxation of financial covenants to give customers more financial flexibility. Most forbearance has involved customers in the E&P and oilfield services sub-sectors where earnings have been more immediately and materially impacted by the downturn.
·
At 30 June 2015, Watchlist Red (performing customers who show signs of declining creditworthiness and so require active management) outside RCR totalled £310 million (2014 - £88 million), of which £98 million (2014 - £5 million) was managed by Restructuring.
 
*Not within the scope of Deloitte LLP's review report

 
Appendix 1 Capital and risk management
 
Key loan portfolios*
 
Shipping
RBS's exposure to the shipping sector is as follows:
 
 
30 June
31 December
 
2015 
2014 
By segment
£m
£m
     
CIB
6,338 
6,700 
RCR
1,463 
2,855 
Other
828 
803 
     
 
8,629 
10,358 
 
Key points
 
·
Of the total exposure to shipping, £6.6 billion (2014 - £7.9 billion) related to asset-backed ocean-going vessels, the rest predominantly related to shipbuilding and inland water transport. The decrease during H1 2015 reflected scheduled loan repayments, secondary sales and prepayments. £5.3 billion (2014 - £5.7 billion) of the asset-backed ocean-going vessel exposure was in CIB. The main concentration risks were in the dry bulk sector which represented 36% of our exposure (2014 - 38%); tankers at 27% (2014 - 29%) and containers at 17% (2014 - 17%). The remaining exposures comprise gas (including liquid petroleum and natural gases), 11% (2014 - 10%) and others 7% (2014 - 6%).
   
·
Conditions remained depressed in the bulk market during H1 2015 as a result of vessel oversupply and a slowdown in commodity demand from China. Tanker market conditions are currently favourable and container markets over the last 12 months have stabilised but remain weak in comparison to historic averages. The container market is subject to oversupply on certain lines such as the Asia - Europe line and carriers are struggling to implement general freight rate rises as a result. Rates remain relatively stable at present but downside risks exist over the next 12-18 months. The majority of the RBS portfolio is insulated by long-term charters, which provide more stable long-term fixed cash flows.
   
·
The majority of ship-secured exposure is extended against recently-built vessels. Across the portfolio (including RCR) the average age of mortgaged vessels is 7.2 years (2014 - 6.4 years). Less than 3% of the core book is secured by vessels that are more than 15 years old and around 82% (2014 - 87%) is secured by vessels built in the last ten years. Due to strategic considerations, RBS has significantly reduced commitments to new builds and, as a result, the average age of the portfolio has risen. RBS continues to provide new lending against second-hand vessels and on some new-build deliveries.
   
·
A key protection for RBS is the minimum security covenant. The overall loan-to-value (LTV) of the portfolio at 30 June 2015 was 84% (2014 - 77%) with RCR standing at 101% (2014 - 92%) and RBS excluding RCR at 79% (2014 - 73%). Amortisation across the portfolio is approximately 7% per annum excluding early repayments. Asset values fall as markets deteriorate and rise as they improve. Therefore even if exposure falls, the overall LTV position may rise or fall depending on the underlying value of the vessels. The dry bulk sub-sector has seen asset value reductions of around 20-30% in H1 2015 (15-20% in Q1 2015) with dry bulk market values dropping to a 30-year low in February 2015, which led to a rise in the average LTV.
 
 
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Key loan portfolios* (continued)
 
Personal portfolios
This section summarises personal portfolios by type, segment and related credit metrics.
 
 
Overview of personal portfolios split by product type and segment*
          
                           
 
30 June 2015
  
31 December 2014
 
UK
Ulster
Private
Commercial
      
UK
Ulster
Private
Commercial
    
 
PBB
Bank
 Banking
Banking (1)
CFG
Total
  
PBB
Bank
 Banking
Banking (1)
CFG
Total
 
£m
£m
£m
£m
£m
£m
  
£m
£m
£m
£m
£m
£m
                           
Mortgages
105,407 
15,935 
6,521 
2,504 
20,540 
150,907 
  
103,235 
17,506 
6,414 
2,475 
21,122 
150,752 
Of which:
                          
Interest only variable rate
14,397 
987 
3,944 
823 
9,138 
29,289 
  
15,165 
1,238 
3,952 
858 
9,637 
30,850 
Interest only fixed rate
9,683 
24 
1,574 
36 
286 
11,603 
  
9,122 
25 
1,520 
27 
292 
10,986 
Mixed (capital and interest only)
6,425 
178 
10 
- 
987 
7,600 
  
6,820 
204 
- 
- 
788 
7,812 
Buy-to-let
12,886 
1,896 
403 
822 
140 
16,147 
  
11,602 
2,091 
538 
850 
147 
15,228 
Forbearance
4,465 
3,557 
48 
42 
403 
8,515 
  
4,873 
3,880 
51 
49 
409 
9,262 
                           
Forbearance arrears status
                          
  - Current
3,823 
2,168 
47 
36 
330 
6,404 
  
4,158 
2,231 
51 
40 
310 
6,790 
  - 1-3 months in arrears
330 
624 
1 
3 
19 
977 
  
364 
689 
- 
3 
34 
1,090 
  - >3 months in arrears
312 
765 
- 
3 
54 
1,134 
  
351 
960 
- 
6 
65 
1,382 
                           
Other lending
11,724 
517 
4,582 
84 
12,174 
29,081 
  
12,335 
591 
5,108 
78 
10,924 
29,036 
                           
Total lending
117,131 
16,452 
11,103 
2,588 
32,714 
179,988 
  
115,570 
18,097 
11,522 
2,553 
32,046 
179,788 
                           
Mortgage LTV ratios
                          
  - Total portfolio
57%
89%
53%
62%
65%
61%
  
57%
92%
51%
51%
67%
62%
  - New business
70%
77%
45%
65%
67%
67%
  
71%
75%
45%
56%
68%
68%
  - Performing
57%
85%
53%
60%
65%
61%
  
57%
88%
51%
51%
67%
61%
  - Non-performing
66%
114%
76%
172%
69%
89%
  
67%
115%
79%
81%
73%
91%
Mortgage REIL
1,058 
2,887 
26 
65 
912 
4,948 
  
1,218 
3,362 
95 
1 
946 
5,622 
 
Note:
 
(1)
Relates to Royal Bank of Scotland International (RBSI) business.
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Key points*                                                                                                                            
 
UK PBB
 
·
The UK PBB personal mortgage portfolio increased by 2.1% to £105.4 billion, of which £92.5 billion (31 December 2014 - £91.6 billion) was owner occupied and £12.9 billion (31 December 2014 - £11.6 billion) was buy-to-let. Of the total portfolio approximately £26 billion related to properties in the south east of England, while £19 billion related to properties in Greater London.
·
Gross new mortgage lending amounted to £9.1 billion in H1 2015 with an average LTV by weighted value of 70.4% (2014 - 70.5%).  Lending to owner-occupiers during this period was £7.5 billion (2014 - £16.6 billion) and had an average LTV by weighted value of 71.5% (2014 - 71.7%). Buy-to-let lending was £1.6 billion (2014 - £3.1 billion) with an average LTV by weighted value of 65.1% (2014 - 63.9%).
·
Based on the Halifax House Price Index at March 2015, the portfolio average indexed LTV by volume was 50.4% (2014 - 50.4%) and 57.4% by weighted value of debt outstanding (2014 - 57.3%).
·
Fixed interest rate products of varying time durations accounted for approximately 60% of the mortgage portfolio with 3% a combination of fixed and variable rates and the remainder variable rate. Approximately 17% of owner-occupied mortgages were on interest-only terms with a bullet repayment and 7% were on a combination of interest-only and capital and interest. The remainder were capital and interest. 63% of the buy-to-let mortgages were on interest-only terms and 3% on a combination of interest only and capital and interest.
·
The arrears rate fell from 1.0% in December 2014 to 0.9% at the end of June 2015. The number of properties repossessed in H1 2015 was also lower (338 compared with 472 in H2 2014). This reflected improvements in the UK economy and underlying asset quality
·
The flow of new forbearance was £315 million in H1 2015 compared with £367 million in H2 2014. The value of mortgages subject to forbearance has decreased by 8% since the year end to £4.5 billion (equivalent to 4.2% of the total mortgage book) as a result of improved market conditions and methodology changes.
·
There was an overall small release of impairment provision for personal mortgages in H1 2015 compared with a small charge in H1 2014. Reduced REIL balances and a fall in the instances of forborne mortgages drove the release in latent and PD90 provisions as well as lower LGDs.
 
Ulster Bank
 
·
Ulster Bank's residential mortgage portfolio totalled £15.9 billion at 30 June 2015, with 86% in the Republic of Ireland and 14% in Northern Ireland. Excluding the impact of exchange rate movements, the portfolio decreased by 1.3% from 31 December 2014 as a result of amortisation a portion of which related to the tracker mortgage portfolio. The volume of new business has increased reflecting continuing market demand.
·
The interest-rate product mix was approximately 63% of the mortgage portfolio on tracker-rate products, 23% on variable-rate products and 14% on fixed rate. Interest-only represented 6% of the total portfolio. 
·
The portfolio average indexed LTV decreased from 92% at 31 December 2014 to 89% at 30 June 2015 and reflected positive house price index trends over the last six months. 
·
At 30 June 2015, 22.3% of total mortgage assets (£3.6 billion) were subject to a forbearance arrangement, a decrease of 8.3% (£0.3 billion) from 31 December 2014. Excluding the impact of exchange rate movements, the value of mortgage assets subject to a forbearance arrangement has decreased by £276 million (4.8%).
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Key points* (continued)
 
Ulster Bank (continued)
 
·
The number of customers approaching Ulster Bank for the first time in respect to forbearance assistance declined through H1 2015. The majority (78%) of forbearance arrangements were less than 90 days in arrears.
 
 
·
There was an overall release of impairment provisions for personal mortgages in H1 2015 compared with a charge in H1 2014. Reducing defaulted balances have reduced loss expectations driving collective and latent releases.
 
CFG
 
·
The mortgage portfolio at 30 June 2015 consisted of £8 billion of residential mortgages (1% in second lien position) and £12.5 billion of home equity loans and lines of credit (HELOC) - first and second liens. Home equity consisted of 46% in first lien position. A Serviced By Others (SBO) portfolio, which is predominantly (95%) second lien, is included in the home equity book. Excluding the effect of exchange rates, the portfolio decreased 2% from the 2014 year end as a result of contraction in HELOC and run-off in the construction legacy serviced by others portfolios.
   
