rbs201308026k5.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 August 2, 2013
 
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 leverage ratios
 
 
 

 




 
Appendix 1 Capital and leverage ratios
 
Contents
CRR capital estimate                                                                                                                                                                                                                                                                                                                            2
 
CRR leverage estimate                                                                                                                                                                                                                                                                                                                         6
 
 
 


 
Appendix 1 Capital and leverage ratios (continued)
CRR capital estimate
A reconciliation between the accounting capital as published in the interim financial statements and the Capital Requirements Regulations (CRR) capital position is set out below.
 
Although the CRR text has been finalised, the related technical standards are still draft. The finalisation of these could have a material impact in a number of areas such as the scope of the deduction for insignificant financial holdings.
 
The 'year 1 transitional basis' applies the rules as if 2013 was year 1 of the transition period. The full basis shows the same calculation based on a complete implementation of CRR. This is based on the Group's current interpretation of the final text of the CRR, as published on 27 June 2013, and the draft regulatory technical standards.
 
Instruments which do not include a call option and an incentive to redeem will be grandfathered. Instruments which have a call option and an incentive to redeem will generally be grandfathered until their effective maturity (first call date). Instruments which are not eligible for grandfathering are excluded.
 
In the first year of transition, the regulatory adjustments will be calculated under the new rules. The CRR deductions are determined by applying the transitional percentage (20% in year 1). The residual balance will be deducted according to the current rules, except where the PRA has specified a different treatment.
 
 
30 June 2013
  
31 December 2012
 
Current 
 basis 
Transitional 
basis 
Full 
basis 
  
Current 
 basis 
Transitional 
basis 
Full 
basis 
               
Core Tier 1 capital
£48,444m 
£54,821m 
£41,045m 
  
£47,320m 
£53,963m 
£37,908m 
RWAs (1)
£436bn 
£471bn 
£471bn 
  
£460bn 
£495bn 
£495bn 
Core Tier 1 ratio
11.1% 
11.6%
8.7% 
  
10.3% 
10.9% 
7.7% 
 
Key points
·
Refinements to interpretations and re-assessments on the treatment of the nominal value of the B shares post transition, deferred tax assets and incurred CVA have resulted in the increase in the CRR end point capital base.
   
·
The reduction in RWAs under current rules is due to continued Non-Core run-off and the strategic reshaping of the Markets business. Under CRR rules, corporate SME lending attracts a lower weighting.
 
 

 
 
Appendix 1 Capital and leverage ratios (continued)
CRR capital estimate (continued)
 
 
30 June 2013
  
31 December 2012
 
Current  basis 
Transitional 
basis 
Full  basis 
  
Current  basis 
Transitional 
basis 
Full 
basis 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Common Equity Tier 1 (CET1) capital: instruments
  and reserves
              
Capital instruments and the related share premium
  accounts
              
  - Ordinary shares
31,584 
31,584 
31,584 
  
30,864 
30,864 
30,864 
  - B shares (1)
510 
510 
510 
  
510 
510 
- 
Retained earnings including current year loss
11,105 
11,105 
11,105 
  
10,596 
10,596 
10,596 
Accumulated other comprehensive income
25,984 
25,984 
25,984 
  
26,160 
26,160 
26,160 
               
Less innovative issues moved to Additional Tier 1 (AT1) capital
(979)
(979)
(979)
  
(431)
(431)
(431)
Less preference shares moved to AT1 capital
(4,313)
(4,313)
(4,313)
  
(4,313)
(4,313)
(4,313)
               
Non-controlling interests per accounting balance sheet
475 
380 
- 
  
2,318 
2,318 
2,318 
Less innovative issues moved to AT1 capital
- 
- 
- 
  
(548)
(548)
(548)
Less minority interest deconsolidated
- 
- 
- 
  
(1,367)
(1,367)
(1,770)
Minority interests allowable
475 
380 
- 
  
403 
403 
- 
               
Common Equity Tier 1 (before regulatory adjustments)
64,366 
64,271 
63,891 
  
63,789 
63,789 
62,876 
               
Common Equity Tier 1: regulatory adjustments
              
Additional value adjustments (2)
- 
(267)
(267)
  
- 
(310)
(310)
Intangible assets (net of related tax liability)
(13,997)
(2,811)
(14,053)
  
(13,545)
- 
(13,956)
Deferred tax assets that rely on future profitability
  excluding those arising from temporary differences (3)
- 
(261)
(2,606)
  
- 
(323)
(3,231)
Fair value reserves related to gains or losses on cash flow hedges
(491)
(491)
(491)
  
(1,666)
(1,666)
(1,666)
Excess of expected loss over impairment provisions (4)
(2,032)
(1,099)
(5,496)
  
(1,904)
- 
(6,154)
Gains or losses on liabilities valued at fair value    resulting from changes in own credit standing (5)
447 
400 
208 
  
691 
691
493 
Defined benefit pension fund assets
628 
(141)
(141)
  
913 
(144)
(144)
Exposure amount which qualify for a risk-weighting of  1,250%, where the institution opts for the deduction alternative (securitisation positions)
(1,051)
- 
- 
  
(1,107)
- 
- 
Regulatory adjustments relating to unrealised gains and losses
714 
714 
- 
  
346 
346 
- 
Of which:
              
  - unrealised losses on AFS debt
800 
800 
- 
  
409 
409 
- 
  - unrealised gains on AFS equity
(86)
(86)
- 
  
(63)
(63)
- 
Other adjustments for regulatory purposes
(140)
- 
- 
  
(197)
- 
- 
Qualifying AT1 deductions that exceed the AT1
  capital (6)
- 
(5,494)
- 
  
- 
(8,420)
- 
               
Common Equity Tier 1 (total regulatory adjustments)
(15,922)
(9,450)
(22,846)
  
(16,469)
(9,826)
(24,968)
               
Common Equity Tier 1 capital (7)
48,444 
54,821 
41,045 
  
47,320 
53,963 
37,908 
 
For the notes to this table refer to page 5.
 
