RBS.L Regulatory News (RBS)

The Royal Bank of Scotland Group plc

20 June 2013

Statement on the completion of the UK Regulators capital shortfall exercise

The Royal Bank of Scotland Group plc ("RBS", "the Group") notes today's announcement by the Prudential Regulatory Authority ("PRA") on the completion of its capital shortfall exercise across major UK banks and building societies.

As indicated in its earlier release, dated 22 May, RBS expects to continue to improve its Core Tier 1 capital ("CT1") ratio during 2013 through continued delivery against its established business plan.

RBS continues to target a 'fully loaded' Basel 3 CT1 ratio of around 9% by year end 2013, after including the provision of capital to fund anticipated future loan growth.

Further details of RBS's plans and a reconciliation to the results published by the PRA today are provided below in the Appendix to this announcement.

For further information contact:

Appendix to statement:

Reconciliation with RBS Group plc published ratios and 2013 glidepath

The PRA's original assessment of RBS's capital adequacy, under the FPC's recommendations, is outlined in the table below. RBS's position, factoring in business plans and actions announced at the FY12 results and Q113 IMS, is presented alongside this.

RBS's position takes into account the Group's previously announced repositioning of its Markets business and the planned continued reduction of Non-Core exposures, as well as other actions. While the Group's intention to partially IPO Citizens was announced in consideration of the PRA capital exercise, it is not factored into the 2013 capital actions.

The principal adjustments that RBS applied to the PRA December 2012 start point are:

1) the RBS assumption around counterparty credit model acceptance that a) brings RBS in line with peers and b) has been worked on for two years, with acceptance expected prior to CRDIV implementation at the start of 2014;

2) Latest Capital Requirements Directive IV ("CRDIV") changes, which exempt EU corporates, pension funds and sovereign exposures from CVA volatility charge, confirmation of which was announced post the original PRA analysis.

By the end of 2013, the PRA capital requirement under the FPC exercise of £3.2bn is targeted to be reduced to £0.4bn. Several actions contribute to this including Markets downsizing, several small planned divestments and LME gains.

RBS capital requirements compared to PRA view

Note 1: CET1 Basel 3 capital position as of December 2012

a Note that Deferred Tax Asset deduction is taken in full: with an impact of 70bps on CT1. The real capital benefit of this asset for RBS will emerge over the next 5 years as the Group returns to profitability.

Note 2: The end 2012 capital base variance of £1bn is due to:

i) securitisation treated as RWAs rather than a deduction;

ii) offset principally by higher actual provisions taken in Q4 2012 for conduct risk relative to forecast used by the PRA.

Note 3: The RWA adjustment of £72.9bn represents RBS assumption around counterparty credit model acceptance that a) brings RBS in line with peers and b) has been worked on for two years with approval expected shortly; and latest CRDIV changes reflected by RBS but not by the PRA given timing of the exercise. In addition, this also includes impact of securitisation treated as RWA rather than a deduction.

Note 4: RBS actions to address remaining gap

Factoring in business plans announced at the FY12 results, Q113 IMS and remaining planned capital actions, RBS's capital shortfall reduces to £0.4bn, which the Group plans to fully satisfy in early 2014.

b CRDIV final text includes exemption for EU corporates, pension funds and sovereigns from CVA volatility charge in RWA calculations.

cCapital base movement includes, among other things, use of consensus profit forecast, expected gains on small disposals and liability management exercises.

d Remaining gap of £0.4bn to be closed through Q1 2014 profit generation and continuing benefits of Markets re-sizing. Planned IPO of Citizens provides further comfort.