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Royal Bank of Scotland Regulatory News (RBS)



Regulatory News for Royal Bank of Scotland (RBS)


Share Price: 354.00Bid: 353.60Ask: 353.80Change: 0.00 (0.00%)No Movement on Royal Bank Scot
Spread: 0.20Spread as %: 0.06%Open: 353.40High: 356.50Low: 350.60Yesterday’s Close: 354.00





Interim Management Statement Part 6 of 11

Fri, 5th Nov 2010 07:00

RNS Number : 6734V
Royal Bank of Scotland Group PLC
05 November 2010
 

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Risk and capital management (continued)

 

Funding and liquidity risk

 

The objective of the Group's funding and liquidity management framework is to ensure that at all times the Group can meet its obligations as they fall due.  Liquidity management within the Group specifies prudent limits and controls over risk arising from maturity mismatch across the balance sheet and exposure to undrawn commitments or contingent obligations.

 

The Group has a highly diversified funding structure which avoids excessive reliance on any particular source. Funding is raised through various distribution channels, from a wide range of investors and clients.

 

The table below shows the composition of the Group's primary funding sources, excluding repurchase agreements. 

 


30 September 2010


30 June 2010


31 December 2009


£m 


£m 


£m 










Deposits by banks

80,186 

10.5 


96,614 

12.7 


115,642 

14.3 










Debt securities in issue:









-  Commercial paper

30,424 

4.0 


30,865 

4.1 


44,307 

5.5 

-  Certificates of deposits

50,497 

6.6 


45,888 

6.0 


58,195 

7.2 

-  Medium-term notes and other bonds

133,403 

17.5 


122,981 

16.1 


125,800 

15.6 

-  Securitisations

20,759 

2.7 


17,583 

2.3 


18,027 

2.2 











235,083 

30.8 


217,317 

28.5 


246,329 

30.5 










Subordinated liabilities

27,890 

3.6 


27,523 

3.6 


31,538 

3.9 










Total wholesale funding

343,159 

44.9 


341,454 

44.8 


393,509 

48.7 

Customer deposits

420,639 

55.1 


420,890 

55.2 


414,251 

51.3 











763,798 

100.0 


762,344 

100.0 


807,760 

100.0 

 

Key points

·

The Group has continued to reduce reliance on wholesale funding and diversify funding sources. Debt securities in issue increased as issuance of long-term debt securities and securitisation of UK retail mortgages exceeded maturities in the period. Deposits by banks decreased by 17% in Q3 2010.



·

The Group has increased the proportion of its funding from customer deposits during 2010, from 51% at 31 December 2009 to 55% at 30 September 2010.



·

The Group was able to reduce short-term unsecured wholesale borrowing by £20 billion to £178 billion (including £77 billion of deposits from banks) from £198 billion at 30 June 2010 (including £92 billion of deposits from banks). The successful medium-term notes, covered bond and RMBS issuances in the quarter contributed to this reduction. These programmes tapped markets in multiple currencies, geographies and maturities. The impact was to strengthen the overall liability structure of the Group.

 



 

Risk and capital management (continued)

 

Funding and liquidity risk (continued)

 

The table below shows the Group's debt securities and subordinated liabilities (sub-debt) by maturity.

 


30  September 2010


30  June 2010


31 December 2009


Debt 

 securities 

 in issue 

Sub- 

debt 

Total 



Debt 

securities  in issue 

Sub- 

debt 

Total 



Debt 

securities 

 in issue 

Sub-  

 debt 

Total 



£m 

£m 

£m 


£m 

£m 

£m 


£m 

£m 

£m 
















< 1 year

99,714 

1,660 

101,374 

38.5 


103,630 

2,422 

106,052 

43.3 


136,901 

2,144 

139,045 

50.0 

1-5 years

90,590 

10,371 

100,961 

38.4 


77,266 

7,575 

84,841 

34.7 


70,437 

4,235 

74,672 

26.9 

> 5 years

44,779 

15,859 

60,638 

23.1 


36,421 

17,526 

53,947 

22.0 


38,991 

25,159 

64,150 

23.1 

















235,083 

27,890 

262,973 

100.0 


217,317 

27,523 

244,840 

100.0 


246,329 

31,538 

277,867 

100.0 

 

Key points

·

The Group has improved its funding and liquidity position by extending the average maturity of debt securities in issue.



·

The proportion of debt instruments with a remaining maturity of greater than one year has increased in 2010 from 50% at 31 December 2009 to 57% at 30 June 2010 and 62% at 30 September 2010.

 

The table below shows the amount and type of debt securities issued by the Group with a maturity of one year or greater, by quarter for year-to-date 2010 and 2009.

 


Quarter ended


Nine months 

 ended 

30 September 

 2010 


Quarter ended


Nine months 

 ended 

30  September 

2009 


31 March 

 2010 

30 June 

2010 

30 September 

 2010 



31 March 

2009 

30 June 

 2009 

30 September 

 2009 



£m 

£m 

£m 



£m 

£m 

£m 


£m 













Public












- unsecured

3,976 

1,882 

6,254 


12,112 


3,123 

4,062 


7,185 

- unsecured:

  guaranteed




8,804 

4,520 

858 


14,182 

- secured

1,030 

5,286 


6,316 




Private












- unsecured

4,158 

2,370 

6,299 


12,827 


1,637 

2,654 

6,053 


10,344 

- unsecured:

  guaranteed



6,493 

2,428 


8,921 













Gross issuance

8,134 

5,282 

17,839 


31,255 


16,934 

12,725 

10,973 


40,632 

 

In addition there was further term issuance in October of £3.9 billion bringing year-to-date issuance to £35.2 billion. This exceeds the original full year target of £25 billion.

 

The Group also executes other long-term funding arrangements (predominately term repurchase agreements) not reflected in the analysis above.

 



 

Risk and capital management (continued)

 

Funding and liquidity risk (continued)

 

The table below shows the residual maturity and currency breakdown of long-term debt securities issued in 2010.

 

Residual maturity

£m 




< 1 year

836 

2.7 

1-3 years

8,208 

26.3 

3-5 years

6,889 

22.0 

5-10 years

8,356 

26.7 

> 10 years

6,966 

22.3 





31,255 

100.0 

 

Currency

£m 




GBP

3,842 

12.3 

EUR

15,719 

50.3 

USD

8,540 

27.3 

Other

3,154 

10.1 





31,255 

100.0 

 

Key points 

·

Term funding markets improved in Q3 2010 as European sovereign concerns subsided. The Group issued more term funding in Q3 2010 than in the first half of 2010 and accessed unsecured and secured markets in the US, Europe, Asia, Australia and the UK.



·

The Group's €15 billion covered bond programme, launched in April 2010, is an important step in diversifying funding sources across product types and markets. To date, €4.75 billion of covered bonds with maturities ranging between 3 and 10 years were issued from this programme.



·

During Q3 2010, the Group executed its largest ever public issuance in the Australian dollar market and its first public Singapore dollar bond issuance. The Group also executed a £4.6 billion public RMBS issuance, which is the largest public transaction in this market since 2007.

 



 

Risk and capital management (continued)

 

Funding and liquidity risk (continued)

 

The table below shows the composition of the Group's liquidity portfolio. The Group has refined the presentation of its liquidity portfolio. Treasury bills and government bonds which were previously reported under Central Group Treasury portfolio, Unencumbered collateral and Other liquid assets  are now included in their respective asset classes.

 

 

 

30 September 

2010 

30 June 

2010 

31 March 

   2010 

31 December 

2009 

Liquidity portfolio

£m 

£m 

£m 

£m 






Cash and balances at  central banks

56,661 

29,591 

42,008 

51,500 

Treasury bills

15,167 

16,086 

24,030 

30,010 

Central and local government bonds





- AAA rated governments (1)

31,251 

41,865 

36,148 

30,140 

- AA- to AA+ rated governments

1,618 

1,438 

1,858 

2,011 

- governments rated below AA

1,189 

1,149 

1,766 

1,630 

- local government

5,981 

5,692 

6,216 

5,706 


40,039 

50,144 

45,988 

39,487 

Unencumbered collateral (2)





- AAA rated

16,071 

16,564 

23,048 

20,246 

- below AAA rated and other high quality assets

22,636 

24,584 

29,817 

29,418 


38,707 

41,148 

52,865 

49,664 






Total liquidity portfolio

150,574 

136,969 

164,891 

170,661 

 

Notes:

(1)

Includes AAA rated US government guaranteed agencies.

(2)

Includes assets eligible for discounting at central banks, comprising loans and advances and debt securities.

 

Key points

·

The Group's liquidity portfolio increased by £14 billion to £151 billion in the quarter.  Within this, cash and balances at central banks increased by £27 billion to £57 billion. The Group manages the composition of its liquidity portfolio based on a number of considerations. These include market opportunities, internal and external liquidity metrics and potential near term cash requirements.  Further, during Q3 2010, US Retail & Commercial and RBS N.V. reduced their G10 government securities as part of their respective balance sheet restructurings.



·

The Group is targeting a total liquidity portfolio of £150 billion as part of its strategic plan. However, the final level will be influenced by balance sheet size, maturity profile and regulatory requirements.

 



 

Risk and capital management (continued)

 

Funding and liquidity risk (continued)

 

The table below shows recent trends for the Group's loan to deposit ratio and customer funding gap. 

 


Loan to deposit ratio


Customer funding gap


Group 

Core 


Group



£bn






30 September 2010

126 

101 


107 

30 June 2010

128 

102 


118 

31 March 2010

131 

102 


131 

31 December 2009

135 

104 


142 

30 September 2009

142 

108 


164 

30 June 2009

145 

110 


178 

31 March 2009

150 

118 


225 

31 December 2008

151 

118 


233 

 

Notes:

(1)

Excludes repurchase agreements, bancassurance deposits to 31 March 2010 and loans are net of provisions.

(2)

Adjusting for customer loans and deposits classified as held-for-trading and designated as at fair value under IFRS (see note 10 Financial instruments classification on page 73 to 75), the loan to deposit ratio and customer funding gap at 30 September 2010 were 123% and £94 billion, respectively.

 

Key point

·

The loan to deposit ratio improved by 200 basis points in Q3 2010 to 126% and the customer funding gap narrowed by £11 billion to £107 billion at 30 September 2010, due primarily to a reduction in Non-Core customer loans.

 

 



 

 Risk and capital management (continued)

 

Funding and liquidity risk (continued)

 

The table below shows the Group's net stable funding ratio (NSFR), the proportion of structural term assets which are funded by stable funding including customer deposits, long-term wholesale funding and equity, computed in accordance with guidance issued by the Basel Committee in July 2010. 

 


 

 

30 September 2010


30 June 2010


31 December 2009





ASF(1) 



ASF(1) 



ASF(1) 


Weighting 


£bn 

£bn 


£bn 

£bn 


£bn 

£bn 













Equity

77 

77 


79 

79 


80 

80 


100 

Wholesale funding > 1 year

165 

165 


143 

143 


144 

144 


100 

Wholesale funding < 1 year

178 


198 


249 


Derivatives

543 


509 


422 


Repurchase agreements

129 


115 


106 


Customer deposits

421 

379 


421 

379 


415 

374 


90 

Other (2)

116 


116 


106 













Total liabilities and equity

1,629 

621 


1,581 

601 


 1,522 

598 














Cash

61 


30 


52 


Inter bank lending

60 


54 


49 


Debt securities

226 

45 


236 

47 


249 

50 


20 

Derivatives

549 


523 


438 


Reverse repurchase agreements

93 


87 


76 


Advances < 1 year

132 

66 


135 

67 


139 

69 


50 

Advances >1 year

396 

368 


404 

376 


416 

387 


 See note (3)

Other (4)

112 

112 


112 

112 


103 

103 


100 












Total assets

1,629 

591 


1,581 

602 


1,522 

609 














Undrawn commitments

267 

13 


271 

14 


289 

14 


Total assets and undrawn commitments

1,896 

604 


1,852 

616 


1,811 

623 



Net stable funding ratio


103%



98% 



96% 



 

Notes:

(1)

Available stable funding.

(2)

Deferred taxation, insurance liabilities and other liabilities.

(3)

Residential mortgages > 1 year are weighted at 65%; remainder is weighted at 100%.

(4)

Prepayments, accrued income, deferred taxation and other assets.

 

 

Key points 

·

The Group's NSFR increased from 98% as at 30 June 2010 to 103% as at 30 September 2010, primarily due to an increase in wholesale funding with maturity greater than one year and a reduction in customer loans.



·

The NSFR will continue to be refined over time in line with regulatory developments.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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