 


 
Appendix 1 Capital and leverage ratios (continued)
 
CRR capital estimate (continued)
 
 
30 June 2013
  
31 December 2012
 
Current 
 basis 
Transitional 
basis 
Full 
basis 
  
Current 
 basis 
Transitional 
basis 
Full 
basis 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Additional Tier 1 capital: instruments
              
Capital instruments and related share premium accounts
5,123 
- 
- 
  
5,075 
- 
- 
Qualifying Tier 1 capital and the related share premium accounts subject to phase out from AT1
4,427 
4,448 
- 
  
4,125 
4,571 
- 
Qualifying Tier 1 capital included in consolidated AT1
  capital issued by subsidiaries and held by third parties (subject to phase out £3,695 million)
302 
3,498 
- 
  
292 
4,042 
- 
               
Additional Tier 1 capital (before regulatory adjustments)
9,852 
7,946 
- 
  
9,492 
8,613 
- 
               
Additional Tier 1: regulatory adjustments
              
Deductions from AT1 capital during the transitional
  period
- 
(13,440)
- 
  
- 
(17,033)
- 
Of which:
              
  - intangible assets
- 
(11,242)
- 
  
- 
(13,956)
- 
  - excess of expected loss over impairment provisions
- 
(2,198)
- 
  
- 
(3,077)
- 
Other Basel II regulatory adjustments
(508)
- 
- 
  
323 
- 
- 
               
Additional Tier 1 (total regulatory adjustments)
(508)
(13,440)
- 
  
323 
(17,033)
- 
               
Additional Tier 1 capital
9,344 
(5,494)
- 
  
9,815 
(8,420)
- 
               
Qualifying AT1 deductions that exceed the AT1
  capital (6)
- 
5,494 
- 
  
- 
8,420 
- 
               
Tier 1 capital (8)
57,788 
54,821 
41,045 
  
57,135 
53,963 
37,908 
               
Tier 2 capital: instruments and provisions
              
Capital instruments and the related share premium
  accounts
15,666 
- 
- 
  
15,614 
- 
- 
Qualifying items and the related share premium
- 
1,015 
5,071 
  
- 
2,774 
7,292 
Qualifying own funds instruments issued by subsidiaries and held by third parties
- 
13,441 
10,229 
  
- 
12,605 
5,185 
Unrealised gains on AFS equity shares
86 
- 
- 
  
63 
- 
- 
Credit risk adjustments
415 
415 
415 
  
399 
399 
399 
               
Tier 2 capital (before regulatory adjustments)
16,167 
14,871 
15,715 
  
16,076 
15,778 
12,876 
               
Tier 2  regulatory adjustments
              
Residual amounts deducted during the transitional
  period
  - excess of expected loss over impairment provisions
- 
(2,198)
- 
  
- 
(3,077)
- 
Other Basel II regulatory adjustments
(4,823)
- 
- 
  
(3,924)
- 
- 
               
Tier 2 (total regulatory adjustments)
(4,823)
(2,198)
- 
  
(3,924)
(3,077)
- 
               
Tier 2 capital
11,344 
12,673 
15,715 
  
12,152 
12,701 
12,876 
               
Total deductions
(310)
- 
- 
  
(2,487)
- 
- 
               
Total capital
68,822 
67,494 
56,760 
  
66,800 
66,664 
50,784 
 
For the notes to this table refer to page 5.




 
Appendix 1 Capital and leverage ratios (continued)
 
CRR capital estimate (continued)
 
Flow statement (CRR)
The table below analyses the movement in Common Equity Tier 1, Other Tier 1 and Tier 2 capital during the first half of the year.
 
Common 
Equity Tier 1 
Tier 2 
Total 
 
£m 
£m 
£m 
       
At 1 January 2013
37,908 
12,876 
50,784 
Attributable profit net of movements in fair value of own credit
250 
- 
250 
Share capital and reserve movements in respect of employee share schemes
220 
- 
220 
Nominal value of B shares
510 
- 
510 
Available for sale reserve
(368)
- 
(368)
Foreign exchange reserve
1,293 
- 
1,293 
Foreign exchange movements
- 
794 
794 
Increase in goodwill and intangibles
(97)
- 
(97)
Deferred tax asset
625 
- 
625 
Excess of expected loss over impairment provisions
658 
- 
658 
Grandfathered instruments under CRR text
- 
2,748 
2,748 
Dated subordinated debt issues
- 
652 
652 
Dated subordinated debt maturities and redemptions
- 
(1,421)
(1,421)
Other movements
46 
66 
112 
       
At 30 June 2013
41,045 
15,715 
56,760 
 
Notes:
General:
Estimates, including RWAs, are based on the current interpretation, expectations, and understanding of the proposed CRR requirements, anticipated compliance with all necessary enhancements to model calibration and other refinements, as well as further regulatory clarity and implementation guidance from the UK and EU authorities. The actual CRR impact may differ from these estimates due to the finalisation of the technical standards and interpretive issues, for example the eligibly of counterparties that qualify for exemption when applying the credit valuation adjustment (CVA) volatility charge.
 
Capital base:
(1)
Includes the nominal value of B shares (£0.5 billion) on the assumption that RBS will be privatised in the future and that they will count as permanent equity in some form by the end of 2017.
(2)
The additional valuation adjustment, arising from the application of the prudent valuation requirements to all assets measured at fair value, has been included in full in the year one transition in line with the guidance from the PRA. This uses methodology agreed with the PRA pending the issue of the final Regulatory Technical Standards (RTS) by the European Banking Authority.
(3)
The PRA requires firms to take a CET1 deduction in the year one transition equal to 10% of the deferred tax assets (DTAs) which do not relate to temporary differences. The netting of deferred tax liabilities against DTAs reflects our interpretation of the final CRR text.
(4)
In our current interpretation of the CRR final rules, we have assumed that incurred CVA will be counted as eligible provisions in the determination of the deduction for expected losses.
(5)
The deduction for the valuation adjustment for own credit risk for derivative liabilities (the debit valuation adjustment) is assumed to transition on the same basis as other regulatory adjustments (20% in year one of transition).
(6)
Where the deductions from AT1 capital exceed the amount of AT1 capital, the excess is deducted from CET1 capital. The excess of AT1 deductions over AT1 capital in the year 1 transition is due to the application of the current rules to the transitional amounts.
(7)
The fully loaded CRD IV Core Tier 1 capital ratio as reported in the Capital management section on page 130 of the Group's Interim Results 2013 is based on Core Tier 1 capital of £41.2 billion assuming full divestment of Direct Line Group.
(8)
Should the regulatory technical standard relating to maturity restrictions on hedging be implemented without amendment, the fully loaded Tier 1 capital position would reduce by approximately £1.5 billion for insignificant investments based on our estimate of current positions. The Group has already announced its intention to exit the equities businesses as part of Markets strategic change; this will reduce positions to the extent that no deduction will be required. However there could be a modest short-term impact on the Group's transitional ratio.




 
Appendix 1 Capital and leverage ratios (continued)
 
CRR capital estimate (continued)
 
Notes (continued)
Risk weighted assets:
(1)
Current securitisation positions are shown as RWAs risk weighted at 1,250%.
(2)
RWA uplifts include the impact of credit valuation adjustments and asset valuation correlation on banks and CCPs.
(3)
RWAs assume implementation of the full IMM model suite, that existing waivers will continue and includes methodology changes that take effect immediately on CRR implementation
(4)
Non-financial counterparties and sovereigns that meet the eligibility criteria under CRR are exempt from the CVA volatility charges.
(5)
The CRR final text includes a reduction in the risk weight relating to SMEs
 
CRR leverage estimate
The Group monitors and reports an internationally recognised leverage definition (assets/equity) based on funded tangible assets (total assets minus derivatives and intangible assets) divided by qualifying regulatory Tier 1 capital.
 
The Basel III agreement introduced a leverage ratio as a non-risk-based backstop limit intended to supplement the risk-based capital requirements. It aims to constrain the build up of excess of leverage in the banking sector, introducing additional safeguards against model risk and measurement errors.
 
The FPC on 19 March 2013 required the PRA to take steps to ensure that the major UK banks would hold resources equivalent to at least 7% of RWAs by the end 2013 after reflecting adjustments recommended by FPC. The PRA statement of 20 June 2013, relating to the FPC's capital shortfall exercise, indicated that meeting the 7% RWA capital standard will be sufficient for leverage ratios to be no less than 3%. The Group's estimated leverage ratios under both the CRR and Basel III texts are above 3%.
 
The PRA has requested that UK banks publish a leverage ratio based on:
●
Tier 1 capital as set out in the final CRR text
   
●
Exposure measure calculated using the December 2010 Basel III text; further specificity being sourced from the instructions in the July 2012 Quantitative Impact Study and the related Frequently Asked Questions
 

 
 
 
Appendix 1 Capital and leverage ratios (continued)
CRR leverage estimate (continued)
The leverage ratios based on both the final CRR text and the basis requested by the PRA are set out below.
 
30 June 2013
  
31 December 2012
Leverage ratio
Exposure 
£bn 
Tier 1 
 capital 
£bn 
Leverage 
Leverage 
% 
  
Exposure 
£bn 
Tier 1 
 capital 
£bn 
Leverage 
Leverage 
% 
                   
Assets/equity basis:
                  
Tier 1 leverage ratio
828.5 
57.8 
14x 
7.0 
  
856.9 
57.1 
15x 
6.7 
Tangible equity leverage ratio (1)
828.5 
49.9 
17x 
6.0 
  
856.9 
49.8 
17x 
5.8 
                   
CRR basis:
                  
Transitional measure
1,193.4 
54.6 
22x 
4.6 
  
1,205.2 
54.0 
22x 
4.5 
Full end point measure
  (excluding grandfathering)
1,191.1 
41.0 
29x 
3.4 
  
1,202.3 
37.9 
32x 
3.1 
Adjusted end point measure
  (including grandfathering) (2)
1,191.1 
50.9 
23x 
4.3 
  
1,202.3 
48.0 
25x 
4.0 
                   
Basel III basis:
                  
Transitional measure
1,223.3 
54.6 
22x 
4.5 
  
1,225.8 
54.0 
23x 
4.4 
Full end point measure
  (excluding grandfathering)
1,221.0 
41.0 
29x 
3.4 
  
1,222.9 
37.9 
32x 
3.1 
Adjusted end point measure
  (including grandfathering) (2)
1,221.0 
50.9 
24x 
4.2 
  
1,222.9 
48.0 
25x 
3.9 
 
Notes:
(1)
Tangible equity leverage ratio is total tangible equity divided by total tangible assets (after netting derivatives).
(2)
Basel III adjusted Tier 1 capital includes grandfathered ineligible capital instruments.
 
Key point
·
Both the CRR and Basel III end point leverage ratios have improved by 30 basis points to 3.4%, primarily reflecting the increase in Common Equity Tier 1 capital base from £38 billion to £41 billion as highlighted on pages 2 and 3.

 

 
 
Appendix 1 Capital and leverage ratios (continued)
 
CRR leverage estimate (continued)
 
30 June 2013
  
31 December 2012
Exposure measure
Assets/ 
equity basis 
£bn 
Pro forma 
CRR 
leverage 
£bn 
Pro forma 
Basel III 
 leverage 
£bn 
  
Assets/ 
equity basis 
£bn 
Pro forma 
CRR 
 leverage 
£bn 
Pro forma 
Basel III 
leverage 
£bn 
               
Cash and balances at central banks
89.6 
89.6 
89.6 
  
79.3 
79.3 
79.3 
Debt securities
138.2 
138.2 
138.2 
  
157.4 
157.4 
157.4 
Equity shares
11.4 
11.4 
11.4 
  
15.2 
15.2 
15.2 
Derivatives
373.7 
373.7 
373.7 
  
441.9 
441.9 
441.9 
Loans and advances to banks and
  customers
449.0 
449.0 
449.0 
  
459.3 
459.3 
459.3 
Reverse repurchase agreements and
  stock borrowing
99.3 
99.3 
99.3 
  
104.8 
104.8 
104.8 
Assets of disposal groups
1.3 
1.3 
1.3 
  
14.0 
14.0 
14.0 
Goodwill and intangible assets
14.0 
14.0 
14.0 
  
13.5 
13.5 
13.5 
Other assets
39.7 
39.7 
39.7 
  
26.9 
26.9 
26.9 
               
Total assets
1,216.2 
1,216.2 
1,216.2 
  
1,312.3 
1,312.3 
1,312.3 
               
Netting:
              
  - Derivatives
  
(279.5)
(279.5)
    
(340.4)
(340.4)
  - Securities financing transactions (SFTs) (1)
  
(82.2)
(50.7)
    
(75.3)
(52.5)
Exclude derivatives
(373.7)
      
(441.9)
    
Regulatory deductions and other
  adjustments (2)
(14.0)
(3.8)
(3.8)
  
(13.5)
(14.9)
(14.9)
               
Adjusted total tangible assets
828.5 
      
856.9 
    
               
Potential future exposure on derivatives (3)
  
150.1 
148.5 
    
133.1 
130.9 
Undrawn commitments
  
190.3 
190.3 
    
187.5 
187.5 
               
End point leverage exposure measure
  
1,191.1 
1,221.0 
    
1,202.3 
1,222.9 
Transitional adjustments to assets
  deducted from regulatory Tier 1 capital
  
2.3 
2.3 
    
2.9 
2.9 
               
Transitional leverage exposure measure
  
1,193.4 
1,223.3 
    
1,205.2 
1,225.8 
 
Notes:
(1)
Under Basel III view, the balance sheet value is reduced for allowable netting under the Basel II framework (excluding cross-product netting) which mainly relates to cash positions under a master netting agreement. In the CRR calculation, the balance sheet value is replaced with the related regulatory exposure value which allows netting of both cash positions and  related collateral of SFTs.
(2)
Regulatory deductions: to ensure consistency between the numerator and the denominator, items that are deducted from capital are also deducted from total assets (comprising goodwill and intangibles £14.1 billion (31 December 2012 - £13.5 billion), deferred tax assets £2.6 billion (31 December 2012 - £3.2 billion), additional valuation adjustment £0.3 billion and cash flow hedge reserves £0.5 billion (31 December 2012 - £1.7 billion)). Other adjustments reflect the difference between the scope of the regulatory consolidation and the consolidation for financial reporting.
(3)
Potential future exposure on derivatives: the regulatory add-on which is calculated by assigning percentages based on the type of instrument and the residual maturity of the contract to the nominal amounts or underlying values of derivative contracts.
 
 

 
 
Appendix 1 Capital and leverage ratios (continued)
 
CRR leverage estimate (continued)
Undrawn commitments represent regulatory add-on relating to off-balance sheet undrawn commitments based on a 10% credit conversion factor (CCF) for unconditionally cancellable commitments and 100% of other commitments. Off-balance sheet items comprise:
 
 
UK 
 Retail 
UK 
Corporate 
Wealth 
International  Banking (1) 
Ulster 
 Bank 
US Retail & 
Commercial 
Markets 
Total 
30 June 2013
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
                 
Unconditionally
  cancellable items (after
  application of 10% CCF)
3.1 
0.4 
0.1 
0.7 
0.2 
1.9 
- 
6.4 
Undrawn commitments
9.3 
33.6 
5.3 
104.3 
2.2 
17.4 
11.8 
183.9 
                 
 
12.4 
34.0 
5.4 
105.0 
2.4 
19.3 
11.8 
190.3 
 
31 December 2012
                
                 
Unconditionally
  cancellable items (after
  application of 10% CCF)
3.3 
0.5 
0.1 
0.8 
0.2 
1.8 
- 
6.7 
Undrawn commitments
9.6 
33.9 
4.7 
102.6 
2.1 
15.6 
12.3 
180.8 
                 
 
12.9 
34.4 
4.8 
103.4 
2.3 
17.4 
12.3 
187.5 
 
Note:
(1)
International Banking facilities are primarily undrawn facilities to large multinational corporations, many of which are domiciled in the UK.
 
 

 

 

 
 
 
 
 
 
 
 
Appendix 2
 
Funding and related risks
 

 

 

 
 
Appendix 2 Funding and related risks
 
Contents
Funding sources                                                                                                                                                                                                                                                                                                                                      2
 
  Deposits and repos                                                                                                                                                                                                                                                                                                                               2
 
  Divisional loan:deposit ratios and funding surplus                                                                                                                                                                                                                                                                         2
 
Net stable funding ratio (NSFR)                                                                                                                                                                                                                                                                                                            4
 
Retail & Commercial deposit maturity analysis                                                                                                                                                                                                                                                                                   5
 
Encumbrance                                                                                                                                                                                                                                                                                                                                            5
 
Non-traded interest rate risk                                                                                                                                                                                                                                                                                                                   8
 
  Value-at-risk                                                                                                                                                                                                                                                                                                                                            8
 
  Sensitivity of net interest income                                                                                                                                                                                                                                                                                                        9
 
Currency risk: Structural foreign currency exposures                                                                                                                                                                                                                                                                      10
 
 

 
 
 
Appendix 2 Funding and related risks (continued)
 
Funding sources
 
Deposits and repos
The table below shows the composition of the Group's deposits and repos.
 
 
30 June 2013
  
31 December 2012
 
Deposits 
Repos 
  
Deposits 
Repos 
 
£m 
£m 
  
£m 
£m 
           
Financial institutions
          
  - central and other banks
45,287 
34,419 
  
57,074 
44,332 
  - other financial institutions
57,639 
88,329 
  
64,237 
86,968 
Personal and corporate deposits
379,567 
992 
  
369,755 
1,072 
           
 
482,493 
123,740 
  
491,066 
132,372 
 
£164 billion or 38% of the customer deposits included above are insured through the UK Financial Services Compensation Scheme, US Federal Deposit Insurance Corporation scheme and other similar schemes. Of the personal and corporate deposits above, 51% related to personal customers.
 
Divisional loan:deposit ratios and funding surplus
The table below shows divisional loans, deposits, loan:deposit ratios (LDR) and customer funding surplus.
 
Loans (1)
Deposits (2)
LDR (3)
Funding 
 surplus/ 
(gap) (3)
30 June 2013
£m 
£m 
% 
£m 
         
UK Retail
109,711 
111,559 
98 
1,848 
UK Corporate
102,244 
126,234 
81 
23,990 
Wealth
17,010 
38,885 
44 
21,875 
International Banking
40,231 
46,019 
87 
5,788 
Ulster Bank
28,525 
23,143 
123 
(5,382)
US Retail & Commercial
53,059 
60,116 
88 
7,057 
         
Retail & Commercial
350,780 
405,956 
86 
55,176 
Markets
28,028 
26,418 
106 
(1,610)
Other
5,025 
2,044 
246 
(2,981)
         
Core
383,833 
434,418 
88 
50,585 
Non-Core
35,785 
2,788 
nm 
(32,997)
         
Group
419,618 
437,206 
96 
17,588 
 
nm = not meaningful
 
For the notes to this table refer to the following page.

 
 

 
Appendix 2 Funding and related risks (continued)
 
Funding sources: Divisional loan:deposit ratios and funding surplus (continued)
 
 
Loans (1)
Deposits (2)
LDR (3)
Funding 
 surplus/ 
(gap) (3)
31 December 2012
£m 
£m 
% 
£m 
         
UK Retail
110,970 
107,633 
103 
(3,337)
UK Corporate
104,593 
127,070 
82 
22,477 
Wealth
16,965 
38,910 
44 
21,945 
International Banking
39,500 
46,172 
86 
6,672 
Ulster Bank
28,742 
22,059 
130 
(6,683)
US Retail & Commercial
50,986 
59,164 
86 
8,178 
Conduits (4)
2,458 
- 
- 
(2,458)
         
Retail & Commercial
354,214 
401,008 
88 
46,794 
Markets
29,589 
26,346 
112 
(3,243)
Other
2,123 
3,340 
64 
1,217 
         
Core
385,926 
430,694 
90 
44,768 
Non-Core
45,144 
3,298 
nm 
(41,846)
Direct Line Group
881 
- 
- 
(881)
         
Group
431,951 
433,992 
100 
2,041 
 
nm = not meaningful
 
Notes:
(1)
Excludes reverse repurchase agreements and stock borrowing and net of impairment provisions.
(2)
Excludes repurchase agreements and stock lending.
(3)
Based on loans and advances to customers net of provisions and customer deposits as shown.
(4)
All conduits relate to International Banking and have been extracted and shown separately as they were funded by commercial paper issuance until the end of Q3 2012.
 
 
 
 
 
Appendix 2 Funding and related risks (continued)
 
Net stable funding ratio (NSFR)*
The table below shows the composition of the Group's NSFR, estimated by applying the Basel III guidance issued in December 2010. The Group's NSFR will continue to be refined over time in line with regulatory developments and related interpretations. It may also be calculated on a basis that may differ from other financial institutions.
 
 
30 June 2013
  
31 December 2012
    
   
ASF (1)
    
ASF (1)
  
Weighting 
 
£bn 
£bn 
  
£bn 
£bn 
  
% 
               
Equity
70 
70 
  
70 
70 
  
100 
Wholesale funding > 1 year
93 
93 
  
109 
109 
  
100 
Wholesale funding < 1 year
59 
- 
  
70 
- 
  
- 
Derivatives
370 
- 
  
434 
- 
  
- 
Repurchase agreements
124 
- 
  
132 
- 
  
- 
Deposits
              
  - retail and SME - more stable
209 
188 
  
203 
183 
  
90 
  - retail and SME - less stable
70 
56 
  
66 
53 
  
80 
  - other
158 
79 
  
164 
82 
  
50 
Other (2)
63 
- 
  
64 
- 
  
- 
               
Total liabilities and equity
1,216 
486 
  
1,312 
497 
    
               
Cash
90 
- 
  
79 
- 
  
- 
Inter-bank lending
30 
- 
  
29 
- 
  
- 
Debt securities > 1 year
              
  - governments AAA to AA-
58 
3 
  
64 
3 
  
5 
  - other eligible bonds
43 
9 
  
48 
10 
  
20 
  - other bonds
18 
18 
  
19 
19 
  
100 
Debt securities < 1 year
19 
- 
  
26 
- 
  
- 
Derivatives
374 
- 
  
442 
- 
  
- 
Reverse repurchase agreements
99 
- 
  
105 
- 
  
- 
Customer loans and advances > 1 year
              
  - residential mortgages
138 
90 
  
145 
94 
  
65 
  - other
121 
121 
  
136 
136 
  
100 
Customer loans and advances < 1 year
              
  - retail loans
18 
15 
  
18 
15 
  
85 
  - other
142 
71 
  
131 
66 
  
50 
Other (3)
66 
66 
  
70 
70 
  
100 
               
Total assets
1,216 
393 
  
1,312 
413 
    
Undrawn commitments
217 
11 
  
216 
11 
  
5 
               
Total assets and undrawn commitments
1,433 
404 
  
1,528 
424 
    
               
Net stable funding ratio
  
120% 
    
117% 
    
 
Notes:
(1)
Available stable funding.
(2)
Deferred tax and other liabilities.
(3)
Prepayments, accrued income, deferred tax, settlement balances and other assets.
 
Key point
·
NSFR improved by 300 basis points in the first half of the year. Reduction in long-term wholesale funding of £16 billion was primarily driven by Markets, complimented by a decrease in funding requirements, as a result of a reduction in long-term lending principally within Non-Core.
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 2 Funding and related risks (continued)
 
Retail & Commercial deposit maturity analysis*
The table below shows the contractual and behavioural maturity analysis of Retail & Commercial customer deposits.
 
Less than 
1 year 
1-5 years 
More than 
5 years 
Total 
30 June 2013
£bn 
£bn 
£bn 
£bn 
         
Contractual maturity
391 
15 
- 
406 
Behavioural maturity
141 
217 
48 
406 
         
31 December 2012
        
         
Contractual maturity
380 
20 
1 
401 
Behavioural maturity
145 
219 
37 
401 
 
Key points
●
The contractual maturity of balance sheet assets and liabilities highlights the maturity transformation which underpins the role of banks to lend long-term, but to fund themselves predominantly through short-term liabilities such as customer deposits. This is achieved through the diversified funding franchise of the Group across an extensive customer base, and across a wide geographic network.
   
●
In practice, the behavioural profiles of many liabilities exhibit greater stability and longer maturity than the contractual maturity. This is particularly true of many types of retail and corporate deposits which whilst may be repayable on demand or at short notice, have demonstrated very stable characteristics even in periods of acute stress such as those experienced in 2008.
 
Encumbrance
Refer to page 151 of the Group's 2012 Annual Report and Accounts for further details of the Group's approach to encumbrance.
 
The Group's encumbrance ratios are set out below.
Encumbrance ratios
30 June 
2013 
% 
31 December 
2012 
% 
     
Total
18 
18 
Excluding balances relating to derivative transactions
21 
22 
Excluding balances relating to derivative and securities financing transactions
12 
13 
 
Key points
●
Unencumbered financial assets covered unsecured liabilities excluding derivatives by 79%.
   
●
The Group's encumbrance ratio remained stable at 18%.
   
●
c.30% of the Group's residential mortgage portfolio was encumbered at 30 June 2013, unchanged from 31 December 2012.
 
 
 
 
 
*Not within the scope of Deloitte LLP's review report
 

 
 
 
Appendix 2 Funding and related risks (continued)
 
Encumbrance (continued)
 
Assets (financial) encumbrance
 
 
Encumbered assets relating to:
                
30 June 2013
Debt securities in issue
  
Other secured liabilities
Total 
encumbered 
assets 
  
Encumbered 
assets as a % 
of related 
assets 
  
Unencumbered
  
Total 
Securitisations 
and conduits 
Covered 
bonds 
Derivatives 
Repos 
Secured 
deposits 
Liquidity 
portfolio 
Other 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
  
£bn 
                             
Cash and balances at central banks
- 
- 
  
- 
- 
- 
- 
  
- 
  
81.7 
7.9 
  
89.6 
Loans and advances to banks (1)
6.3 
0.9 
  
13.2 
-   
-   
20.4 
  
67 
  
-   
9.9 
  
30.3 
Loans and advances to customers (1)
                            
  - UK residential mortgages
15.5 
15.2 
  
-   
-   
-     
30.7 
  
28 
  
60.7 
17.4 
  
108.8 
  - Irish residential mortgages
10.9 
- 
  
- 
- 
1.2 
12.1 
  
77 
  
-   
3.7 
  
15.8 
  - US residential mortgages
- 
- 
  
- 
- 
2.1 
2.1 
  
10 
  
11.9 
7.8 
  
21.8 
  - UK credit cards
3.1 
- 
  
- 
- 
- 
3.1 
  
44 
  
- 
4.0 
  
7.1 
  - UK personal loans
4.2 
- 
  
- 
- 
- 
4.2 
  
51 
  
- 
4.0 
  
8.2 
  - other
16.6 
- 
  
20.1 
-   
2.1 
38.8 
  
15 
  
3.0 
216.1 
  
257.9 
Debt securities
1.6 
- 
  
5.3 
80.5 
10.5 
97.9 
  
71 
  
20.9 
19.4 
  
138.2 
Equity shares
- 
- 
  
0.7 
6.4 
- 
7.1 
  
62 
  
- 
4.3 
  
11.4 
Settlement balances
- 
- 
  
- 
- 
- 
- 
  
- 
  
- 
18.0 
  
18.0 
                             
 
58.2 
16.1 
  
39.3 
86.9 
15.9 
216.4 
      
178.2 
312.5 
  
707.1 
Own asset securitisations
                    
20.0 
      
                             
Total liquidity portfolio
                    
198.2 
      
                             
Liabilities secured
                            
Intra-Group - used for secondary liquidity
20.0 
- 
  
- 
- 
- 
20.0 
              
Intra-Group - other
21.6 
- 
  
- 
- 
- 
21.6 
              
Third-party (2)
10.1 
9.3 
  
53.9 
123.7 
14.7 
211.7 
              
                             
 
51.7 
9.3 
  
53.9 
123.7 
14.7 
253.3 
              
                             
Total assets
            
1,216 
              
Total assets excluding derivatives
            
843 
              
Total assets excluding derivatives and reverse repos
          
743 
              
Total liabilities excluding secured liabilities and derivatives
          
619 
              
 
For the notes to this table refer to the following page.
 
Appendix 2 Funding and related risks (continued)
Encumbrance: Assets (financial) encumbrance (continued)
 
 
Encumbered assets relating to:
                
31 December 2012
Debt securities in issue
  
Other secured liabilities
Total 
encumbered 
assets 
  
Encumbered 
assets as a % 
of related 
assets 
  
Unencumbered
  
Total 
Securitisations 
and conduits 
Covered 
bonds 
Derivatives 
Repos 
Secured 
deposits 
Liquidity 
portfolio 
Other 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
  
£bn 
                             
Cash and balances at central banks
- 
- 
  
- 
- 
- 
- 
  
- 
  
70.2 
9.1 
  
79.3 
Loans and advances to banks (1)
5.3 
0.5 
  
12.8 
- 
- 
18.6 
  
59 
  
- 
12.7 
  
31.3 
Loans and advances to customers (1)
                            
  - UK residential mortgages
16.4 
16.0 
  
- 
- 
- 
32.4 
  
30 
  
58.7 
18.0 
  
109.1 
  - Irish residential mortgages
10.6 
- 
  
- 
- 
1.8 
12.4 
  
81 
  
- 
2.9 
  
15.3 
  - US residential mortgages
- 
- 
  
- 
- 
- 
- 
  
- 
  
7.6 
14.1 
  
21.7 
  - UK credit cards
3.0 
- 
  
- 
- 
- 
3.0 
  
44 
  
- 
3.8 
  
6.8 
  - UK personal loans
4.7 
- 
  
- 
- 
- 
4.7 
  
41 
  
- 
6.8 
  
11.5 
  - other
20.7 
- 
  
22.5 
- 
0.8 
44.0 
  
16 
  
6.5 
217.1 
  
267.6 
Debt securities
1.0 
- 
  
8.3 
91.2 
15.2 
115.7 
  
70 
  
22.3 
26.6 
  
164.6 
Equity shares
- 
- 
  
0.7 
6.8 
- 
7.5 
  
49 
  
- 
7.7 
  
15.2 
Settlement balances and other financial assets
- 
- 
  
- 
- 
- 
- 
  
- 
  
- 
6.7 
  
6.7 
                             
 
61.7 
16.5 
  
44.3 
98.0 
17.8 
238.3 
      
165.3 
325.5 
  
792.1 
Own asset securitisations
                    
22.6 
      
                             
Total liquidity portfolio
                    
187.9 
      
                             
Liabilities secured
                            
Intra-Group - used for secondary liquidity
22.6 
- 
  
- 
- 
- 
22.6 
              
Intra-Group - other
23.9 
- 
  
- 
- 
- 
23.9 
              
Third-party (2)
12.0 
10.1 
  
60.4 
132.4 
15.3 
230.2 
              
                             
 
58.5 
10.1 
  
60.4 
132.4 
15.3 
276.7 
              
                             
Total assets
            
1,312 
              
Total assets excluding derivatives
            
870 
              
Total assets excluding derivatives and reverse repos
          
766 
              
Total liabilities excluding secured liabilities and derivatives
          
638 
              
 
Notes:
(1)
Excludes reverse repos.
(2)
In accordance with market practice the Group employs its own assets and securities received under reverse repo transactions as collateral for repos.

 

 
 
Appendix 2 Funding and related risks (continued)
 
Non-traded interest rate risk
Non-traded interest rate risk impacts earnings arising from the Group's banking activities. This excludes positions in financial instruments which are classified as held-for-trading, or hedging items.
 
Methodology relating to interest rate risk are unchanged from the year end and are set out on page 153 of the Group's 2012 Annual Report and Accounts.
 
Value-at-risk
VaR metrics are based on interest rate repricing gap reports as at the reporting date. These incorporate customer products and associated funding and hedging transactions as well as non-financial assets and liabilities such as property, plant and equipment, capital and reserves. Behavioural assumptions are applied as appropriate.
 
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 risk measures. VaR relating to interest rate risk in the banking book for the Group's Retail & Commercial banking activities at 99% confidence level and currency analysis at period end were as follows:
 
 
Average 
Period end 
Maximum 
Minimum 
 
£m 
£m 
£m 
£m 
         
30 June 2013
40 
33 
50 
30 
31 December 2012
46 
21 
65 
20 
 
 
30 June 
2013 
£m 
31 December 
2012 
£m 
     
Euro
10 
19 
Sterling
23 
17 
US dollar
34 
15 
Other
3 
4 
 
Key point
·
The average interest rate exposure in the first half of 2013 was lower than H2 2012. This reflected the change in VaR methodology in November 2012.
 

 

 
Appendix 2 Funding and related risks (continued)
 
Non-traded interest rate risk (continued)
 
Sensitivity of net interest income*
Earnings sensitivity to rate movements is derived from a central forecast over a twelve 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.
 
The following table shows the sensitivity of net interest income, over the next twelve months, to an immediate upward or downward change of 100 basis points to all interest rates. In addition, the table includes the impact of a gradual 400 basis point steepening and a gradual 300 basis point flattening of the yield curve at tenors greater than a year. The reported sensitivity will vary over time due to a number of factors such as market conditions and strategic changes to the balance sheet mix and should not therefore be considered predictive of future performance.
 
 
Euro 
Sterling 
US dollar 
Other 
Total 
30 June 2013
£m 
£m 
£m 
£m 
£m 
           
+ 100 basis points shift in yield curves
16 
360 
114 
32 
522 
- 100 basis points shift in yield curves
(13)
(273)
(54)
(24)
(364)
Bear steepener
        
228 
Bull flattener
        
(63)
           
31 December 2012
          
           
+ 100 basis points shift in yield curves
(29)
472 
119 
27 
589 
- 100 basis points shift in yield curves
(20)
(257)
(29)
(11)
(317)
Bear steepener
        
216 
Bull flattener
        
(77)
 
Key points
·
The Group's interest rate exposure remains asset sensitive, in that rising rates have a positive impact on net interest margins.
   
·
The primary contributors to asset sensitivity relate to underlying business pricing assumptions and assumptions in respect of the risk of early repayment of consumer loans and deposits.
   
·
The impact of the steepening and flattening scenarios is largely driven by the reinvestment of net free reserves.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*Not within the scope of Deloitte LLP's review report
 
Appendix 2 Funding and related risks (continued)
 
Currency risk: Structural foreign currency exposures
The Group does not maintain material non-traded open currency positions other than the structural foreign currency translation exposures arising from its investments in foreign subsidiaries and associated undertakings and their related currency funding.
 
The table below shows the Group's structural foreign currency exposures.
 
30 June 2013
Net 
assets of 
overseas 
operations 
RFS 
MI 
Net 
investments 
in foreign 
operations 
Net 
investment 
hedges 
Structural 
foreign 
currency 
exposures 
pre-economic 
hedges 
Economic 
hedges (1)
Residual 
structural 
foreign 
currency 
exposures 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
US dollar
18,114 
- 
18,114 
(1,845)
16,269 
(4,146)
12,123 
Euro
9,428 
19 
9,409 
(193)
9,216 
(2,287)
6,929 
Other non-sterling
4,836 
380 
4,456 
(3,538)
918 
- 
918 
               
 
32,378 
399 
31,979 
(5,576)
26,403 
(6,433)
19,970 
               
31 December 2012
              
               
US dollar
17,313 
1 
17,312 
(2,476)
14,836 
(3,897)
10,939 
Euro
8,903 
2 
8,901 
(636)
8,265 
(2,179)
6,086 
Other non-sterling
4,754 
260 
4,494 
(3,597)
897 
- 
897 
               
 
30,970 
263 
30,707 
(6,709)
23,998 
(6,076)
17,922 
 
Note:
(1)
Economic hedges 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
·
The Group's structural foreign currency exposure at 30 June 2013 was £26.4 billion and £20.0 billion before and after economic hedges respectively (31 December 2012 - £24.0 billion and £17.9 billion).
   
·
Changes in foreign currency exchange rates will affect equity in proportion to structural foreign currency exposure. A 5% strengthening in foreign currency against sterling would result in a gain of £1.4 billion (31 December 2012 - £1.3 billion) in equity, while a 5% weakening would result in a loss of £1.3 billion (31 December 2012 - £1.1 billion) in equity.
 
 
 
 
 
 

 
 
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: 2 August 2013
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary