RBS.L Regulatory News (RBS)

Presentation of information

138

General overview

138

Capital management

Capital and leverage ratios

141

Capital resources

142

Estimated leverage ratio

146

Risk-weighted assets

149

Liquidity and funding risk

Overview

151

Liquidity risk

151

Funding risk

154

Encumbrance

158

Credit risk

Financial assets

162

Loans and related credit metrics

163

Debt securities

171

Derivatives

172

Key loan portfolios

173

Market risk

Trading portfolios

191

Non-traded interest rate risk

193

Foreign exchange risk

196

Country risk

Overview

197

Summary of country exposures

199

Risk type

Definition

2013 summary

Capital adequacy risk

The risk that the Group has insufficient capital.

The Group's Core Tier 1 ratio on a Basel 2.5 basis was 10.9% and on a fully loaded Basel III basis (FLB3) was 8.6% at 31 December 2013. The Group is targeting a FLB3 Common Equity Tier 1 ratio of c.11% by the end of 2015 and 12% or above by the end of 2016. The timely run-down of RCR and the successful divestment of Citizens, are key to the achievement of our capital plans.

Liquidity and funding risk

The risk that the Group is unable to meet its financial liabilities as they fall due.

Liquidity and funding metrics continued to strengthen with short-term wholesale funding now £32.4 billion, covered more than four times by a liquidity portfolio of £146.1 billion. Liquidity coverage and net stable funding ratios also improved.

Credit risk

The risk of financial loss due to the failure of a customer, or counterparty, to meet its obligation to settle outstanding amounts.

During 2013, loan impairment charges were £8.4 billion, of which £4.5 billion related to the creation of RCR and the related strategy. Excluding the increased impairments relating to RCR, loan impairment losses fell by £1.4 billion. Impairment provisions now cover risk elements in lending of £39.4 billion by 64%, up from 52% a year ago. Credit risk RWAs reduced by 16% to £313.4 billion, within which counterparty risk RWAs more than halved to £22.3 billion, reflecting risk reduction and core product focus in Markets as well as Non-Core disposals and run-off.

Market risk

The risk of loss arising from fluctuations in interest rates, credit spreads, foreign currency rates, equity prices, commodity prices and other risk-related factors such as market volatilities that may lead to a reduction in earnings, economic value or both.

Average trading VaR decreased significantly from £97 million to £79 million reflecting risk reduction and capital management focus.

Country risk

The risk of losses occurring as a result of either a country event or unfavourable country operating conditions.

Balance sheet exposure to eurozone periphery countries continued to reduce, down by 11% to £52.9 billion at the end of 2013, of which 70% related to Ireland, primarily reflecting exposures in Ulster Bank.

Risk type

Definition

2013 summary

Conduct risk

The risk that the conduct of the Group and its staff towards its customers, or within the markets in which it operates, leads to reputational damage and/or financial loss.

The focus in 2013 was on placing conduct risk at the centre of the Group's philosophy and on completing the development of the risk framework. Promoting understanding of conduct issues and ensuring compliance with regulations and rules are priorities for the Group.

Pension risk

The risk to a firm caused by its contractual or other liabilities to, or with respect to, its pension schemes, whether established for its employees or for those of a related company or otherwise. It also means the risk that the firm will make payments or other contributions to, or with respect to, a pension scheme because of a moral obligation, or because the firm considers that it needs to do so for some other reason.

In 2013, various pension risk stress testing initiatives were undertaken, focused both on internally defined scenarios and on scenarios designed to meet integrated PRA stress testing requirements.

Operational risk

The risk of loss resulting from inadequate or failed processes, people, systems or from external events.

In 2013, the focus was on continued implementation and embedding of risk assessments across the Group, including the strengthening of links between risk assessments and other elements of the Group operational risk framework. In addition, risk assessments were increasingly used to identify single points of failure.

Regulatory risk

The risk of material loss or liability, legal or regulatory sanctions, or reputational damage, resulting from the failure to comply with (or adequately plan for changes to) relevant official sector policy, laws, regulations, or major industry standards, in any location in which the Group operates.

The Group's existing Compliance and Regulatory Affairs teams were brought together in H2 2013, following the creation of the role of Group Head of Conduct and Regulatory Affairs. Other enhancements made during 2013 included the creation of a more centralised approach to assurance activities and the introduction of a new 'Centres of Expertise' model for the management of regulatory developments, bringing together divisional and functional resources to manage issues more efficiently.

Risk type

Definition

2013 summary

Reputational risk

The risk of brand damage and/or financial loss due to a failure to meet stakeholders' expectations of the Group.

The reputational risk framework is aligned with the Group's focus on serving customers well, strategic objectives and the risk appetite goal of maintaining stakeholder confidence.

In 2013, the Environmental, Social and Ethical risk management function was set up to address the reputational risk associated with the clients the Group chooses to do business with. It sets policy and provides guidance to avoid reputational risk relating to business engagements and lending to clients in sensitive industry sectors.

Business risk

The risk of losses as a result of adverse variance in the Group's revenues and/or costs relative to its business plan and strategy.

The Group Board has ultimate responsibility for business risk through the achievement of the Group's business plan. The primary responsibility for divisional financial performance rests with the divisional Chief Executive Officer supported by divisional Executive Committees and functions.

In 2013, the management and measurement of business risk was enhanced with an increased focus on stress testing.

The Group responded to business risk challenges by focusing on the management of net interest margin in order to sustain and grow revenues. In addition, it introduced cost management programmes to deliver substantial savings.

Strategic risk

The risk that the Group will make inappropriate strategic choices, or that there will be changes in the external environment to which the Group fails to adapt its strategies.

The Group is focusing on reducing strategic risk following a wide-ranging review to analyse core activities and formulate an appropriate plan, including rationalisation where necessary, to address the business challenges of the next five years.

The successful execution of this strategy is set against a background of increasing regulatory demands and scrutiny as well as a challenging macroeconomic environment. Successful and timely execution of the strategy will be key to the future success of the Group.

Political risk

The risk to the Group's business and operations of the referendum on Scottish independence.

During 2013, the focus on the question of potential Scottish independence from the UK has heightened and the Scottish government will be holding a referendum in September 2014. A vote in favour of Scottish independence would be likely to significantly impact the Group's credit ratings and could also impact the fiscal, monetary, legal and regulatory landscape to which the Group is subject. Were Scotland to become independent, it may also affect Scotland's status in the EU.

Current rules

31 December 

30 September 

31 December 

2013 

2013 

2012 

Capital

£bn 

£bn 

£bn 

Core Tier 1

42.2 

47.5 

47.3 

Tier 1

50.6 

56.6 

57.1 

Total

63.7 

66.6 

66.8 

RWAs by risk

Credit risk

- non-counterparty

291.1 

303.1 

323.2 

- counterparty

22.3 

34.5 

48.0 

Market risk

30.3 

30.6 

42.6 

Operational risk

41.8 

41.8 

45.8 

385.5 

410.0 

459.6 

Risk asset ratios

% 

% 

% 

Core Tier 1

10.9 

11.6 

10.3 

Tier 1

13.1 

13.8 

12.4 

Total

16.5 

16.2 

14.5 

31 December 

30 September 

31 December 

Estimated FLB3 (1)

2013 

2013 

2012 

Common Equity Tier 1 (CET1) capital

£36.8bn

£41.1bn

£37.9bn

RWAs

£429.1bn

£452.5bn

£494.6bn

CET1 ratio

8.6%

9.1%

7.7%

Leverage ratio

3.5%

3.6%

3.1%

(1)

Calculated on the basis disclosed on page 145.

·

Core Tier 1 capital ratios, under current rules and the fully loaded Basel III basis, improved by 60 basis points and 90 basis points respectively in the year. The benefit of lower RWAs was partially offset by the significant attributable loss for the year. The establishment of RCR and the related impairments reduced the ratios by c.10 basis points and c.20 basis points respectively.

·

RWA decreases under current rules were primarily in Markets (£36.8 billion) as a result of balance sheet and risk reduction, and in Non-Core (£31.2 billion) reflecting disposal of capital intensive portfolios and run-off.

·

The Group continues to target a CET1 ratio of c.11% by the end of 2015 and 12% or above by the end of 2016 on a FLB3 basis.

·

The Group has announced plans to accelerate the divestment of RBS Citizens. Preparations for a partial initial public offering in 2014 is on track and the Group intends to fully divest the business by the end of 2016, benefiting CET1.

Supervisory

Core Tier 1 

Other Tier 1 

Tier 2

deductions 

Total 

£m

£m

£m

£m

£m

At 1 January 2013

47,320 

9,815 

12,152 

(2,487)

66,800 

Attributable loss net of movements in fair value of own credit

(8,961)

- 

- 

- 

(8,961)

Share capital and reserve movements in respect of employee

share schemes

200 

- 

- 

- 

200 

Ordinary shares issued

264 

- 

- 

- 

264 

Foreign exchange reserve

(217)

- 

- 

- 

(217)

Foreign exchange movements

- 

(93)

(106)

- 

(199)

Actuarial gains recognised in retirement benefit schemes (net of tax)

200 

- 

- 

- 

200 

Termination of contingent capital facility

320 

- 

- 

- 

320 

Increase in non-controlling interests

70 

- 

- 

- 

70 

Decrease/(increase) in capital deductions (1)

2,244 

(1,293)

2,175 

2,215 

5,341 

Decrease in goodwill and intangibles

1,177 

- 

- 

- 

1,177 

Defined benefit pension fund

(551)

- 

- 

- 

(551)

Dated subordinated debt issues

- 

- 

1,862 

- 

1,862 

Dated subordinated debt maturities, redemptions and amortisation

- 

- 

(2,666)

- 

(2,666)

Other movements

99 

32 

(112)

- 

19 

At 31 December 2013

42,165 

8,461 

13,305 

(272)

63,659 

(1)

From 1 January 2013 material holdings in insurance companies are deducted 50% from Tier 1 and 50% from Tier 2.

CET1 

Tier 2 

Total 

£m 

£m 

£m 

At 1 January 2013

37,908 

12,876 

50,784 

Attributable loss net of movements in fair value of own credit

(8,887)

- 

(8,887)

Share capital and reserve movements in respect of employee share schemes

200 

- 

200 

Ordinary shares issued

264 

- 

264 

Nominal value of B shares

510 

- 

510 

Foreign exchange reserve

(217)

(106)

(323)

Actuarial gains recognised in retirement benefit schemes (net of tax)

200 

- 

200 

Termination of contingent capital facility

320 

- 

320 

Decrease in goodwill and intangibles

1,588 

- 

1,588 

Defined benefit pension fund asset

(28)

- 

(28)

Deferred tax assets

971 

- 

971 

Excess of expected loss over impairment provisions

4,423 

- 

4,423 

Grandfathered instruments

- 

(3,121)

(3,121)

Dated subordinated debt issues

- 

1,862 

1,862 

Dated subordinated debt maturities, redemptions and amortisation

- 

(2,666)

(2,666)

Prudential valuation adjustments (PVA)

(471)

- 

(471)

Other movements

(13)

(112)

(125)

At 31 December 2013

36,768 

8,733 

45,501 

General:

In accordance with the PRA's Policy Statement PS7/2013 issued in December 2013 on the implementation of CRD IV, all regulatory adjustments and deductions to CET1 have been applied in full (i.e. no transition) with the exception of unrealised gains on AFS securities which will be included from 2015.

CRD IV and Basel III impose additional minimum CET1 ratio of 4.5% of RWAs. There are three buffers which will affect the Group: the capital conservation buffer set at 2.5%; the counter-cyclical capital buffer (up to 2.5% of RWAs), to be applied when macro-economic conditions indicate areas of the economy are over-heating; and the Global-Systemically Important Bank buffer currently expected to be 1.5% for the Group. The regulatory target capital requirements will be phased in and are expected to apply in full from 1 January 2019, in the meantime using national discretion the PRA can apply a top-up. As set out in the PRA's Supervisory Statement SS3/13, the Group and other major UK banks and building societies, are required to maintain a CET1 ratio of 7%, after taking into account certain adjustments set by the PRA.

PRA guidance indicates that from 1 January 2015, the Group must meet at least 56% of its Pillar 2A capital requirement with CET1 capital and the balance with Additional Tier 1 capital. The Pillar 2A capital requirement is the additional capital that the Group must hold, in addition to meeting its Pillar 1 requirements in order to comply with the PRA's overall financial adequacy rule.

Estimates, including RWAs, are based on the current interpretation, expectations, and understanding, of the 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 when the final technical standards are interpreted and adopted.

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 PVA, arising from the application of the prudent valuation requirements to all assets measured at fair value, has been included in full in line with the guidance from the PRA and uses methodology discussed with the PRA, pending the issue of the final Regulatory Technical Standards (RTS) by the European Banking Authority. The full amount of the applicable PVA has been included in provisions in the determination of the deduction for expected losses.

(3)

Where the deductions from AT1 capital exceed AT1 capital, the excess is deducted from CET1 capital. The excess of AT1 deductions over AT1 capital in year one of transition is due to the application of the current rules to the transitional amounts.

(4)

Insignificant investments in equities of other financial entities (net): long cash equity positions are considered to have matched maturity with synthetic short positions if the long position is held for hedging purposes and sufficient liquidity exists in the relevant market. All the trades are managed and monitored together within the equities business.

(5)

Based on our current interpretations of the final draft of the RTS on credit risk adjustments, issued in July 2013, the Group's standardised latent provision has been reclassified to specific provision and is therefore no longer included in Tier 2 capital.

Risk-weighted assets:

(1)

Current securitisation positions are shown as risk-weighted at 1,250%.

(2)

RWA uplifts include the impact of credit valuation adjustments and asset valuation correlation on banks and central counterparties.

(3)

RWAs reflect implementation of the full internal model method suite, and include methodology changes that took effect immediately on CRR implementation.

(4)

Non-financial counterparties and sovereigns that meet the eligibility criteria under CRR are exempt from the credit valuation adjustments (CVA) volatility charges.

(5)

The CRR final text includes a reduction in the risk-weight relating to small and medium-sized enterprises (SMEs).

●

Tier 1 capital as set out in the final CRR text; and

●

Exposure measure calculated using the final CRR text as well as 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.

Leverage ratio based on the Basel Committee on Banking Supervision (BCBS) proposal issued in January 2014, is also included below.

31 December 2013

31 December 2012

Estimated leverage ratio

Tier 1 

Leverage 

Tier 1 

Leverage 

Exposure 

 capital 

Leverage 

Exposure 

 capital 

Leverage 

£bn 

£bn 

% 

£bn 

£bn 

% 

CRR basis:

Transitional measure

1,062.1 

44.3 

24x

4.2 

1,205.2 

54.0 

22x

4.5 

Full end point measure

1,062.1 

36.8 

29x

3.5 

1,202.3 

37.9 

32x

3.1 

Basel III basis:

Transitional measure

1,093.5 

44.3 

25x 

4.1 

1,225.8 

54.0 

23x

4.4 

Full end point measure

1,093.5 

36.8 

30x 

3.4 

1,222.9 

37.9 

32x

3.1 

BCBS basis:

Transitional measure

1,082.0 

44.3 

24x 

4.1 

1,239.8 

54.0 

23x

4.4 

Full end point measure

1,082.0 

36.8 

29x 

3.4 

1,236.9 

37.9 

33x

3.1 

·

The Group's estimated leverage ratios, under both the CRR and Basel III texts, as well as the recently issued Basel proposal are above 3%.

·

Estimated leverage ratios on all full end point measure bases improved during the year reflecting downsizing in Markets and Non-Core as well as risk reduction and portfolio focus ahead of CRR implementation.

·

The PRA policy statement PS7/13 requires an acceleration of the CRR transitional approach for computing the capital base. Thus the majority of CET1 capital deductions will apply with immediate effect. This causes a year-on-year reduction of around £10 billion in Tier 1 capital, causing the reduction in transitional measure leverage ratios.

Estimated leverage ratio (continued)

31 December 2013

31 December 2012

Exposure measure

CRR 

Basel III 

BCBS 

CRR 

Basel III 

BCBS 

basis

basis

basis

basis

basis

basis

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

Cash and balances at central banks

82.7 

82.7 

82.7 

79.3 

79.3 

79.3 

Debt securities

113.6 

113.6 

113.6 

157.4 

157.4 

157.4 

Equity shares

8.8 

8.8 

8.8 

15.2 

15.2 

15.2 

Derivatives

288.0 

288.0 

288.0 

441.9 

441.9 

441.9 

Loans and advances to banks and customers

418.4 

418.4 

418.4 

459.3 

459.3 

459.3 

Reverse repos

76.4 

76.4 

76.4 

104.8 

104.8 

104.8 

Goodwill and intangible assets

12.4 

12.4 

12.4 

13.5 

13.5 

13.5 

Other assets

24.6 

24.6 

24.6 

26.9 

26.9 

26.9 

Assets of disposal groups

3.0 

3.0 

3.0 

14.0 

14.0 

14.0 

Total assets

1,027.9 

1,027.9 

1,027.9 

1,312.3 

1,312.3 

1,312.3 

Netting of derivatives (1)

(233.8)

(233.8)

(227.3)

(369.8)

(369.8)

(358.4)

SFTs (1)

(41.5)

(12.0)

59.8 

(45.9)

(23.1)

75.5 

Regulatory deductions and other adjustments (2)

(4.9)

(4.9)

(6.6)

(14.9)

(14.9)

(20.9)

Potential future exposure on derivatives (3)

131.3 

130.4 

128.0 

133.1 

130.9 

125.8 

Undrawn commitments (4)

183.1 

185.9 

100.2 

187.5 

187.5 

102.6 

End point leverage exposure measure

1,062.1 

1,093.5 

1,082.0 

1,202.3 

1,222.9 

1,236.9 

Transitional adjustments to assets

deducted from regulatory Tier 1 capital

2.9 

2.9 

2.9 

Transitional leverage exposure measure

1,062.1 

1,093.5 

1,082.0 

1,205.2 

1,225.8 

1,239.8 

(1)

Under the Basel III view, the balance sheet value is reduced for allowable netting under the Basel 2.5 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 has netting of both cash positions and related collateral of securities financing transactions (SFTs). The BCBS view permits the effects of master netting agreements for calculation of counterparty exposure but with very tight restrictions upon the recognition of those agreements for offset of cash received.

(2)

Regulatory deductions: to ensure consistency between the numerator and the denominator, items that are deducted from capital are also deducted from total assets. For the BCBS basis, the shortfall in the stock of eligible provisions relative to expected losses is adjusted.

(3)

Potential future exposure (PFE) 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. Under the latest BCBS proposal, variation margin is permitted to be offset against the replacement cost for derivative exposures (but not the PFE) where specific conditions are met. Refer to page 148 for further analysis.

(4)

Undrawn commitments represent regulatory add-ons relating to off-balance sheet undrawn commitments based on a 10% credit conversion factor for unconditionally cancellable commitments and 100% for other commitments. The CRR basis uses the credit conversion factor (CCF) as per risk measure for medium to low risk trade finance and officially supported export credits. For the BCBS measure, commitments other than securitisation liquidity facilities with an original maturity up to one year and commitments with an original maturity over one year will receive a CCF of 20% and 50%, respectively. Refer to page 148 for further analysis.

1-5 years

>5 years

Credit derivative 5% add on factor (1)

Credit derivative 10% add on factor (1)

Total 

31 December 2013 

£bn 

£bn

£bn

£bn

£bn

£bn

Interest rate

10,582 

16,212 

8,795 

35,589 

Exchange rate

3,261 

814 

480 

4,555 

Equity

43 

35 

1 

79 

Commodities

- 

1 

1 

- 

- 

2 

Credit

189 

64 

253 

Total

13,886 

17,062 

9,277 

189 

64 

40,478 

31 December 2012

Interest rate

12,515 

12,980 

7,988 

33,483 

Exchange rate

3,411 

795 

492 

4,698 

Equity

51 

52 

4 

107 

Commodities

2 

- 

2 

- 

- 

4 

Credit

470 

83 

553 

Total

15,979 

13,827 

8,486 

470 

83 

38,845 

(1)

Credit derivatives in the trading book receive a PFE of 10%. Any credit derivatives in respect of a company in which a direct holding would give the Group 10% or more of the voting rights, receive a PFE of 5%.

Off-balance sheet items

UK 

UK 

International 

US Retail & 

 Retail 

Corporate 

Banking (1)

Commercial 

Markets 

Other 

Total 

31 December 2013

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

Unconditionally cancellable items (2)

3.1 

0.5 

0.6 

1.7 

- 

0.3 

6.2 

Other contingents and commitments

9.6 

36.3 

95.4 

16.8 

8.9 

12.7 

179.7 

12.7 

36.8 

96.0 

18.5 

8.9 

13.0 

185.9 

31 December 2012

Unconditionally cancellable items (2)

3.0 

0.5 

0.8 

1.8 

- 

0.6 

6.7 

Other contingents and commitments

9.3 

33.9 

102.6 

15.6 

12.3 

7.1 

180.8 

12.3 

34.4 

103.4 

17.4 

12.3 

7.7 

187.5 

(1)

International Banking facilities are primarily undrawn facilities to large multinational corporations, many of which are domiciled in the UK.

(2)

Based on a 10% credit conversion factor.

Credit risk

Non-counterparty 

Counterparty 

Total 

£bn 

£bn 

£bn 

At 1 January 2013

323.2 

48.0 

371.2 

Foreign exchange movements

(1.7)

(0.3)

(2.0)

Business movements

(27.4)

(4.9)

(32.3)

Risk parameter changes (1)

(11.0)

(2.9)

(13.9)

Methodology changes (2)

1.4 

(16.1)

(14.7)

Model updates (3)

15.3 

(1.5)

13.8 

Disposals

(8.6)

- 

(8.6)

Other changes

(0.1)

- 

(0.1)

At 31 December 2013

291.1 

22.3 

313.4 

(1)

Relates to changes in credit quality metrics of customers and counterparties such as probability of default and loss given default.

(2)

Relates to internal treatment of exposures or calibration of models and regulatory prescribed changes.

(3)

Refers to implementation of a new model or modification of an existing model following approval by the PRA and includes:

○

exposure at default treatment (£4.8 billion) in Q2 2013;

○

continuation of commercial real estate slotting (£4.4 billion) throughout 2013; and

○

loss given default changes to the shipping portfolio (£3.7 billion) in H2 2013.

The table below analyses movements in market and operational risk RWAs during the year.

Market risk

Operational 

Markets

Other 

Total 

risk 

Total 

£bn 

£bn 

£bn 

£bn 

£bn 

At 1 January 2013

36.9 

5.7 

42.6 

45.8 

88.4 

Business and market movements

(9.0)

(1.8)

(10.8)

(4.0)

(14.8)

Model updates (1)

(1.5)

- 

(1.5)

- 

(1.5)

At 31 December 2013

26.4 

3.9 

30.3 

41.8 

72.1 

(1)

Market risk model updates in 2013 primarily related to valuation adjustments.

The table below analyses RWA movements by division during the year.

UK 

UK

Ulster 

US 

Non- 

RFS

Retail 

Corporate 

Wealth 

IB (1)

Bank 

 R&C (1)

Markets 

Other

Core

Core

MI 

Total 

Total RWAs

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

At 1 January 2013

45.7 

86.3 

12.3 

51.9 

36.1 

56.5 

101.3 

5.8 

395.9 

60.4 

3.3 

459.6 

Business and

market movements

(1.8)

(9.6)

(0.3)

(6.0)

(5.7)

(0.4)

(35.1)

2.7 

(56.2)

(22.2)

0.6 

(77.8)

Disposals

- 

- 

- 

- 

- 

- 

- 

- 

- 

(8.6)

- 

(8.6)

Model updates

- 

9.4 

- 

3.1 

0.3 

- 

(1.7)

1.6 

12.7 

(0.4)

- 

12.3 

At 31 December 2013

43.9 

86.1 

12.0 

49.0 

30.7 

56.1 

64.5 

10.1 

352.4 

29.2 

3.9 

385.5 

(1)

IB: International Banking; R&C: Retail & Commercial.

·

RWAs were down £74.1 billion or 16% overall, of which £57.8 billion related to credit risk, £12.3 billion related to market risk and £4.0 billion to operational risk.

·

Credit risk RWAs were down £57.8 billion or 16% to £313.4 billion despite absorbing £13.8 billion of higher RWAs due to model updates.

○

Non-counterparty RWAs were down £32.1 billion or 10% to £291.1 billion: In Non-Core (£24.1 billion) due to run-off and disposals in commercial real estate, shipping and leverage finance portfolios; and in Retail & Commercial (£10.0 billion) as loans migrated into default, risk parameter changes and balance sheet reduction.

○

Counterparty RWAs were down £25.7 billion or 54% to £22.3 billion in Markets (£17.2 billion) and Non-Core (£7.8 billion). Methodology changes, significantly all in Markets, reflected extension of product coverage improvements in models and reduction in weighting applied for exposure at default. This was partially offset by the impact of higher loss given defaults for hedge funds.

·

Market risk RWAs were down £12.3 billion or 29% to £30.3 billion significantly all in Markets reflecting balance sheet and risk reduction £9.0 billion and model changes of £1.5 billion.

·

Operational risk RWAs were down £4.0 billion or 9% to £41.8 billion primarily due to reductions in Markets.

Estimated 

FLB3

Basel 2.5

31 December 2013

£bn

£bn 

UK Retail

43.9 

43.9 

UK Corporate

82.9 

86.1 

Wealth

12.0 

12.0 

International Banking

50.3 

49.0 

Ulster Bank

30.1 

30.7 

US Retail & Commercial