·
CFG continued to focus on its footprint states of New England, Mid-Atlantic and the Mid-West. At 30 June 2015, £16.7 billion (81% of the total portfolio) was within footprint.
   
·
The SBO portfolio, which was closed to new purchases in Q3 2007, decreased from £1.3 billion in Q1 2015 to £1.1 billion in Q2 2015.
   
·
The overall mortgage portfolio credit characteristics are stable with a weighted average LTV of 65% at 30 June 2015. The weighted average LTV of the portfolio, excluding SBO, was 63%.
   
·
CFG participates in the US-government mandated Home Affordable Modification Program (HAMP), as well as its own proprietary programme. The 12-month default rate, on a value basis, for customers who were granted forbearance, was 17.4% in H1 2015 (2014 - 15%). The increase in default rate was driven by a regulatory requirement to start tracking co-borrower bankruptcies. Additionally, many HAMP mortgages, which receive a below market rate for five years, began to reset at higher rates to adjust to the market rate, increasing defaults.
  
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Market risk
Market risk is the risk of losses arising from fluctuations in interest rates, credit spreads, foreign currency rates, equity prices, commodity prices and other factors, such as market volatilities, that may lead to a reduction in earnings, economic value or both. For a description of market risk framework, governance, policies and methodologies, refer to Capital and risk management - Market risk in the 2014 Annual Report and Accounts. There were no material changes to market risk methodologies or models during H1 2015.
 
Trading portfolios
Value-at-risk
The table below presents the internal value-at-risk (VaR) for trading portfolios split by type of market risk exposure and by business area. The internal traded 99% one-day VaR captures all trading book positions. By contrast, the regulatory VaR-based charges take into account only regulator-approved products, locations and legal entities and are based on a ten-day, rather than a one-day, holding period for market risk capital calculations.
 
                             
 
Half year ended
  
Year ended
 
30 June 2015
  
30 June 2014
  
31 December 2014
 
Average 
Period end 
Maximum 
Minimum 
  
Average 
Period end 
Maximum 
Minimum 
  
Average 
Period end 
Maximum 
Minimum 
Trading VaR (1-day 99%)
£m 
£m 
£m 
£m 
  
£m 
£m 
£m 
£m 
  
£m 
£m 
£m 
£m 
                             
Interest rate
16.0 
11.7 
29.8 
10.8 
  
16.7 
14.9 
39.8 
10.9 
  
17.4 
16.9 
39.8 
10.8 
Credit spread
12.5 
7.6 
16.4 
7.5 
  
28.3 
24.4 
42.8 
20.9 
  
23.1 
14.2 
42.8 
13.4 
Currency
5.3 
5.4 
7.8 
3.3 
  
5.4 
3.0 
8.5 
2.0 
  
4.7 
5.5 
9.7 
1.0 
Equity
2.4 
1.2 
6.1 
1.0 
  
3.5 
2.5 
6.0 
2.1 
  
3.0 
3.7 
6.5 
1.2 
Commodity
0.5 
0.7 
2.2 
0.2 
  
0.6 
0.7 
1.4 
0.3 
  
0.6 
0.4 
2.5 
0.3 
Diversification (1)
  
(11.6)
        
(24.8)
        
(18.2)
    
                             
Total
21.8 
15.0 
30.1 
15.0 
  
30.6 
20.7 
58.2 
20.7 
  
27.8 
22.5 
58.2 
17.1 
                             
CIB
21.1 
14.2 
29.8 
14.0 
  
28.2 
21.3 
48.8 
20.5 
  
26.3 
21.3 
48.8 
15.5 
RCR
3.1 
2.8 
4.5 
2.6 
  
6.0 
3.5 
16.2 
3.3 
  
4.5 
3.0 
16.2 
2.6 
 
Note:
 
(1)
RBS benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
 
Key points
 
·
During H1 2015, trading book exposure continued to decline. The markets exhibited higher volatility and reduced liquidity, resulting from a number of macroeconomic factors, including ongoing political and economic uncertainty in Europe and growing concerns regarding economic slowdown in China.
·
The period end and average total traded internal VaR were lower than in 2014, primarily in credit spread VaR resulting from the ongoing exit of the US asset-backed products (ABP) trading business.
 
 
Appendix 1 Capital and risk management
 
Trading portfolios (continued)
 
Capital charges*
The total market risk minimum capital requirement calculated in accordance with CRR was £1,786 million at 30 June 2015 (31 December 2014 - £1,917 million), representing RWAs of £22.3 billion (31 December 2014 - £24.0 billion). It comprised two categories: (i) the Pillar 1 model-based position risk requirement (PRR) of £1,497 million (31 December 2014 - £1,458 million), which in turn comprised several modelled charges; and (ii) the standardised PRR of £289 million (31 December 2014 - £459 million), which also had several components.
 
The components of the Pillar 1 model-based PRR are presented in the table below. 
 
           
         
31 December
   
2014 
 
Average
Maximum
Minimum
Period end
Period end
30 June 2015
£m
£m
£m
£m
£m
           
Value-at-risk
362 
400 
333 
400 
329 
Stressed VaR  (SVaR)
527 
555 
492 
555 
511 
Incremental risk charge (IRC)
294 
348 
271 
288 
299 
Risk not in VaR (RNIV)
284 
319 
227 
254 
319 
           
       
1,497 
1,458 
 
Key points
 
·
The total model-based PRR increased by 3% in the half year to 30 June 2015, driven by higher VaR and SVaR based capital charges, offset somewhat by the lower RNIV capital charge.
   
·
The VaR and SVaR capital charges together increased by 14%, reflecting increased positioning by the rates business during Q2 2015, notably relating to euro rates, following market euro sell-off in May.
   
·
The RNIV charge fell by 20%, primarily in stressed RNIVs following reductions in inflation basis risk in the rates business.
   
·
Standardised charges were 37% or £170 million lower than at the 2014 year end, primarily driven by reduced securitisation exposures in the trading book reflecting the continuation of the US ABP exit, UK ABP risk reduction and the continuation of RCR disposals.
   
·
All entities maintained a green status relating to regulatory back-testing during H1 2015 except for NatWest Plc, which had six exceptions during the 250 business days ending 30 June 2015, mainly driven by market volatility. This resulted in a £49 million increase to market risk RWAs.
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Non-trading portfolios
 
Non-trading VaR
Average VaR for RBS's non-trading book, comprising predominantly available-for-sale portfolios, was £2.9 million for H1 2015 compared with £4.8 million for H1 2014 and £4.4 million for H2 2014. This was largely driven by a decline in the credit spread VaR as a result of the ongoing RCR run-down. The period end VaR decreased from £3.8 million at 31 December 2014 to £2.0 million at 30 June 2015.
 
Non-traded interest rate risk
Non-traded interest rate risk affects earnings arising from banking activities. This excludes positions in financial instruments which are classified as held-for-trading. The methodology relating to interest rate risk is detailed in Capital and risk management - Market risk - Non-traded market risk in the 2014 Annual Report and Accounts.
 
Non-traded interest rate risk VaR metrics are based on interest rate repricing gaps at the reporting date. The table below captures the risk resulting from mismatches in the repricing dates of assets and liabilities. This includes any mismatch between structural hedges and stable non and low interest bearing liabilities such as equity and money transmission accounts as regards their interest rate repricing behavioural profile. Other customer products and associated funding and hedging transactions as well as non-financial assets and liabilities such as property, plant and equipment are also included.
 
VaR does not provide a dynamic measurement of interest rate risk since static underlying repricing gap positions are assumed. Changes in customer behaviour under varying interest rate scenarios are captured by way of earnings at risk measures. VaR relating to non-traded interest rate risk for RBS's retail and commercial banking activities at a 99% confidence level and a currency analysis at the period end were as follows:
 
         
 
Average 
Period end 
Maximum 
Minimum 
Six months ended
£m 
£m 
£m 
£m 
         
30 June 2015
17 
13 
25 
11 
30 June 2014
64 
68 
79 
45 
31 December 2014
37 
23 
56 
23 
         
   
30 June
30 June
31 December
 
2015 
2014 
2014 
 
£m 
£m 
£m 
         
Euro
  
2 
3 
2 
Sterling
  
13 
8 
12 
US dollar
  
14 
73 
27 
Other
  
4 
3 
3 
 
Key point
 
·
In H1 2015, interest rate VaR was lower on average than in 2014 as RBS continued to steer its structural interest rate exposure more closely to the neutral duration prescribed in its risk management policy. The reduction in the US dollar VaR reflects reduced exposure to US dollar fixed rate assets, which helped to achieve the alignment to policy.

Appendix 1 Capital and risk management
 
Non-trading portfolios (continued)
 
Sensitivity of net interest income*
Earnings sensitivity to rate movements is derived from a central forecast over a 12 month period. Market implied forward rates and new business volume, mix and pricing consistent with business assumptions are used to generate a base case earnings forecast, which is then subjected to interest rate shocks. The variance between the central forecast and the shock gives an indication of sensitivity to interest rate movements. 
 
The following table shows the sensitivity of net interest income, over the next 12 months, to an immediate upward or downward change of 100 basis points to all interest rates. The main drivers of earnings sensitivity relate to interest rate pass-through assumptions on customer products, reinvestment rate assumptions for maturing product and equity structural hedges and mismatches in the re-pricing dates of loans and deposits. In addition, the table includes the impact of a gradual 400 basis point steepening (bear steepener) and a gradual 300 basis point flattening (bull flattener) of the yield curve at tenors greater than a year.
 
The scenarios represent annualised interest rate stresses of a scale deemed sufficient to trigger a modification in customer behaviour. The asymmetry in the steepening and flattening scenarios reflects the difference in the expected behaviour of interest rates as they approach zero.
 
             
           
Of which
 
Euro 
Sterling 
US dollar 
Other 
Total 
CFG
30 June 2015
£m 
£m 
£m 
£m 
£m 
£m 
             
+ 100 basis point shift in yield curves
7 
365 
135 
12 
519 
155 
- 100 basis point shift in yield curves
(9)
(397)
(109)
(30)
(545)
(104)
Bear steepener
        
377 
112 
Bull flattener
        
(130)
(85)
             
31 December 2014
            
             
+ 100 basis point shift in yield curves
(28)
347 
214 
(17)
516 
154 
- 100 basis point shift in yield curves
(34)
(298)
(87)
(12)
(431)
(85)
Bear steepener
        
406 
105 
Bull flattener
        
(116)
(58)
 
Key points
 
·
Excluding Citizens, £258 million of the benefit of the immediate 100 basis point upward change in interest rates relates to interest rate pass-through assumptions on customer savings accounts.  
·
Earnings sensitivity for the downward change of 100 basis points increased from December 2014, due to higher interest rate expectations in the market for the next 12 months.
 
Structural hedging*
Banks generally have the benefit of a significant pool of stable, non and low interest bearing liabilities, principally comprising equity and money transmission accounts. These balances, known as net free funds are usually hedged, either by investing directly in longer-term fixed rate assets or by the use of interest rate swaps, in order to provide a consistent and predictable revenue stream.
 
After hedging the net interest rate exposure of the bank externally, Treasury allocates income to products or equity in structural hedges by reference to the relevant interest rate swap curve. Over time, the hedging programme has built up a portfolio of interest rate swaps that provide a basis for stable income attribution to the product and equity hedges.
 
 
*Not within the scope of Deloitte LLP's review report


Appendix 1 Capital and risk management
 
Non-trading portfolios (continued)
 
Product hedging*
Product structural hedges are used to reduce the volatility on earnings related to specific products, primarily customer deposits. The balances are primarily hedged with medium-term interest rate swaps, so that reported income is less sensitive to movements in short-term interest rates.
 
The table below shows the impact on net interest income associated with product hedges managed by Treasury. These relate to the main UK banking businesses except Private Banking. The figures shown represent the incremental contribution of the hedge relative to short-term wholesale cash rates.
 
       
 
Six months ended
Net interest income
30 June
30 June
31 December
2015 
2014 
2014 
£m 
£m 
£m 
       
Product hedges
      
UK Personal & Business Banking
210 
184 
209 
Commercial Banking
101 
81 
99 
Corporate & Institutional Banking
39 
37 
38 
       
Total product hedges
350 
302 
346 
 
 
Key points
 
·
As short-term interest rates remained close to historically low levels in H1 2015, the incremental impact of product hedges relative to wholesale cash rates remained positive.
·
In H1 2015, the all-in yield was 1.5%, slightly lower than in H2 2014 (1.6%), due to low levels of interest rates, and similar to H1 2014 (1.5%).
 
Equity hedging*
Equity structural hedges are also used to reduce the volatility on earnings arising from returns on equity. The hedges managed by Treasury relate mainly to the UK banking businesses and contributed £0.4 billion to these businesses in H1 2015 (H1 2014 and H2 2014 - £0.4 billion), which is an incremental benefit relative to short-term wholesale cash rates. In H1 2015, the all-in yield was 2.4%, slightly lower than in H1 2014 (2.6%) and H2 2014 (2.5%) due to the low levels of interest rates.
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Non-trading portfolios (continued)
 
Foreign exchange risk
The only material non-traded open currency positions are the structural foreign exchange exposures arising from investments in foreign subsidiaries, branches and associates and their related currency funding. These exposures are assessed and managed by Treasury to predefined risk appetite levels under delegated authority from the ALCo. Treasury seeks to limit the potential volatility impact on RBS's CET1 ratio from exchange rate movements by maintaining a structural open currency position. Gains or losses arising from the retranslation of net investments in overseas operations are recognised in equity and reduce the sensitivity of capital ratios to foreign exchange rate movements primarily arising from the retranslation of non-sterling-denominated RWAs. Sensitivity is minimised where, for a given currency, the ratio of the structural open position to RWAs equals RBS's CET1 ratio. The sensitivity of the CET1 capital ratio to exchange rates is monitored monthly and reported to the ALCo at least quarterly.
 
Foreign exchange exposures arising from customer transactions are sold down by businesses on a regular basis in line with RBS policy.
 
         
Structural
    
     
Net assets
  
foreign currency
  
Residual
 
Net assets
  
of overseas
Net
 exposures
  
structural
of overseas
  
operations
 investment
pre-economic
Economic
foreign currency
 operations
NCI (1)
excluding NCI
 hedges
 hedges
 hedges (2)
 exposures
30 June 2015
£m
£m
£m
£m
£m
£m
£m
               
US dollar
11,302 
(4,968)
6,334 
(1,910)
4,424 
(3,605)
819 
Euro
5,210 
(56)
5,154 
(205)
4,949 
(1,894)
3,055 
Other non-sterling
3,962 
(483)
3,479 
(2,777)
702 
- 
702 
               
 
20,474 
(5,507)
14,967 
(4,892)
10,075 
(5,499)
4,576 
               
31 December 2014
              
               
US dollar
11,402 
(2,321)
9,081 
(3,683)
5,398 
(4,034)
1,364 
Euro
6,076 
(39)
6,037 
(192)
5,845 
(2,081)
3,764 
Other non-sterling
4,178 
(456)
3,722 
(2,930)
792 
- 
792 
               
 
21,656 
(2,816)
18,840 
(6,805)
12,035 
(6,115)
5,920 
 
Notes:
 
(1)
Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners' equity, which consisted mainly of CFG in US dollar.
(2)
Economic hedges mainly represent US dollar and euro preference shares in issue that are treated as equity under IFRS and do not qualify as hedges for accounting purposes.
 
Key points
 
·
Structural foreign currency exposures before and after economic hedges were £2.0 billion and £1.3 billion respectively lower, mainly due to changes below:
 
○
Net assets of overseas operations declined by £1.2 billion, largely due to the strength of sterling against other currencies, especially the euro, which depreciated significantly during the period.
 
○
Non-controlling interests increased by £2.7 billion, mainly as a result of the partial disposal of Citizens during Q1 2015.
 
○
Net investment hedges decreased by £1.9 billion, mainly due to the partial disposal of Citizens, partly offset by an increase in the hedging of the remaining Citizens holdings.
·
Economic hedges, which consist of equity capital securities in issue, decreased by £0.6 billion reflecting redemptions of certain equity securities during Q1 2015.
·
A 5% strengthening in foreign currencies against sterling would result in a gain or loss of £0.5 billion in equity (2014 - £0.6 billion).
 
 
Appendix 1 Capital and risk management
 
Country risk
Country risk is the risk of losses occurring as a result of either a country event or unfavourable country operating conditions. As country events may simultaneously affect all or many individual exposures to a country, country event risk is a concentration risk. Refer to Capital and risk management - Credit risk in the 2014 Annual Report and Accounts for other types of concentration risk such as product, sector or single-name concentration and Country risk for governance, monitoring, management and definitions.
 
Key points*
The comments below relate to changes in country exposures in H1 2015 unless indicated otherwise.
 
●
Net balance sheet and off-balance sheet exposure to most countries declined across most products. RBS continues to maintain a cautious stance as it becomes a more UK-centred bank with an international focus on Western Europe. In addition, many clients continued to reduce debt levels. The US dollar and the euro depreciated against sterling by 0.7% and 8.9% respectively, contributing to the decline in exposure.
   
●
Total eurozone net balance sheet exposure decreased by £12.0 billion or 12%, to £85.6 billion.
 
○
The depreciation of the euro played a significant role in the reduction.
 
○
The main reductions were in HFT government bonds in Germany, Italy and Spain; in derivatives exposure (mostly to banks) in the Netherlands, Italy and Germany; and in lending in Ireland, Italy and Spain.
 
○
Notional bought and sold credit default swaps (CDS) continued its downward trend in line with the bank's general reduction in trading. Net bought CDS protection on eurozone exposures was broadly unchanged.
 
○
Net lending in RCR roughly halved to £2.0 billion for the eurozone as a whole, including £0.8 billion in Ireland and £0.5 billion in Spain, with CRE accounting for broadly half of the total.
   
●
Eurozone periphery net balance sheet exposure decreased by £7.4 billion or 24%, to £24.0 billion.
 
○
Ireland - exposure fell by £2.5 billion or 11% to £20.2 billion, with exposure to corporates and households (mostly mortgage lending) decreasing by £1.5 billion each, largely reflecting currency movements and portfolio sales in RCR. Provisions fell by £3.3 billion to £5.1 billion, largely as a result of these sales. Ulster Bank's cash deposits with the Central Bank of Ireland increased by £0.7 billion, again reflecting the proceeds of the RCR portfolio sales.
 
○
Spain - exposure decreased by £1.2 billion to £2.1 billion. This largely reflected reductions in net HFT government bonds, the result of client demand and perceived peripheral eurozone risks triggered by the Greek crisis, and corporate lending (mostly RCR exposure to the commercial real estate, construction and transport sectors). Off-balance sheet exposure, mostly to corporates, decreased by £0.5 billion.
 
○
Italy - exposure fell by £3.2 billion to £1.1 billion, reflecting reductions in net HFT government bonds, driven by client demand and eurozone risks, and the maturity of a few large derivatives transactions with banks and corporate loans. Off-balance sheet exposure, largely to corporate clients, decreased by £0.7 billion. RBS will continue to service core clients in Italy.
 
○
Portugal - exposure decreased by £0.3 billion to £0.5 billion, due to decreases in net HFT government bonds, derivatives to banks and corporate lending.
 
*Not within the scope of Deloitte LLP's review report

Appendix 1 Capital and risk management
 
Key points* (continued)
 
 
○
Greece - net balance sheet exposure decreased to £110 million (down from £0.4 billion), mostly as a result of sales of derivatives positions. The remaining exposure comprised mostly lending and collateralised derivatives exposure to corporate clients, including local subsidiaries of international companies. Total exposure after risk mitigation was approximately £86 million, about a quarter of this in RCR. Contingency planning for any downside scenarios had been refreshed when capital controls were introduced in late June.
 
○
Estimated funding mismatches at risk of redenomination at 30 June 2015 were:
   
- Ireland - £3.5 billion, down from £4.0 billion, due principally to lower lending.
   
- Spain - £0.5 billion (broadly unchanged).
   
- Italy - minimal, down from £1.5 billion due to lower derivatives and HFT exposure, and lower
  lending.
   
- Portugal - minimal, down from £0.5 billion, due to lower HFT, derivatives and lending.
   
The net positions for Greece and Cyprus remained minimal.
·
Germany - net balance sheet exposure fell by £4.3 billion to £22.3 billion, in net HFT bonds, derivatives and SFT exposure to financial institutions and corporate lending. This was partially offset by an increase of £3.9 billion in cash deposits with the Bundesbank. Off-balance sheet exposure, mostly to corporates, decreased by £0.9 billion.
·
France - net balance sheet exposure rose by £1.3 billion to £17.4 billion. Exposure to banks increased by £1.0 billion, principally because of the build-up of cash balances with a French bank for the redemption during Q3 2015 of outstanding notes issued by RBS. AFS bonds rose by £0.5 billion, as part of Treasury liquidity management. Off-balance sheet exposure, largely to corporates, fell by £1.0 billion.
·
Netherlands - net balance sheet exposure decreased by £1.8 billion, mainly because derivatives exposure was reduced to a few major banks. Net HFT debt securities increased by £0.8 billion, driven by client demand and market opportunities. This was largely offset by decreases in AFS debt securities. Off-balance sheet exposure to the corporate sector and financial institutions fell by a combined £1.4 billion.
·
Other eurozone - net HFT government bonds increased by £0.5 billion to £1.4 billion, driven by opportunities in the Finnish and Austrian bond markets.
·
Japan - net HFT government bond exposure increased by £4.2 billion to £7.2 billion. This exposure was driven by collateral trading in London, with the increase in outright holdings reflecting reduced access to local repo markets following RBS's decision to exit its Japanese onshore business. Nostro balances with the central bank also increased, by £1.0 billion. These balances fluctuate on a daily basis depending on RBS excess yen liquidity held in London and Tokyo. Derivatives exposure to banks and in corporate lending decreased by a combined £0.8 billion.
·
China - net balance sheet exposure decreased by £1.2 billion to £2.4 billion, with reductions mostly in corporate lending, driven by the new international strategy. The portfolio is focused on the largest banks and corporates. Stress tests indicate that the impact of an economic downturn scenario on credit losses would be limited.
·
India - net balance sheet exposure fell by £0.3 billion to £1.7 billion, with reductions mostly in corporate lending, reflecting the bank's new UK-centred strategy.
·
Russia - net balance sheet exposure decreased by £0.2 billion to £1.6 billion which included £0.9 billion of corporate lending and £0.7 billion of bank lending. Around one-third of the bank lending risk was transferred to third-party investors through credit-linked notes. The exposure continues to be closely monitored and reviewed against all international sanctions, with strict credit restrictions placed on new business.
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 1 Capital and risk management
 
Country risk: Country exposures
 
 
Net balance sheet exposure
  
Analysis of net balance sheet exposures
  
Off-
      
CDS
      
Sovereign
Central
Other
Other
        
Net
  
Debt securities
  
Net
balance
Total
  
notional less
  
Gross
banks
banks
FI
Corporate
Personal
Total
lending
  
AFS/LAR
HFT (net)
  
Derivatives
SFT
sheet
exposure
  
fair value
  
Derivatives
SFT
30 June 2015
£m
£m
£m
£m
£m
£m
£m
  
£m
  
£m
£m
  
£m
£m
  
£m
  
£m
  
£m
  
£m
£m
                                                 
Eurozone
                                                
Ireland
292 
1,326 
541 
732 
4,174 
13,116 
20,181 
  
18,959 
  
20 
511 
  
691 
- 
  
2,429 
  
22,610 
  
(38)
  
2,001 
1,384 
Spain
(168)
1 
447 
44 
1,683 
77 
2,084 
  
1,579 
  
- 
(175)
  
677 
3 
  
1,449 
  
3,533 
  
(294)
  
2,959 
608 
Italy
(1,338)
12 
1,583 
262 
527 
25 
1,071 
  
612 
  
23 
(1,356)
  
1,790 
2 
  
1,303 
  
2,374 
  
(483)
  
6,231 
2,020 
Portugal
(41)
- 
165 
73 
263 
7 
467 
  
226 
  
18 
(2)
  
225 
- 
  
185 
  
652 
  
(104)
  
261 
199 
Greece
6 
- 
3 
1 
80 
20 
110 
  
64 
  
- 
6 
  
40 
- 
  
21 
  
131 
  
(33)
  
40 
- 
Cyprus
- 
- 
- 
- 
44 
14 
58 
  
43 
  
- 
- 
  
15 
- 
  
12 
  
70 
  
- 
  
15 
- 
                                                 
Eurozone
                                                
  periphery
(1,249)
1,339 
2,739 
1,112 
6,771 
13,259 
23,971 
  
21,483 
  
61 
(1,016)
  
3,438 
5 
  
5,399 
  
29,370 
  
(952)
  
11,507 
4,211 
                                                 
Germany
5,509 
6,538 
3,175 
5,149 
1,871 
83 
22,325 
  
8,092 
  
6,377 
(38)
  
7,650 
244 
  
5,168 
  
27,493 
  
(2,320)
  
31,029 
6,690 
France
5,775 
2 
8,048 
1,505 
1,965 
83 
17,378 
  
4,306 
  
2,404 
3,929 
  
6,418 
321 
  
7,562 
  
24,940 
  
(2,452)
  
32,703 
18,824 
Netherlands
612 
803 
3,964 
5,687 
1,751 
31 
12,848 
  
3,061 
  
1,079 
3,356 
  
5,333 
19 
  
7,940 
  
20,788 
  
(716)
  
16,213 
1,937 
Belgium
1,234 
- 
2,085 
54 
302 
22 
3,697 
  
442 
  
539 
642 
  
1,956 
118 
  
774 
  
4,471 
  
(161)
  
2,446 
942 
Luxembourg
- 
23 
254 
1,043 
999 
7 
2,326 
  
1,584 
  
309 
48 
  
368 
17 
  
1,182 
  
3,508 
  
(21)
  
500 
2,461 
Other
1,851 
11 
817 
67 
268 
18 
3,032 
  
400 
  
275 
1,424 
  
864 
69 
  
810 
  
3,842 
  
(523)
  
3,514 
210 
                                                 
Total
                                                
  eurozone
13,732 
8,716 
21,082 
14,617 
13,927 
13,503 
85,577 
  
39,368 
  
11,044 
8,345 
  
26,027 
793 
  
28,835 
  
114,412 
  
(7,145)
  
97,912 
35,275 
                                                 
Japan
7,377 
1,968 
1,324 
550 
99 
31 
11,349 
  
2,334 
  
- 
7,200 
  
1,795 
20 
  
626 
  
11,975 
  
(26)
  
7,532 
2,752 
China
156 
169 
954 
200 
847 
32 
2,358 
  
1,982 
  
90 
- 
  
255 
31 
  
152 
  
2,510 
  
21 
  
359 
6,131 
India
476 
60 
44 
199 
867 
34 
1,680 
  
1,153 
  
367 
109 
  
51 
- 
  
545 
  
2,225 
  
(45)
  
111 
63 
Russia
8 
11 
661 
39 
854 
45 
1,618 
  
1,545 
  
8 
(3)
  
68 
- 
  
91 
  
1,709 
  
(101)
  
83 
- 
 
 
These tables show RBS exposure at 30 June 2015 and 31 December 2014 by country of operation of the counterparty, except exposures to governments and individuals which are shown by country of residence. Balance sheet exposures are shown net of loan impairment provisions. Countries shown are those where the balance sheet exposure exceeded £1 billion and which had ratings of A+ or below from Standard and Poor's, Moody's or Fitch at 30 June 2015, as well as selected eurozone countries. The exposures are stated before taking into account risk mitigants, such as guarantees, insurance or collateral (with the exception of reverse repos). Exposures relating to ocean-going vessels are not included as they cannot be meaningfully assigned to specific countries from a country risk perspective. Refer to the 2014 Annual Report and Accounts for definitions, including securities financing transactions (SFT).

Appendix 1 Capital and risk management
 
Country exposures (continued)
 
 
                                                 
 
Net balance sheet exposure
  
Analysis of net balance sheet exposures
  
Off-
      
CDS
      
Sovereign
Central
Other
Other
        
Net
  
Debt securities
  
Net
balance
Total
  
 notional
Gross
  
banks
banks
FI
 Corporate
 Personal
Total
lending
  
 AFS/LAR
HFT (net)
  
 Derivatives
SFT
sheet
exposure
  
less fair value
 Derivatives
SFT
  
31 December 2014
£m
£m
£m
£m
£m
£m
£m
  
£m
  
£m
£m
  
£m
£m
  
£m
  
£m
  
£m
£m
£m
  
                                                 
Eurozone
                                                
Ireland
239 
587 
726 
839 
5,653 
14,593 
22,637 
  
21,176 
  
56 
413 
  
991 
1 
  
2,922 
  
25,559 
  
(48)
2,330 
1,464 
  
Spain
251 
- 
583 
164 
2,184 
88 
3,270 
  
2,024 
  
47 
364 
  
835 
- 
  
1,923 
  
5,193 
  
(312)
3,913 
422 
  
Italy
112 
15 
2,519 
368 
1,187 
25 
4,226 
  
1,095 
  
169 
5 
  
2,957 
- 
  
2,031 
  
6,257 
  
(625)
9,192 
823 
  
Portugal
111 
- 
246 
97 
322 
8 
784 
  
282 
  
20 
152 
  
330 
- 
  
222 
  
1,006 
  
(155)
390 
613 
  
Greece
8 
- 
258 
1 
92 
17 
376 
  
63 
  
- 
8 
  
305 
- 
  
23 
  
399 
  
(8)
416 
- 
  
Cyprus
- 
- 
- 
- 
113 
14 
127 
  
108 
  
- 
- 
  
19 
- 
  
16 
  
143 
  
- 
19 
- 
  
                                                 
Eurozone
                                                
  periphery
721 
602 
4,332 
1,469 
9,551 
14,745 
31,420 
  
24,748 
  
292 
942 
  
5,437 
1 
  
7,137 
  
38,557 
  
(1,148)
16,260 
3,322 
  
                                                 
Germany
12,301 
2,681 
3,940 
5,496 
2,083 
86 
26,587 
  
4,601 
  
7,121 
5,653 
  
8,317 
895 
  
6,090 
  
32,677 
  
(1,749)
39,275 
8,704 
  
France
5,203 
3 
7,089 
1,924 
1,774 
81 
16,074 
  
2,931 
  
1,951 
4,034 
  
6,392 
766 
  
8,586 
  
24,660 
  
(2,406)
41,132 
17,598 
  
Netherlands
72 
926 
5,557 
5,981 
2,130 
29 
14,695 
  
3,582 
  
1,690 
2,509 
  
6,830 
84 
  
9,323 
  
24,018 
  
(815)
20,986 
3,573 
  
Belgium
803 
3 
2,330 
93 
396 
21 
3,646 
  
579 
  
274 
375 
  
2,334 
84 
  
858 
  
4,504 
  
(219)
3,374 
932 
  
Luxembourg
(1)
19 
556 
645 
781 
5 
2,005 
  
968 
  
329 
70 
  
461 
177 
  
1,475 
  
3,480 
  
(53)
701 
2,628 
  
Other
1,689 
19 
762 
132 
533 
16 
3,151 
  
612 
  
456 
930 
  
1,148 
5 
  
1,047 
  
4,198 
  
(562)
4,818 
302 
  
                                                 
Total
                                                
  eurozone
20,788 
4,253 
24,566 
15,740 
17,248 
14,983 
97,578 
  
38,021 
  
12,113 
14,513 
  
30,919 
2,012 
  
34,516 
  
132,094 
  
(6,952)
126,546 
37,059 
  
                                                 
Japan
3,257 
1,007 
1,927 
514 
325 
33 
7,063 
  
1,633 
  
3 
3,043 
  
2,358 
26 
  
844 
  
7,907 
  
(25)
10,129 
10,005 
  
China
329 
130 
1,011 
363 
1,674 
41 
3,548 
  
2,886 
  
243 
62 
  
243 
114 
  
531 
  
4,079 
  
(4)
244 
4,770 
  
India
526 
85 
133 
156 
1,053 
36 
1,989 
  
1,336 
  
415 
132 
  
106 
- 
  
639 
  
2,628 
  
(47)
180 
- 
  
Russia
39 
14 
711 
101 
915 
50 
1,830 
  
1,673 
  
39 
- 
  
118 
- 
  
167 
  
1,997 
  
(166)
202 
- 
  


 
 
Appendix 2
 
Income statement reconciliations
and balance sheet pre and post disposal groups
 
Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
Half year ended
 
30 June 2015
 
Non-
Reallocation of
Presentational
  
Statutory
statutory
one-off items
adjustments (1)
CFG (2)
£m
£m 
£m 
£m 
£m
           
Interest receivable
7,329 
- 
- 
(1,222)
6,107 
Interest payable
(1,807)
- 
- 
118 
(1,689)
           
Net interest income
5,522 
- 
- 
(1,104)
4,418 
           
Fees and commissions receivable
2,347 
- 
- 
(389)
1,958 
Fees and commissions payable
(381)
- 
- 
18 
(363)
Income from trading activities
734 
210 
- 
(69)
875 
Other operating income
478 
(57)
- 
(53)
368 
           
Non-interest income
3,178 
153 
- 
(493)
2,838 
           
Total income
8,700 
153 
- 
(1,597)
7,256 
           
Staff costs
(3,075)
- 
(348)
568 
(2,855)
Premises and equipment
(859)
- 
(47)
161 
(745)
Other administrative expenses
(1,133)
- 
(1,523)
290 
(2,366)
Depreciation and amortisation
(418)
- 
(294)
- 
(712)
Restructuring costs
(1,503)
- 
1,503 
- 
- 
Litigation and conduct costs
(1,315)
- 
1,315 
- 
- 
Write down of goodwill and other intangible assets
- 
- 
(606)
- 
(606)
           
Operating expenses
(8,303)
- 
- 
1,019 
(7,284)
           
Profit/(loss) before impairment releases
397 
153 
- 
(578)
(28)
Impairment releases
232 
- 
- 
89 
321 
           
Operating profit
629 
153 
- 
(489)
293 
Own credit adjustments (3)
288 
(288)
- 
- 
- 
Strategic disposals
(135)
135 
- 
- 
- 
Citizens discontinued operations
(489)
- 
- 
489 
- 
           
Profit before tax
293 
- 
- 
- 
293 
Tax charge
(293)
- 
- 
- 
(293)
           
Profit for continuing operations
- 
- 
- 
- 
- 
           
Profit from discontinued operations, net of tax
          
  - Citizens
354 
- 
- 
- 
354 
  - Other
4 
- 
- 
- 
4 
           
Profit from discontinued operations, net of tax
358 
- 
- 
- 
358 
           
Profit for the period
358 
- 
- 
- 
358 
Non-controlling interests
(344)
- 
- 
- 
(344)
Preference share and other dividends
(167)
- 
- 
- 
(167)
           
Loss attributable to ordinary and B shareholders
(153)
- 
- 
- 
(153)
 
Notes:
 
(1)
Reallocation of restructuring costs and litigation and conduct costs into the statutory operating expense lines.
(2)
The statutory results of Citizens Financial Group (CFG), which is classified as a discontinued operation.
(3)
Reallocation of £210 million gain (H1 2014 - £11 million gain; Q2 2015 - £115 million gain; Q1 2015 - £95 million gain; Q2 2014 - £84 million loss) to income from trading activities and £78 million gain (H1 2014 - £62 million loss; Q2 2015 - £53 million gain; Q1 2015 - £25 million gain; Q2 2014 - £106 million loss) to other operating income.

 
 
Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
Half year ended
 
30 June 2014
 
Non-
Reallocation of
Presentational
  
Statutory
statutory
one-off items
adjustments (1)
CFG (2)
£m
£m 
£m 
£m 
£m
           
Interest receivable
7,621 
- 
- 
(1,077)
6,544 
Interest payable
(2,125)
(3)
- 
90 
(2,038)
           
Net interest income
5,496 
(3)
- 
(987)
4,506 
           
Fees and commissions receivable
2,605 
- 
- 
(362)
2,243 
Fees and commissions payable
(487)
- 
- 
12 
(475)
Income from trading activities
1,482 
11 
- 
(43)
1,450 
Gain on redemption of own debt
- 
20 
- 
- 
20 
Other operating income
882 
154 
- 
(231)
805 
           
Non-interest income
4,482 
185 
- 
(624)
4,043 
           
Total income
9,978 
182 
- 
(1,611)
8,549 
           
Staff costs
(3,340)
- 
(196)
539 
(2,997)
Premises and equipment
(1,079)
- 
(196)
149 
(1,126)
Other administrative expenses
(1,292)
(1)
(369)
305 
(1,357)
Depreciation and amortisation
(551)
- 
(3)
88 
(466)
Restructuring costs
(514)
- 
514 
- 
- 
Litigation and conduct costs
(250)
- 
250 
- 
- 
Write down of goodwill and other intangible assets
(82)
(130)
- 
- 
(212)
           
Operating expenses
(7,108)
(131)
- 
1,081 
(6,158)
           
Profit before impairment losses
2,870 
51 
- 
(530)
2,391 
Impairment losses
(269)
- 
- 
104 
(165)
           
Operating profit
2,601 
51 
- 
(426)
2,226 
Own credit adjustments (3)
(51)
51 
- 
- 
- 
Gain on redemption of own debt
20 
(20)
- 
- 
- 
Write down of goodwill
(130)
130 
- 
- 
- 
Strategic disposals
191 
(191)
- 
- 
- 
Citizens discontinued operations
(426)
- 
- 
426 
- 
RFS Holdings minority interest
21 
(21)
- 
- 
- 
           
Profit before tax
2,226 
- 
- 
- 
2,226 
Tax charge
(592)
- 
- 
- 
(592)
           
Profit for continuing operations
1,634 
- 
- 
- 
1,634 
           
Profit from discontinued operations, net of tax
          
  - Citizens
285 
- 
- 
- 
285 
  - Other
35 
- 
- 
- 
35 
           
Profit from discontinued operations, net of tax
320 
- 
- 
- 
320 
           
Profit for the period
1,954 
- 
- 
- 
1,954 
Non-controlling interests
(42)
- 
- 
- 
(42)
Preference share and other dividends
(487)
- 
- 
- 
(487)
           
Profit attributable to ordinary and B shareholders
1,425 
- 
- 
- 
1,425 
 
For the notes to this table refer to page 1.

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
Quarter ended
 
30 June 2015
 
Non-
Reallocation of
Presentational
  
Statutory
statutory
one-off items
adjustments (1)
CFG (2)
£m
£m 
£m 
£m 
£m
           
Interest receivable
3,643 
- 
- 
(612)
3,031 
Interest payable
(877)
- 
- 
61 
(816)
           
Net interest income
2,766 
- 
- 
(551)
2,215 
           
Fees and commissions receivable
1,169 
- 
- 
(200)
969 
Fees and commissions payable
(195)
- 
- 
9 
(186)
Income from trading activities
464 
115 
- 
(34)
545 
Other operating income
165 
53 
- 
(24)
194 
           
Non-interest income
1,603 
168 
- 
(249)
1,522 
           
Total income
4,369 
168 
- 
(800)
3,737 
           
Staff costs
(1,517)
- 
(293)
280 
(1,530)
Premises and equipment
(372)
- 
(37)
83 
(326)
Other administrative expenses
(622)
- 
(559)
154 
(1,027)
Depreciation and amortisation
(186)
- 
(14)
- 
(200)
Restructuring costs
(1,050)
- 
1,050 
- 
- 
Litigation and conduct costs
(459)
- 
459 
- 
- 
Write down of goodwill and other intangible assets
- 
- 
(606)
- 
(606)
           
Operating expenses
(4,206)
- 
- 
517 
(3,689)
           
Profit before impairment releases
163 
168 
- 
(283)
48 
Impairment releases
141 
- 
- 
51 
192 
           
Operating profit
304 
168 
- 
(232)
240 
Own credit adjustments (3)
168 
(168)
- 
- 
- 
Citizens discontinued operations
(232)
- 
- 
232 
- 
           
Profit before tax
240 
- 
- 
- 
240 
Tax charge
(100)
- 
- 
- 
(100)
           
Profit from continuing operations
140 
- 
- 
- 
140 
           
Profit from discontinued operations, net of tax
          
  - Citizens
674 
- 
- 
- 
674 
  - Other
- 
- 
- 
- 
- 
           
Profit from discontinued operations, net of tax
674 
- 
- 
- 
674 
           
Profit for the period
814 
- 
- 
- 
814 
Non-controlling interests
(428)
- 
- 
- 
(428)
Preference share and other dividends
(93)
- 
- 
- 
(93)
           
Profit attributable to ordinary and B shareholders
293 
- 
- 
- 
293 
 
For the notes to this table refer to page 1.

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
Quarter ended
 
31 March 2015
 
Non-
Reallocation of
Presentational
  
Statutory
statutory
one-off items
adjustments (1)
CFG (2)
£m
£m 
£m 
£m 
£m
           
Interest receivable
3,686 
- 
- 
(610)
3,076 
Interest payable
(930)
- 
- 
57 
(873)
           
Net interest income
2,756 
- 
- 
(553)
2,203 
           
Fees and commissions receivable
1,178 
- 
- 
(189)
989 
Fees and commissions payable
(186)
- 
- 
9 
(177)
Income from trading activities
270 
95 
- 
(35)
330 
Other operating income
313 
(110)
- 
(29)
174 
           
Non-interest income
1,575 
(15)
- 
(244)
1,316 
           
Total income
4,331 
(15)
- 
(797)
3,519 
           
Staff costs
(1,558)
- 
(55)
288 
(1,325)
Premises and equipment
(487)
- 
(10)
78 
(419)
Other administrative expenses
(511)
- 
(964)
136 
(1,339)
Depreciation and amortisation
(232)
- 
(280)
- 
(512)
Restructuring costs
(453)
- 
453 
- 
- 
Litigation and conduct costs
(856)
- 
856 
- 
- 
           
Operating expenses
(4,097)
- 
- 
502 
(3,595)
           
Profit/(loss) before impairment releases
234 
(15)
- 
(295)
(76)
Impairment releases
91 
- 
- 
38 
129 
           
Operating profit
325 
(15)
- 
(257)
53 
Own credit adjustments (3)
120 
(120)
- 
- 
- 
Strategic disposals
(135)
135 
- 
- 
- 
Citizens discontinued operations
(257)
- 
- 
257 
- 
           
Profit before tax
53 
- 
- 
- 
53 
Tax charge
(193)
- 
- 
- 
(193)
           
Loss from continuing operations
(140)
- 
- 
- 
(140)
           
Loss from discontinued operations, net of tax
          
  - Citizens
(320)
- 
- 
- 
(320)
  - Other
4 
- 
- 
- 
4 
           
Loss from discontinued operations, net of tax
(316)
- 
- 
- 
(316)
           
Loss for the period
(456)
- 
- 
- 
(456)
Non-controlling interests
84 
- 
- 
- 
84 
Preference share and other dividends
(74)
- 
- 
- 
(74)
           
Loss attributable to ordinary and B shareholders
(446)
- 
- 
- 
(446)
 
For the notes to this table refer to page 1.

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
Quarter ended
 
30 June 2014
 
Non-
Reallocation of
Presentational
  
Statutory
statutory
one-off items
adjustments (1)
CFG (2)
£m
£m 
£m 
£m 
£m
           
Interest receivable
3,822 
(1)
- 
(542)
3,279 
Interest payable
(1,024)
1 
- 
43 
(980)
           
Net interest income
2,798 
- 
- 
(499)
2,299 
           
Fees and commissions receivable
1,314 
- 
- 
(188)
1,126 
Fees and commissions payable
(251)
- 
- 
7 
(244)
Income from trading activities
626 
(85)
- 
(13)
528 
Other operating income
438 
(93)
- 
(191)
154 
           
Non-interest income
2,127 
(178)
- 
(385)
1,564 
           
Total income
4,925 
(178)
- 
(884)
3,863 
           
Staff costs
(1,693)
1 
(153)
287 
(1,558)
Premises and equipment
(485)
- 
(137)
76 
(546)
Other administrative expenses
(605)
(2)
(344)
171 
(780)
Depreciation and amortisation
(282)
1 
(1)
45 
(237)
Restructuring costs
(385)
- 
385 
- 
- 
Litigation and conduct costs
(250)
- 
250 
- 
- 
Write down of goodwill and other intangible assets
- 
(130)
- 
- 
(130)
           
Operating expenses
(3,700)
(130)
- 
579 
(3,251)
           
Profit before impairment releases
1,225 
(308)
- 
(305)
612 
Impairment releases
93 
- 
- 
31 
124 
           
Operating profit
1,318 
(308)
- 
(274)
736 
Own credit adjustments (3)
(190)
190 
- 
- 
- 
Write down of goodwill
(130)
130 
- 
- 
- 
Citizens discontinued operations
(274)
- 
- 
274 
- 
RFS Holdings minority interest
12 
(12)
- 
- 
- 
           
Profit before tax
736 
- 
- 
- 
736 
Tax charge
(278)
- 
- 
- 
(278)
           
Profit from continuing operations
458 
- 
- 
- 
458 
           
Profit from discontinued operations, net of tax
          
  - Citizens
181 
- 
- 
- 
181 
  - Other
26 
- 
- 
- 
26 
           
Profit from discontinued operations, net of tax
207 
- 
- 
- 
207 
           
Profit for the period
665 
- 
- 
- 
665 
Non-controlling interests
(23)
- 
- 
- 
(23)
Preference share and other dividends
(412)
- 
- 
- 
(412)
           
Profit attributable to ordinary and B shareholders
230 
- 
- 
- 
230 
 
For the notes to this table refer to page 1.
 
Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
30 June 2015
  
31 December 2014
     
Gross of
      
Gross of
Balance
Disposal
disposal
Balance
Disposal
disposal
sheet
groups (1)
 groups
sheet
groups (2)
 groups
 
£m
£m
£m
  
£m
£m
£m
               
Assets
              
Cash and balances at central banks
81,900 
842 
82,742 
  
74,872 
622 
75,494 
Net loans and advances to banks
20,714 
2,571 
23,285 
  
23,027 
1,745 
24,772 
Reverse repurchase agreements and stock borrowing
20,807 
157 
20,964 
  
20,708 
- 
20,708 
Loans and advances to banks
41,521 
2,728 
44,249 
  
43,735 
1,745 
45,480 
Net loans and advances to customers
314,993 
64,511 
379,504 
  
334,251 
60,550 
394,801 
Reverse repurchase agreements and stock borrowing
46,799 
- 
46,799 
  
43,987 
- 
43,987 
Loans and advances to customers
361,792 
64,511 
426,303 
  
378,238 
60,550 
438,788 
Debt securities
77,187 
16,185 
93,372 
  
86,649 
15,293 
101,942 
Equity shares
3,363 
583 
3,946 
  
5,635 
572 
6,207 
Settlement balances
9,630 
598 
10,228 
  
4,667 
- 
4,667 
Derivatives
281,857 
428 
282,285 
  
353,590 
402 
353,992 
Intangible assets
7,198 
752 
7,950 
  
7,781 
583 
8,364 
Property, plant and equipment
4,874 
609 
5,483 
  
6,167 
503 
6,670 
Deferred tax
1,479 
- 
1,479 
  
1,540 
- 
1,540 
Prepayments, accrued income and
              
  other assets
4,829 
1,835 
6,664 
  
5,878 
1,741 
7,619 
Assets of disposal groups
89,071 
(89,071)
- 
  
82,011 
(82,011)
- 
               
Total assets
964,701 
- 
964,701 
  
1,050,763 
- 
1,050,763 
               
Liabilities
              
Bank deposits
30,978 
4,474 
35,452 
  
35,806 
5,128 
40,934 
Repurchase agreements and stock lending
21,612 
1,942 
23,554 
  
24,859 
1,666 
26,525 
Deposits by banks
52,590 
6,416 
59,006 
  
60,665 
6,794 
67,459 
Customer deposits
342,023 
70,491 
412,514 
  
354,288 
60,583 
414,871 
Repurchase agreements and stock lending
44,750 
467 
45,217 
  
37,351 
706 
38,057 
Customer accounts
386,773 
70,958 
457,731 
  
391,639 
61,289 
452,928 
Debt securities in issue
41,819 
1,178 
42,997 
  
50,280 
1,625 
51,905 
Settlement balances
7,335 
8 
7,343 
  
4,503 
- 
4,503 
Short positions
24,561 
- 
24,561 
  
23,029 
- 
23,029 
Derivatives
273,589 
191 
273,780 
  
349,805 
144 
349,949 
Accruals, deferred income and other liabilities
13,962 
834 
14,796 
  
13,346 
683 
14,029 
Retirement benefit liabilities
1,869 
184 
2,053 
  
2,579 
197 
2,776 
Deferred tax
363 
393 
756 
  
500 
362 
862 
Subordinated liabilities
19,683 
226 
19,909 
  
22,905 
226 
23,131 
Liabilities of disposal groups
80,388 
(80,388)
- 
  
71,320 
(71,320)
- 
               
Total liabilities
902,932 
- 
902,932 
  
990,571 
- 
990,571 
 
Notes:
 
(1)
Primarily Citizens and international private banking.
(2)
Primarily Citizens.
(3)
Excludes reverse repos.
 

Appendix 2 Income statement reconciliations and balance sheet pre and post disposal groups
 
 
 
30 June 2015
  
31 December 2014
     
Gross of
      
Gross of
Balance
Disposal
disposal
Balance
Disposal
disposal
sheet
groups (1)
 groups
sheet
groups (2)
 groups
Selected financial data
£m
£m
£m
  
£m
£m
£m
               
Gross loans and advances to customers
325,718 
65,063 
390,781 
  
351,711 
61,090 
412,801 
Customer loan impairment provisions
(10,725)
(552)
(11,277)
  
(17,460)
(540)
(18,000)
Net loans and advances to customers (3)
314,993 
64,511 
379,504 
  
334,251 
60,550 
394,801 
               
Gross loans and advances to banks
20,740 
2,571 
23,311 
  
23,067 
1,745 
24,812 
Bank loan impairment provisions
(26)
- 
(26)
  
(40)
- 
(40)
Net loans and advances to banks (3)
20,714 
2,571 
23,285 
  
23,027 
1,745 
24,772 
               
Total loan impairment provisions
(10,751)
(552)
(11,303)
  
(17,500)
(540)
(18,040)
               
Customer REIL
17,426 
1,260 
18,686 
  
26,842 
1,335 
28,177 
Bank REIL
28 
- 
28 
  
42 
- 
42 
REIL
17,454 
1,260 
18,714 
  
26,884 
1,335 
28,219 
               
Gross unrealised gains on debt securities
895 
211 
1,106 
  
1,316 
261 
1,577 
Gross unrealised losses on debt securities
(174)
(129)
(303)
  
(145)
(137)
(282)
 
For the notes to this table refer to page 6.
 
 
 
Appendix 3
 
Go-forward Bank profile
 
Appendix 3 Go-forward Bank profile
 
RBS is committed to a leaner, less volatile business based around its core franchises of PBB and CPB. To achieve this goal a number of initiatives have been announced which include, but are not limited to, the restructuring of CIB into CIB Go-forward and CIB Capital Resolution, the divestment of the remaining stake in Citizens, the exit of Williams & Glyn and the continued run down of RCR. Significant progress towards these exits is expected in 2015. The following table illustrates the impact on certain key performance measures of these initiatives by showing the 'Go-forward' profile of the bank and the segments, businesses and portfolios which it intends to exit. This information is presented to illustrate the strategy and its impact on the business and is on a non-statutory basis and should be read in conjunction with the notes below as well as the section titled Forward-looking statements.
 
                                   
 
Go-forward Bank profile
  
Exit Bank
    
                 
CIB
  
International
      
Total
    
 
UK
Ulster
Commercial
Private
CIB Go-
Other Go-
Total Go-
  
Capital
Williams
private
    
Other
Exit
Total
  
 
PBB (1)
Bank
Banking
Banking (2)
forward (3)
forward (4)
forward
  
Resolution (3)
& Glyn (5)
banking
Citizens
RCR
investments
 Bank
RBS
  
Quarter ended 30 June 2015
£bn
£bn
£bn
£bn
£bn
£bn
£bn
  
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
  
                                   
Total income
1.3 
0.2 
0.9 
0.2 
0.4 
0.1 
3.1 
  
0.1 
0.2 
0.1 
0.8 
0.1 
- 
1.3 
4.4 
  
Operating expenses
                                  
  - adjusted (6)
(0.7)
(0.2)
(0.4)
(0.1)
(0.4)
0.1 
(1.7)
  
(0.3)
(0.1)
- 
(0.5)
(0.1)
- 
(1.0)
(2.7)
  
Impairment (losses)/releases
- 
- 
- 
- 
- 
- 
- 
  
- 
- 
- 
(0.1)
0.2 
- 
0.1 
0.1 
  
                                   
Operating profit/(loss) - adjusted (6)
0.6 
- 
0.5 
0.1 
- 
0.2 
1.4 
  
(0.2)
0.1 
0.1 
0.2 
0.2 
- 
0.4 
1.8 
  
                                   
Funded assets
116 
26 
95 
12 
149 
105 
503 
  
62 
20 
5 
83 
8 
1 
179 
682 
  
Net loans and advances to 
                                  
  customers
109 
20 
90 
11 
27 
2 
259 
  
31 
20 
3 
61 
6 
- 
121 
380 
  
Customer deposits
128 
19 
97 
23 
22 
2 
291 
  
27 
23 
7 
64 
1 
- 
122 
413 
  
Risk-weighted assets (7)
31 
21 
67 
8 
43 
8 
178 
  
45 
11 
2 
70 
14 
6 
148 
326 
  
Return on equity - adjusted (6,8,9)
36%
11%
14%
5%
nm
nm
16%
  
nm
nm
9%
7%
nm
10%
5%
11%
  
                                 
Quarter ended 31 March 2015
                                
                                 
Total income
1.2 
0.2 
0.8 
0.1 
0.6 
- 
2.9 
  
0.3 
0.2 
- 
0.8 
0.1 
- 
1.4 
4.3 
Operating expenses
                                
  - adjusted (6)
(0.6)
(0.1)
(0.4)
(0.2)
(0.4)
- 
(1.7)
  
(0.4)
(0.1)
(0.1)
(0.5)
- 
- 
(1.1)
(2.8)
Impairment releases
- 
- 
- 
- 
- 
- 
- 
  
- 
- 
- 
- 
0.1 
- 
0.1 
0.1 
                                 
Operating profit/(loss) - adjusted (6)
0.6 
0.1 
0.4 
(0.1)
0.2 
- 
1.2 
  
(0.1)
0.1 
(0.1)
0.3 
0.2 
- 
0.4 
1.6 
                                 
Funded assets
115 
27 
93 
12 
162 
94 
503 
  
86 
20 
6 
87 
11 
1 
211 
714 
Net loans and advances to 
                                
  customers
107 
21 
89 
11 
36 
1 
265 
  
41 
20 
3 
63 
8 
- 
135 
400 
Customer deposits
126 
19 
99 
22 
24 
2 
292 
  
34 
22 
8 
66 
1 
- 
131 
423 
Risk-weighted assets
32 
22 
66 
8 
45 
9 
182 
  
58 
11 
2 
72 
17 
7 
167 
349 
Return on equity - adjusted (6,8,9)
35%
6%
12%
4%
nm
nm
12%
  
nm
nm
8%
7%
nm
10%
7%
10%
                                 
For notes to these tables refer to page 3.
                          
                                     
 

 
Appendix 3 Go forward Bank profile
 
 
 
                                 
 
Go-forward Bank profile
  
Exit Bank
  
                 
CIB
  
International
      
Total
  
 
UK
Ulster
Commercial
Private
CIB Go-
Other Go-
Total Go-
  
Capital
Williams
private
    
Other
Exit
Total
Half year ended and as at
PBB (1)
Bank
Banking
Banking (2)
forward (3)
forward (4)
forward
  
Resolution (3)
& Glyn (5)
banking
Citizens
RCR
investments
 Bank
RBS
30 June 2015
£bn
£bn
£bn
£bn
£bn
£bn
£bn
  
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
                                 
Total income
2.5 
0.4 
1.7 
0.3 
1.0 
0.1 
6.0 
  
0.4 
0.4 
0.1 
1.6 
0.2 
- 
2.7 
8.7 
Operating expenses
                                
  - adjusted (6)
(1.3)
(0.3)
(0.8)
(0.3)
(0.8)
0.1 
(3.4)
  
(0.7)
(0.2)
(0.1)
(1.0)
(0.1)
- 
(2.1)
(5.5)
Impairment (losses)/releases
- 
- 
- 
- 
- 
- 
- 
  
- 
- 
- 
(0.1)
0.3 
- 
0.2 
0.2 
                                 
Operating profit/(loss) - adjusted (6)
1.2 
0.1 
0.9 
- 
0.2 
0.2 
2.6 
  
(0.3)
0.2 
- 
0.5 
0.4 
- 
0.8 
3.4 
                                 
Funded assets
116 
26 
95 
12 
149 
105 
503 
  
62 
20 
5 
83 
8 
1 
179 
682 
Net loans and advances to
                                
  customers
109 
20 
90 
11 
27 
2 
259 
  
31 
20 
3 
61 
6 
- 
121 
380 
Customer deposits
128 
19 
97 
23 
22 
2 
291 
  
27 
23 
7 
64 
1 
- 
122 
413 
Risk-weighted assets (7)
31 
21 
67 
8 
43 
8 
178 
  
45 
11 
2 
70 
14 
6 
148 
326 
Return on equity - adjusted (6,8,9)
36%
9%
13%
4%
nm
nm
14%
  
nm
nm
9%
7%
nm
10%
6%
10%
                                 
For the notes to this table refer to the following page.
                          
 

 
Appendix 3 Go forward Bank profile

 
                                 
 
Go-forward Bank profile
  
Exit Bank
  
                     
International
      
Total
  
 
UK
Ulster
Commercial
Private
CIB Go-
Other Go-
Total Go-
  
CIB Capital
Williams
private
    
Other
Exit
Total
Year ended and as at
PBB (1)
Bank
Banking
Banking (2)
forward (3)
forward (4)
forward
  
Resolution(3)
& Glyn (5)
banking
Citizens
RCR
investments
Bank
RBS
31 December 2014
£bn
£bn
£bn
£bn
£bn
£bn
£bn
  
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
                                 
Total income
5.2 
0.8 
3.2 
0.9 
2.2 
(0.1)
12.2 
  
1.7 
0.9 
0.2 
3.1 
- 
0.1 
6.0 
18.2 
Operating expenses
                                
  - adjusted (6)
(3.0)
(0.6)
(1.6)
(0.7)
(1.9)
0.1 
(7.7)
  
(1.7)
(0.5)
(0.2)
(2.0)
(0.3)
- 
(4.7)
(12.4)
Impairment (losses)/releases
(0.2)
0.4 
(0.1)
- 
- 
- 
0.1 
  
- 
(0.1)
- 
(0.2)
1.3 
0.1 
1.1 
1.2 
                                 
Operating profit - adjusted (6)
2.0 
0.6 
1.5 
0.2 
0.3 
- 
4.6 
  
- 
0.3 
- 
0.9 
1.0 
0.2 
2.4 
7.0 
                                 
Funded assets
115 
28 
89 
15 
146 
87 
480 
  
95 
20 
5 
81 
15 
1 
217 
697 
Net loans and advances to
                                
  customers
108 
22 
85 
13 
31 
- 
259 
  
42 
20 
3 
60 
11 
- 
136 
395 
Customer deposits
127 
21 
87 
29 
23 
1 
288 
  
36 
22 
8 
61 
1 
- 
128 
416 
Risk-weighted assets
33 
24 
64 
10 
43 
10 
184 
  
64 
10 
2 
68 
22 
6 
172 
356 
Return on equity - adjusted (6,8,9)
29%
17%
11%
12%
nm
nm
11%
  
nm
nm
10%
7%
nm
3%
7%
9%
 
Notes:
 
(1)
Excludes Williams & Glyn.
(2)
Excludes international private banking reclassified to disposal groups.
(3)
The CIB segment is being restructured into Go-forward and CIB Capital Resolution elements. The split is subject to further refinement.
(4)
Other Go-forward is primarily Centre, which includes the liquidity portfolio.
(5)
Does not reflect the cost base, funding and capital profile of a standalone bank. Operating expenses include charges based on an attribution of support provided by RBS to Williams & Glyn. Expenses incurred by Williams & Glyn were £91 million (Q1 2015 - £80 million; H1 2015 - £171 million; FY 2014 - £352 million).
(6)
Excludes restructuring and litigation and conduct costs.
(7)
CIB RWAs £43 billion includes £9 billion of RWAs related to businesses that will transfer out of CIB, comprising the Western European large corporate portfolio (expected to move to Commercial Banking in H2 2015) and UK Transaction Services (to Commercial Banking in 2016).
(8)
ROE is calculated using operating profit after tax on a non-statutory basis adjusted for preference share dividends divided by average notional equity (based on 13% of average RWAe).
(9)
PBB adjusted ROE Q2 2015 - 29% (Q1 2015 - 27%; H1 2015 - 28%; FY 2014 - 26%). CPB adjusted ROE Q2 2015 - 13% (Q1 2015 - 11%; H1 2015 - 12%; FY 2014 - 11%). Excluding IFRS volatility gain of Q2 2015 - £205 million (Q1 2015 - loss £123 million; H1 2015 - gain £82 million; FY 2014 - loss £468 million), the Go-forward Bank's adjusted return on equity was Q2 2015 - 14% (Q1 2015 - 13%; H1 2015 - 14%; FY 2014 - 13%).
 
Appendix 3 Go forward Bank profile
 
 
 
30 June 2015
  
31 December 2014
 
TPAs
RWAs
  
TPAs
RWAs
CIB Capital Resolution by product
£m
£m
  
£m
£m
           
APAC portfolio (1)
6.1 
3.4 
  
7.7 
4.2 
Americas portfolio
3.4 
4.3 
  
4.6 
7.8 
EMEA portfolio (2)
5.9 
4.3 
  
9.9 
6.8 
Shipping
5.3 
4.5 
  
5.7 
4.4 
Markets
34.1 
20.0 
  
54.2 
28.6 
GTS
6.3 
8.0 
  
11.3 
11.2 
Other
1.2 
0.7 
  
1.6 
0.8 
           
Total
62.3 
45.2 
  
95.0 
63.8 
 
Notes:
 
(1)
Asia-Pacific portfolio.
(2)
European, the Middle East and Africa portfolio.
 
 
 

 
Appendix 4
Williams & Glyn
 
Appendix 4 Williams & Glyn
 
In accordance with a commitment to the European Commission, RBS agreed to dispose of its Williams & Glyn business (RBS England and Wales and NatWest Scotland branch-based businesses, along with certain SME and corporate activities across the UK).
 
RBS is creating a standalone banking entity supported by a bespoke technology solution to facilitate the disposal of its Williams & Glyn business through an Initial Public Offering (IPO).  Following the conclusion of a £600 million pre-IPO investment from a consortium of investors led by global financial services specialists Corsair Capital and Centerbridge Partners, and including the Church Commissioners for England and RIT Capital Partners plc, the Williams & Glyn business continues to make progress towards its IPO.
 
The pre-IPO investment took the form of a £600 million bond issued by RBS.  This will be exchangeable for a significant non-controlling interest in Williams & Glyn at the time of its IPO. The bond will convert into Williams & Glyn shares at the IPO price, subject to a minimum ownership level which will be linked to the tangible book value of Williams & Glyn prior to the IPO, and in any case no more than a stake of 49%. To the extent the maximum ownership level is reached, the bond will be partially redeemed in cash such that the consortium of investors will receive a total value of £600 million of cash and shares at the IPO price. At the IPO, subject to RBS's consent, the Investors will have the option to acquire up to 10% additionally at the IPO price, subject to their pro forma ownership being no more than 49% in aggregate.
 
Set out below are the income statement and key balance sheet metrics in respect of the Williams & Glyn business. This represents the financial performance of Williams & Glyn prepared on a carve out internally managed basis illustrating a current view of the business. During the periods presented, Williams & Glyn has been an integral part of RBS and has not operated as a separate legal entity. These figures do not necessarily reflect the cost base, funding and capital profile of a standalone bank.
 
 
Half year ended
Year ended
 
30 June
30 June
31 December
 
2015
2014 
2014
 
£m
£m
£m
       
Income statement
      
Net interest income
328 
331 
668 
Non-interest income
98 
104 
210 
       
Total income
426 
435 
878 
Operating expenses (1)
(232)
(253)
(512)
       
Profit before impairment losses
194 
182 
366 
Impairment releases/(losses)
10 
(31)
(54)
       
Operating profit (2)
204 
151 
312 
       
Analysis of income by business
      
Retail
237 
249 
503 
Corporate
189 
186 
375 
       
Total income
426 
435 
878 
       
Analysis of impairments by business
      
Retail
12 
26 
47 
Corporate
(22)
5 
7 
       
Total impairment (releases)/losses
(10)
31 
54 
       
Loan impairment charge as % of gross customer loans and advances (excluding
      
   reverse repurchase agreements) by business
      
Retail
0.21%
0.46%
0.42%
Corporate
(0.51%)
0.11%
0.08%
       
Total
(0.10%)
0.31%
0.27%
 
Notes:
 
(1)
Does not reflect the cost base, funding and capital profile of a standalone bank. Operating expenses include charges based on an attribution of support provided by RBS to W&G.  Expenses incurred by W&G were: H1 2014 - £173 million; FY 2014 - £352 million; H1 2015 - £171 million.
(2)
Operating profit includes; £7 million profit in Commercial Banking (H1 2014 - £8 million profit; FY 2014 - £14 million profit); £1 million profit in RCR (H1 2014 - £1 million profit; FY 2014 - £3 million profit); £60 million loss in Central items (H1 2014 - £81 million loss; FY 2014 - £160 million loss); the remainder of W&G is reported in UK PBB.
 

 
Appendix 4 Further analysis of Williams & Glyn
 
 
Key metrics
Half year ended
Year
 
ended
 
30 June
30 June
31 December
2015 
2014 
2014 
       
Performance ratio
      
Net interest margin
3.39%
3.39%
3.43%
 
           
 
30 June
31 December
  
30 June
  
2015
2014 
  
2014 
 
£bn
£bn
Change
£bn
Change
           
Capital and balance sheet
          
Loans and advances to customers (gross)
          
  - Retail
11.3 
11.3 
- 
11.4 
(0.9%)
  - Corporate
8.6 
8.7 
(1.1%)
8.8 
(2.3%)
           
Total loans and advances to customers
19.9 
20.0 
(0.5%)
20.2 
(1.5%)
Loan impairment provisions
(0.4)
(0.4)
- 
(0.4)
- 
           
Net loans and advances to customers
19.5 
19.6 
(0.5%)
19.8 
(1.5%)
           
Total assets
19.8 
20.0 
(1.0%)
20.2 
(2.0%)
Funded assets
19.7 
19.7 
- 
20.0 
(1.5%)
           
Customer deposits
          
  - Retail
10.9 
10.3 
5.8%
10.0 
9.0%
  - Corporate
12.5 
11.7 
6.8%
11.8 
5.9%
           
Total customer deposits
23.4 
22.0 
6.4%
21.8 
7.3%
           
Loan:deposit ratio (excluding repos)
85%
91%
(600bp)
93%
(800bp)
           
Risk-weighted assets (1)
10.5 
10.4 
1.0%
11.1 
(5.4%)
 
Note:
 
(1)
RWAs on an end-point CRR basis.
 
Key points
 
·
Operating profit increased to £204 million in H1 2015 compared with £151 million in H1 2014, driven mainly by lower operating expenses and net impairment releases.
   
·
Total income of £426 million compared with £435 million in H1 2014. Net interest income was broadly flat with improved deposit income from higher balances and stronger margins, offset by lower asset income as a result of margin compression. Non-interest income was down £6 million to £98 million reflecting lower fee income.
   
·
Net interest margin has remained flat at 3.39%.
   
·
Operating expenses fell £21 million to £232 million in H1 2015 compared with £253 million in H1 2014 reflecting lower FSCS levy and compensation costs and lower fraud levels, partially offset by an increase in staff expenses as the business prepares for divestment.
   
·
Impairment release for H1 2015 were £10 million compared with a net charge of £31 million for H1 2014, as a result of lower levels of defaults across all portfolios and portfolio provision releases.
   
·
Deposits grew by £1.4 billion to £23.4 billion in H1 2015.
 
 
 
Appendix 5
 
Parent company financial statements
 

Appendix 5 Parent company financial statements
 
RBSG plc - Balance sheet at 30 June 2015
 
 
30 June
31 December
 
2015 
2014 
£m
£m
     
Assets
    
Loans and advances to banks
22,720 
24,490 
Loans and advances to customers
302 
299 
Debt securities
467 
911 
Investments in Group undertakings
54,852 
54,858 
Derivatives
138 
179 
Prepayments, accrued income and other assets
48 
193 
     
Total assets
78,527 
80,930 
     
Liabilities
    
Deposits by banks
1,209 
1,202 
Debt securities in issue
6,333 
7,510 
Derivatives
38 
30 
Accruals, deferred income and other liabilities
21 
165 
Subordinated liabilities
8,814 
10,708 
     
Total liabilities
16,415 
19,615 
Owners' equity
62,112 
61,315 
     
Total liabilities and equity
78,527 
80,930 
 
Owners' equity includes £17.9 billion of distributable reserves at 30 June 2015 (31 December 2014 - £17.5 billion). RBS intends to redeem US$1.9 billion of its outstanding Series M, N, P and Q non-cumulative dollar preference shares, represented by American depositary shares, on 1 September 2015. The redemption of these securities will reduce the parent company's distributable reserves by approximately £1.2 billion.

Appendix 5 Parent company financial statements
 
 
RBSG plc - Statement of changes in equity for the period ended 30 June 2015
  
     
 
Half year
  
 
 ended
Year ended
 
30 June
31 December
 
2015 
2014 
 
£m
£m
     
Called-up share capital
    
At beginning of period
6,877 
6,714 
Ordinary shares issued
104 
163 
     
At end of period
6,981 
6,877 
     
Paid-in equity
    
At beginning and end of period
431 
431 
     
Share premium account
    
At beginning of period
25,052 
24,667 
Ordinary shares issued
254 
385 
     
At end of period
25,306 
25,052 
     
Merger reserve
    
At beginning and end of period
2,341 
2,341 
     
Capital redemption reserve
    
At beginning and end of period
9,131 
9,131 
     
Retained earnings
    
At beginning of period
17,483 
17,033 
Profit attributable to ordinary and B shareholders and other equity owners
598 
1,128 
Equity preference dividends paid
(143)
(330)
Paid-in equity dividends paid, net of tax
(16)
(28)
Dividend access share dividend
- 
(320)
     
At end of period
17,922 
17,483 
     
Owners' equity at end of period
62,112 
61,315 
     
Total equity is attributable to:
    
Preference shareholders
4,313 
4,313 
Paid-in equity holders
431 
431 
Ordinary and B shareholders
57,368 
56,571 
     
 
62,112 
61,315 
 
 




 
 
Signatures


 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.






Date: 30 July 2015
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary