RBS.L Regulatory News (RBS)

Page 

Highlights

1

Contacts

8

Presentation of information

9

Summary consolidated results

12

Analysis of results

14

Segment performance

24

Statutory results

69

Condensed consolidated income statement

69

Condensed consolidated statement of comprehensive income

70

Condensed consolidated balance sheet

71

Average balance sheet

72

Condensed consolidated statement of changes in equity

75

Condensed consolidated cash flow statement

77

Notes

78

Independent review report to The Royal Bank of Scotland Group plc

132

Disposal of Direct Line Group

134

Risk factors

135

Statement of directors' responsibilities

138

Additional information

139

Share information

139

Statutory results

139

Financial calendar

139

Appendix 1 Capital and risk management

Appendix 2 Income statement reconciliations

(1)

Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest ('operating profit'). Statutory operating profit before tax was £2,652 million for the half year ended 30 June 2014.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014 

2013*

2014 

2014*

2013*

£m

£m

£m

£m

£m

Total income (1)

9,978 

10,608 

4,925 

5,053 

5,447 

Operating expenses (2)

(7,108)

(7,750)

(3,700)

(3,408)

(4,156)

Operating profit before impairment losses (3)

2,870 

2,858 

1,225 

1,645 

1,291 

Impairment (losses)/recoveries

(269)

(2,150)

93 

(362)

(1,117)

Operating profit (3)

2,601 

708 

1,318 

1,283 

174 

Own credit adjustments

(51)

376 

(190)

139 

127 

Gain on redemption of own debt

20 

191 

- 

20 

242 

Write-down of goodwill

(130)

- 

(130)

- 

- 

Strategic disposals

191 

- 

- 

191 

6 

RFS Holdings minority interest

21 

99 

12 

9 

(1)

Profit before tax

2,652 

1,374 

1,010 

1,642 

548 

Profit attributable to ordinary and B shareholders

1,425 

535 

230 

1,195 

142 

*Restated - refer to page 10.

30 June

31 March

31 December

Capital and balance sheet

2014 

2014 

2013 

Funded balance sheet (4)

£736bn

£746bn

£740bn

Total assets

£1,011bn

£1,024bn

£1,028bn

Loan:deposit ratio (5)

96%

97%

94%

Common Equity Tier 1 ratio

10.1%

9.4%

8.6%

Leverage ratio (6)

3.7%

3.6%

3.4%

Tangible net asset value per ordinary and B share (7)

376p

376p

363p

Liquidity portfolio

£138bn

£131bn

£146bn

Liquidity coverage ratio (LCR) (8)

104%

103%

102%

Net stable funding ratio (NSFR) (9)

111%

110%

118%

(1)

Excluding own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest.

(2)

Excluding RFS Holdings minority interest and write-down of goodwill.

(3)

Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals, and RFS Holdings minority interest.

(4)

Funded balance sheet represents total assets less derivatives.

(5)

Net of provisions, including disposal groups and excluding repurchase agreements.

(6)

Leverage ratio represents CRR end-point Tier 1 capital as a percentage of the exposure based on the Basel Committee on Banking Supervision (BCBS) January 2014 proposal.

(7)

Tangible net asset value per ordinary and B share represents total tangible equity divided by the number of ordinary shares in issue and the effect of convertible B shares.

(8)

In January 2013, the BCBS published its final guidance for calculating LCR which is currently expected to come into effect from January 2015 on a phased basis. Pending the finalisation of the LCR rules within the EU, RBS monitors the LCR based on its own interpretations of current guidance available for EU LCR reporting. Therefore, the reported LCR will change over time with regulatory developments. Due to differences in interpretation of the rules RBS's ratio may not be comparable with those of other financial institutions.

(9)

The NSFR for all periods has been calculated using RBS's current interpretations of the existing rules relating to various BCBS guidance to date. Ratios for 31 March 2014 and 31 December 2013 have been revised accordingly. BCBS is expected to issue revised guidance on the NSFR towards the end of 2014 or early 2015.

●

Operating performance in the first half of 2014 was good, with all customer-facing businesses reporting improved operating profits compared with H1 2013. Operating profit(1) of £2,601 million included £514 million of restructuring costs (compared with £271 million in H1 2013) and £250 million of litigation and conduct costs, with £150 million added to provisions for Payment Protection Insurance and £100 million to interest rate swap redress provisions.

●

Operating profit(1), excluding restructuring and litigation and conduct costs ('adjusted operating profit'), improved to £3,365 million, compared with £1,599 million in H1 2013.

●

Total income declined 6% to £9,978 million. Growth of 3% in Personal & Business Banking (PBB) and 2% in Commercial & Private Banking (CPB) was more than offset by lower income, down 10%, in Corporate & Institutional Banking (CIB), reflecting its smaller balance sheet and reduced risk profile. Net interest margin improved to 2.17%, up 20 basis points compared with H1 2013, with continuing benefits from deposit repricing in PBB and CPB outweighing modest erosion of asset margins.

●

Total expenses were 8% lower at £7,108 million, including £514 million of restructuring costs and £250 million of litigation and conduct costs. Operating expenses, excluding restructuring and litigation and conduct costs ('adjusted operating expenses'), were down 8% to £6,344 million. Overall headcount has fallen by 8,000 over the past 12 months.

●

Impairment losses declined by £1,881 million to £269 million. All core businesses showed significant reductions in impairment losses as UK and Irish credit conditions continued to improve. In RBS Capital Resolution (RCR) there was a net write-back of provisions, reflecting disposals at favourable prices. At 30 June 2014, risk elements in lending (REIL) represented 8.3% of gross loans to customers, compared with 9.4% at 31 December 2013.

●

Profit before tax was £2,652 million compared with £1,374 million in the first half of 2013, including a gain of £191 million from the sale of the remaining interest in Direct Line Insurance Group in Q1 2014 and a write-down of goodwill of £130 million in Q2 2014. Own credit adjustment was a charge of £51 million compared with a credit of £376 million in H1 2013 which also included a gain of £191 million on redemption of own debt compared with £20 million in H1 2014.

●

The tax charge was £733 million, representing 27.6% of profit before tax, and included a £76 million write-off of deferred tax assets.

●

The Common Equity Tier 1 (CET1) capital ratio strengthened to 10.1%(2) from 8.6% at the end of 2013, principally driven by reductions in risk-weighted assets in CIB and RCR and the retained profit for the period. RBS remains on track to achieve its medium-term capital targets.

●

After charging the initial £320 million Dividend Access Share retirement dividend, profit attributable to ordinary and B shareholders was £1,425 million. Tangible net asset value per ordinary and B share was 376p at 30 June 2014 compared with 363p at the end of 2013.

●

Operating profit(1) in Q2 2014 was £1,318 million, compared with £174 million in Q2 2013 and £1,283 million in Q1 2014. Restructuring costs totalled £385 million and litigation and conduct costs £250 million. Adjusted operating profit rose to £1,953 million, compared with £893 million in Q2 2013 and £1,412 million in Q1 2014.

●

Total income was 10% lower than in Q2 2013 at £4,925 million, with a 4% improvement in UK PBB more than offset by the 13% reduction in CIB, reflecting its smaller balance sheet and lower risk levels. Within CIB, Rates, Currencies and Credit income was £765 million, down 10% from Q2 2013 and 25% from Q1 2014. Citizens Financial Group benefited from a net gain of $283 million on the sale of its Illinois branch network.

●

Adjusted operating expenses were £3,065 million, down 11% from Q2 2013 and 7% from Q1 2014.

●

Impairments amounted to a net release of £93 million compared with losses of £1,117 million in Q2 2013 and £362 million in Q1 2014, benefiting from improvements in bad debt flows and latent provision releases totalling £258 million, primarily reflecting improving credit conditions.

●

Profit before tax totalled £1,010 million, after a write-down of goodwill of £130 million and a charge of £190 million for own credit. Profit attributable to ordinary and B shareholders was £230 million, after charging the initial £320 million Dividend Access Share retirement dividend.

●

Funded assets fell to £736 billion, down £107 billion from June 2013, principally driven by the reduction in CIB's balance sheet and the run-off of RCR and Non-Core assets.

○

In UK PBB, gross new mortgage lending totalled £9.8 billion in H1 2014, a market share of 9.9%. Repayments remain high, with the low interest rate environment enabling higher levels of principal repayment.

○

In CPB, Commercial Banking, loans and advances in the growable book increased to £64.9 billion, up £2 billion from the prior year, but this was offset by a £2.8 billion planned decline in the non-growable book, which comprises real estate finance, businesses in restructuring and excess single-name concentrations.

○

Overall SME applications were 11% higher in H1 2014 than in the prior year and gross new lending was up 31% at £5.0 billion, with run-off remaining at a similar level to previous years.

○

Total net lending flows reported within the scope of the Funding for Lending Scheme were minus £1.5 billion in Q2 2014 with the majority of the decline in large corporates.

●

Risk-weighted assets (RWAs) fell to £392 billion at the end of June 2014, down £22 billion from the end of March 2014.

●

The CET1 ratio was 10.1%(2) at the end of June 2014, up from 8.6% at the end of 2013 and 9.4% at the end of March 2014 reflecting the attributable profit for the period and lower RWAs.

●

The bank's liquid asset buffer was £138 billion at the end of June 2014, up slightly from the first quarter but down from £146 billion at the end of 2013, leaving ample headroom to accommodate lending growth in H2 2014.

●

Personal & Business Banking

○

Operating profit increased to £1,049 million from £307 million in the first half of 2013. Adjusted operating profit was £1,232 million in H1 2014, up from £622 million in H1 2013. The increase in adjusted operating profit was principally driven by a decline in impairment losses, predominantly in Ulster Bank. In addition, income grew by 5% in UK PBB with higher personal mortgage and deposit balances and stronger deposit margins.

○

Within PBB, UK Personal & Business Banking (UK PBB) operating profit increased to £994 million from £688 million in the first half of 2013. Adjusted operating profit rose 22% to £1,163 million, driven by strong income growth (up 5% compared with H1 2013) and a 42% decline in impairment losses.

○

Ulster Bank operating profit increased to £55 million from a loss of £381 million in the first half of 2013. Adjusted operating profit was £69 million compared with a loss of £335 million in H1 2013, principally as a result of the marked improvement in impairment losses.

●

Commercial & Private Banking

○

Operating profit increased to £780 million from £501 million in the first half of 2013. Adjusted operating profit of £895 million was 60% higher than in H1 2013, with net interest income benefiting from improving deposit margins and impairment losses substantially reduced.

○

Commercial Banking operating profit increased to £635 million from £413 million in the first half of 2013. Adjusted operating profit rose by 60% to £747 million, with the effect of repricing activity offsetting the impact of a decline in CIB (Markets) revenue share income. Lower impairments reflected fewer significant individual cases together with £60 million of latent provision releases.

○

Private Banking operating profit was £145 million compared with £88 million in the first half of 2013. Adjusted operating profit was 59% higher at £148 million, with net interest income benefiting from improved deposit margins and with cost saving initiatives contributing to an 8% reduction in adjusted expenses.

●

Corporate & Institutional Banking

○

Operating profit was £308 million, compared with a loss of £197 million in H1 2013. Adjusted operating profit was £549 million, up 85% from H1 2013. The improvement primarily reflected lower impairments (a net recovery of £39 million compared with losses of £223 million in the prior year).

○

While Rates income improved from a weak H1 2013 (up 40%), Currencies declined by 27% and Credit by 22%, reflecting lower market volatility and the reduction in CIB's RWA deployment.

○

RWAs fell from £147 billion to £128 billion driven by deleveraging, mitigation and risk-reduction.

●

Citizens Financial Group

○

Operating profit increased by £68 million ($158 million), or 19%, to £421 million ($704 million), reflecting the sale of the Illinois retail branches and small business and select middle market relationships in the Illinois market. Excluding the impact of the sale, $283 million net gain, and restructuring costs of $115 million (H1 2013 - $5 million), operating profit was down 3% driven by lower non-interest income and higher impairment losses partially offset by higher net interest income.

○

The Illinois branch transaction, completed on 20 June 2014, resulted in a net gain of $283 million and restructuring costs of $17 million.

○

Net interest income rose 14%, reflecting an expanded investment securities portfolio and 8% growth in average loans and advances, driven by the transfer of a $3.6 billion portfolio from Non-Core.

●

RBS Capital Resolution

○

Over the course of H1 2014 RCR reduced funded assets by £8 billion, or 28%, to £21 billion. RWA equivalent(3) decreased by £21 billion, or 33%, to £44 billion.

○

Operating loss in H1 2014 was £48 million, with an operating profit of £66 million recorded in the second quarter of the year, driven by net impairment releases of £128 million.

○

The combined effect of the small operating loss and RWA equivalent reduction was net CET1 capital accretion of £2 billion.

●

RBS is making steady progress towards building a simpler, smaller and fairer bank, and remains focused on delivering the commitments for personal and business customers it announced on 27 February 2014.

○

RBS now offers its best rates to existing credit card and home insurance customers, adding to earlier progress on savings, mortgages, loans and current accounts. There is now no deal across the entire Personal Banking product set that is not available to existing customers.

○

Customer letters and emails have been simplified, and simplification of the product set has continued, with the number of products on offer to Personal Banking customers reduced by 29% since 2012; this will reach over 50% by end 2014.

○

The branch refurbishment programme has continued with a further roll-out of WiFi.

○

RBS has reduced the time taken to open an account from five days to one for most personal customers.

○

By the end of the year, 84% of business banking frontline staff will be based in or above a branch. So that more time can be spent with customers, a further 40 experienced relationship managers have been allocated to serve commercial customers, with a central focus on lending.

○

Lending procedures are being improved. Lending decisions for commercial customers will by the end of the year be made within five days for all but the most complex applications.

Measure

2013

H1 2014

Medium-term

Long-term

Efficiency

Cost:income ratio

95%

71%

~55%

~50%

Adjusted cost:income ratio(5)

72%

64%

Returns

Return on tangible equity

Negative

7%

~9-11%

~12%+

Capital strength

Common Equity Tier 1 ratio(6)

8.6%

10.1%

≥12%

≥12%

Leverage ratio(7)

3.4%

3.7%

3.5-4%

≥4%

(1)

Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals and RFS Holdings minority interest ('operating profit'). Statutory operating profit before tax was £2,652 million for the half year ended 30 June 2014.

(2)

The CET1 ratio includes the benefit of the retained profit for the period.

(3)

RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier of 10.

(4)

This table contains forecasts with significant contingencies. Please refer to 'Forward-looking statements' and 'Risk factors'.

(5)

Excluding restructuring costs and litigation and conduct costs.

(6)

CRR end-point basis.

(7)

BCBS basis (refer to page 20 for further details).

For analyst enquiries:

Richard O'Connor

Head of Investor Relations

+44 (0) 20 7672 1758

For media enquiries:

RBS Press Office

+44 (0) 131 523 4205

·

Personal & Business Banking (PBB) serves individual and mass affluent customers together with small businesses (generally up to £2 million turnover), with more business bankers moving back into branches. PBB comprises two reportable segments, UK Personal & Business Banking, including Williams & Glyn, (UK PBB) and Ulster Bank.

·

Commercial & Private Banking (CPB) serves commercial and mid-corporate customers and high net worth individuals, deepening relationships with commercial clients, operating overseas through its market-leading trade and foreign exchange services, while connecting our private banking brands more effectively to successful business owners and entrepreneurs. CPB comprises two reportable segments, Commercial Banking and Private Banking.

·

Corporate & Institutional Banking (CIB) serves our corporate and institutional clients primarily in the UK and Western Europe, as well as those US and Asian multinationals with substantial trade and investment links in the region, with debt financing, risk management and trade services, focusing on core product capabilities that are of most relevance to our clients. CIB is a single reportable segment.

·

Own credit adjustments

·

Gain on redemption of own debt

·

Write-down of goodwill

·

Strategic disposals

·

RFS Holdings minority interest

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013*

2014

2014*

2013*

£m

£m

£m

£m

£m

Net interest income

5,496 

5,442 

2,798 

2,698 

2,770 

Non-interest income

4,482 

5,166 

2,127 

2,355 

2,677 

Total income (1)

9,978 

10,608 

4,925 

5,053 

5,447 

Operating expenses (2)

(7,108)

(7,750)

(3,700)

(3,408)

(4,156)

Operating profit before impairment losses (3)

2,870 

2,858 

1,225 

1,645 

1,291 

Impairment (losses)/recoveries

(269)

(2,150)

93 

(362)

(1,117)

Operating profit (3)

2,601 

708 

1,318 

1,283 

174 

Own credit adjustments

(51)

376 

(190)

139 

127 

Gain on redemption of own debt

20 

191 

- 

20 

242 

Write-down of goodwill

(130)

- 

(130)

- 

- 

Strategic disposals

191 

- 

- 

191 

6 

RFS Holdings minority interest

21 

99 

12 

9 

(1)

Operating profit before tax

2,652 

1,374 

1,010 

1,642 

548 

Tax charge

(733)

(678)

(371)

(362)

(328)

Profit from continuing operations

1,919 

696 

639 

1,280 

220 

Profit from discontinued operations, net of tax

35 

138 

26 

9 

9 

Profit for the period

1,954 

834 

665 

1,289 

229 

Non-controlling interests

(42)

(117)

(23)

(19)

14 

Other owners' dividends

(167)

(182)

(92)

(75)

(101)

Dividend Access Share dividend

(320)

- 

(320)

- 

- 

Profit attributable to ordinary and B shareholders

1,425 

535 

230 

1,195 

142 

(1)

Excluding own credit adjustments, gain on redemption of own debt, strategic disposals and RFS Holdings minority interest.

(2)

Excluding RFS Holdings minority interest and write-down of goodwill.

(3)

Operating profit before tax, own credit adjustments, gain on redemption of own debt, write-down of goodwill, strategic disposals, and RFS Holdings minority interest.

30 June

31 March

31 December

2014

2014

2013

£m

£m

£m

Cash and balances at central banks

68,670 

69,647 

82,659 

Net loans and advances to banks (1,2)

28,904 

28,302 

27,555 

Net loans and advances to customers (1,2)

385,554 

390,780 

390,825 

Reverse repurchase agreements and stock borrowing

81,705 

78,213 

76,413 

Debt securities and equity shares

120,628 

130,498 

122,410 

Settlement balances

19,682 

16,900 

5,591 

Intangible assets

12,173 

12,428 

12,368 

Other assets (3)

18,886 

19,708 

22,018 

Funded assets

736,202 

746,476 

739,839 

Derivatives

274,906 

277,294 

288,039 

Total assets

1,011,108 

1,023,770 

1,027,878 

Bank deposits (2,4)

39,179 

35,371 

35,329 

Customer deposits (2,4)

401,226 

401,276 

414,396 

Repurchase agreements and stock lending

83,262 

88,776 

85,134 

Debt securities in issue

59,087 

61,755 

67,819 

Settlement balances

15,128 

17,175 

5,313 

Short positions

39,019 

37,850 

28,022 

Subordinated liabilities

24,809 

24,139 

24,012 

Other liabilities (3)

18,348 

21,986 

23,112 

Liabilities excluding derivatives

680,058 

688,328 

683,137 

Derivatives

270,087 

274,506 

285,526 

Total liabilities

950,145 

962,834 

968,663 

Non-controlling interests

618 

612 

473 

Owners' equity

60,345 

60,324 

58,742 

Total liabilities and equity

1,011,108 

1,023,770 

1,027,878 

Memo:

Tangible equity (5)

42,880 

42,604 

41,082 

Tangible net asset value per ordinary and B share

376p

376p

363p

(1)

Excludes reverse repurchase agreements and stock borrowing.

(2)

Excludes disposal groups.

(3)

Includes disposal groups.

(4)

Excludes repurchase agreements and stock lending.

(5)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

·

Funded assets decreased by £10 billion to £736 billion principally attributable to lower debt securities balances within CIB coupled with RCR disposals and run-off.

·

Net loans and advances to customers decreased by £5 billion to £386 billion primarily driven by RCR run-off and disposals and the impact of sterling strengthening on US dollar denominated loans, partly offset by strong mortgage balance growth in UK PBB.

·

Customer deposits remained stable at £401 billion as lower deposits in Private Banking, driven by repricing, and lower balances in CIB were offset by increased deposits in UK PBB.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

Net interest income

£m

£m

£m

£m

£m

Net interest income (1)

5,468 

5,435 

2,784 

2,684 

2,748 

Average interest-earning assets (1)

507,268 

556,294 

502,347 

512,244 

552,072 

Net interest margin

- RBS

2.17%

1.97%

2.22%

2.12%

2.00%

- Personal & Business Banking

3.39%

3.15%

3.40%

3.37%

3.20%

- Commercial & Private Banking

2.90%

2.69%

2.91%

2.89%

2.77%

- Citizens Financial Group

2.94%

2.90%

2.93%

2.94%

2.89%

(1)

For further analysis and details refer to pages 73 and 74.

·

Net interest income improved by 1% to £5,468 million. The increase was consistent across all businesses, with notable improvements in PBB (£97 million, 4%) and CPB (£90 million, 7%).

·

Net interest margin (NIM) increased by 20 basis points to 2.17%, driven by deposit repricing initiatives across a number of businesses. The benefit of reduced funding costs outweighed lower yields on assets.

·

Net interest income improved by 4% to £2,784 million principally driven by improved margins and an additional day in the quarter.

·

NIM increased by 10 basis points to 2.22%, driven by lower funding costs, reflecting repricing initiatives across a number of businesses, RCR run-off and a small number of one-off recoveries.

·

Net interest income improved by 1% to £2,784 million reflected by improved margins.

·

NIM increased by 22 basis points to 2.22% benefiting from repricing initiatives across a number of businesses.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

Non-interest income

£m

£m

£m

£m

£m

Net fees and commissions

2,118 

2,248 

1,063 

1,055 

1,142 

Income from trading activities

1,482 

1,890 

626 

856 

874 

Other operating income

882 

1,028 

438 

444 

661 

Total non-interest income

4,482 

5,166 

2,127 

2,355 

2,677 

·

Non-interest income declined by £684 million or 13%, principally reflecting a 22% reduction in income from trading activities, in line with CIB's smaller balance sheet and reduced risk profile.

·

A net gain of £170 million ($283 million) was recorded on CFG's sale of its Illinois branch network.

·

Gains on the disposal of available-for-sale securities in Treasury were down £245 million to £215 million for H1 2014 (Q2 2014 - £15 million; Q1 2014 - £200 million).

·

Non-interest income declined by £228 million or 10%, principally reflecting the seasonality of CIB income and lower disposal income in RCR. This was partly offset by the net gain on sale from CFG's branch sale.

·

Non-interest income declined by £550 million or 21%, which included the weaker performance of Currencies within CIB. This was largely in line with overall market trends and reflected weak client demand and low volatility.

·

These movements were partly offset by the stronger performance of Rates in CIB and the net gain on sale of the Illinois retail branches, coupled with higher current account-related fee income.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013**

2014

2014**

2013**

Operating expenses

£m

£m

£m

£m

£m

Staff expenses

3,340 

3,585 

1,693 

1,647 

1,764 

Premises and equipment

1,079 

1,079 

485 

594 

526 

Other

1,292 

1,479 

605 

687 

801 

Restructuring costs*

514 

271 

385 

129 

149 

Litigation and conduct costs

250 

620 

250 

- 

570 

Administrative expenses

6,475 

7,034 

3,418 

3,057 

3,810 

Depreciation and amortisation

551 

716 

282 

269 

346 

Write-down of other intangible assets

82 

- 

- 

82 

- 

Operating expenses

7,108 

7,750 

3,700 

3,408 

4,156 

Memo item

Adjusted operating expenses (1)

6,344 

6,859 

3,065 

3,279 

3,437 

*Restructuring costs impact:

- staff expenses

196 

142 

153 

43 

76 

- premises and equipment

196 

25 

137 

59 

22 

- other

122 

104 

95 

27 

51 

Restructuring costs

514 

271 

385 

129 

149 

Staff costs as a % of total income

33%

34%

34%

33%

32%

Cost:income ratio

71%

73%

75%

67%

76%

Cost:income ratio - adjusted (1)

64%

65%

62%

65%

63%

(1)

Excluding restructuring costs and litigation and conduct costs.

·

Operating expenses were £642 million, 8%, lower. Adjusted operating expenses decreased by £515 million or 8% to £6,344 million. Much of the decrease was achieved in CIB through headcount reductions and tight control of discretionary expenditure. Overall operating expense trends are starting to show the benefits of the reshaping of the bank's cost base.

·

Litigation and conducts costs totalled £250 million compared with £620 million in H1 2013, with an additional provision of £150 million (H1 2013 - £160 million) for Payment Protection Insurance redress recorded in UK PBB and a further £100 million (H1 2013 - £150 million) relating to interest rate hedging product redress booked within Commercial Banking and CIB. H1 2013 included provisions for other regulatory and legal actions of £385 million in CIB.

·

Restructuring costs increased by £243 million to £514 million, including significant charges in relation to Williams & Glyn and to the restructuring of the property portfolio.

·

Operating expenses were up £292 million, 9% reflecting higher restructuring and litigation and conduct costs. Adjusted operating expenses decreased by £214 million or 7%. This was principally driven by lower staff costs in CIB, operational cost saving initiatives in CPB and lower costs in PBB. This was only partly offset by higher staff costs in RCR.

·

Operating expenses were down £456 million, 11%, reflecting lower litigation and conduct costs. Adjusted operating expenses decreased by £372 million or 11%. The fall was consistent across all businesses, with notable declines in CIB (£114 million, 11%), CPB (£46 million, 7%). The decrease was helped by favourable foreign exchange movements.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014 

2013 

2014 

2014 

2013 

Impairment losses/(recoveries)

£m

£m

£m

£m

£m

Loans

271 

2,161 

(89)

360 

1,125 

Securities

(2)

(11)

(4)

2 

(8)

Total impairment losses/(recoveries)

269 

2,150 

(93)

362 

1,117 

Loan impairment losses/(recoveries)

- individually assessed

113 

1,472 

(42)

155 

826 

- collectively assessed

348 

734 

221 

127 

293 

- latent

(180)

(36)

(258)

78 

15 

Customer loans

281 

2,170 

(79)

360 

1,134 

Bank loans

(10)

(9)

(10)

- 

(9)

Loan impairment losses/(recoveries)

271 

2,161 

(89)

360 

1,125 

RBS excluding RCR/Non-Core

290 

1,258 

36 

254 

659 

RCR

(19)

n/a

(125)

106 

n/a

Non-Core

n/a

903 

n/a

n/a

466 

RBS

271 

2,161 

(89)

360 

1,125 

Customer loan impairment charge as a % of

gross loans and advances (1)

RBS excluding RCR/Non-Core

0.2%

0.6%

- 

0.3%

0.7%

RCR

(0.1%)

n/a

(1.7%)

1.2%

n/a

Non-Core

n/a

3.9%

n/a

n/a

4.0%

30 June

31 March

31 December

2014 

2014 

2013 

Loan impairment provisions

£22.4bn

£24.2bn

£25.2bn

Risk elements in lending

£34.1bn

£37.4bn

£39.4bn

Provision coverage (2)

66%

65%

64%

(1)

Excludes reverse repurchase agreements and includes disposals groups.

(2)

Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.

·

Loan impairment losses declined sharply by £1,890 million or 87%, including £180 million of releases of latent provisions (H1 2013 - £36 million). Asset quality continued to improve in the UK and Ireland.

·

Loan impairments in RCR amounted to a net recovery of £19 million.

·

Provision coverage strengthened to 66% compared with 64% at the end of 2013. REIL were £5.3 billion lower and represented 8.3% of gross customer loans, compared with 9.4% at the end of 2013.

·

A net recovery of £89 million was recorded in Q2 2014, compared with losses of £360 million in Q1 2014.

·

The improvement in loan impairment losses was driven by the release of latent provisions in CPB and CIB and by a strong credit performance in RCR (a net recovery of £125 million compared with losses of £106 million in Q1 2014).

·

REIL fell by £3.3 billion. As a percentage of gross loans to customers, REIL declined to 8.3% from 9.0% at 31 March 2014.

·

Loan impairment recoveries totalled £89 million compared with losses of £1,125 million in Q2 2013 which included £466 million in respect of Non-Core.

·

The improvement in impairments reflected significantly lower losses in Ulster Bank reflecting stronger credit metrics and the benefits of the investment in programmes to support customers in financial difficulty, and continued strong recoveries across UK PBB and release of latent provisions and non-repeat of significant individual cases in CPB.

·

In Q2 2014 loan impairment recoveries in RCR were £125 million.

Capital and leverage ratios

CRR end-point basis (1)

30 June

31 March

31 December

2014 

2014 

2013 (2)

Capital

£bn

£bn

£bn

CET1

39.7 

39.1 

36.8 

Tier 1

39.7 

39.1 

36.8 

Total

48.7 

47.3 

45.5 

RWAs by risk

Credit risk

- non-counterparty

283.3 

295.2 

317.9 

- counterparty

38.6 

41.3 

39.1 

Market risk

33.4 

41.0 

30.3 

Operational risk

36.8 

36.8 

41.8 

392.1 

414.3 

429.1 

Risk asset ratios

%

%

%

CET1

10.1 

9.4 

8.6 

Tier 1

10.1 

9.4 

8.6 

Total

12.4 

11.4 

10.6 

30 June

31 March

31 December

Leverage ratio (3)

2014 

2014 

2013 

Tier 1 capital - £bn

39.7 

39.1 

36.8 

Exposure - £bn

1,070.2 

1,083.4 

1,082.0 

Leverage ratio - % (3)

3.7 

3.6 

3.4 

(1)

Capital Requirements Regulation (CRR) as implemented by the Prudential Resolution Authority in the UK, with effect from 1 January 2014.

(2)

Estimated.

(3)

Leverage ratio is calculated using:

· CRR end-point Tier 1 capital; and

· Exposure measure based on guidance in the BCBS 270 proposal issued in January 2014, supplemented by the instructions in the March 2014 Basel III Quantitative Impact Study and the related FAQs.

·

The CRR end-point CET 1 ratio improved to 10.1% from 9.4%, principally driven by retained earnings after charging the initial DAS dividend of £320 million, and continuing reduction in RWAs and expected loss.

·

RWAs decreased by £22 billion principally reflecting the £12 billion fall in CIB driven by risk reductions and mitigation costs and £5 billion of run-off and disposals in RCR.

·

The CRR end-point CET 1 ratio improved to 10.1% from 8.6%, principally driven by retained earnings, continuing reduction in RWAs and regulatory capital deductions relating to deferred tax assets and expected loss.

·

RWAs decreased by £37 billion principally attributable to the risk reductions and mitigation actions in CIB, and run-off and disposals in RCR.

·

Leverage ratio improved by 30 basis points reflecting attributable profit, lower regulatory deductions as well as lower leverage exposure, particularly relating to derivatives in CIB.

30 June

31 March

31 December

Balance sheet

2014

2014

2013

Funded balance sheet (1)

£736bn

£746bn

£740bn

Total assets

£1,011bn

£1,024bn

£1,028bn

Net loans and advances to customers (2)

£387bn

£392bn

£393bn

Customer deposits (3)

£401bn

£404bn

£418bn

Loan:deposit ratio - RBS (4)

96%

97%

94%

Loan:deposit ratio - RBS excluding RCR/Non-Core (4)

93%

93%

89%

Equity attributable to ordinary and B shareholders

£55bn

£55bn

£53bn

Intangible assets

£12bn

£12bn

£12bn

Tangible net assets

£43bn

£43bn

£41bn

Number of ordinary and equivalent B shares in issue

11,400m

11,341m

11,303m

Tangible net asset value per ordinary and B share (5)

376p

376p

363p

(1)

Funded balance sheet represents total assets less derivatives.

(2)

Excludes reverse repurchase agreements and stock borrowing, and includes disposal groups.

(3)

Excludes repurchase agreements and stock lending, and includes disposal groups.

(4)

Net of provisions, including disposal groups and excluding repurchase agreements. Excluding disposal groups, the loan:deposit ratios for RBS at 30 June 2014 was 96% (31 March 2014 - 97%; 31 December 2013 - 94%).

(5)

Tangible net asset value per ordinary and B share represents total tangible equity divided by the number of ordinary shares in issue and the effect of convertible B shares.

·

Funded assets decreased by £10 billion to £736 billion principally attributable to lower debt securities in CIB coupled with RCR run-off.

·

Net loans and advances to customers decreased by £5 billion to £387 billion principally driven by RCR run-off and disposals, the impact of stronger sterling on US dollar denominated loans, partly offset by good mortgage balance growth in UK PBB.

·

Customer deposits decreased by £3 billion driven by lower balances in CFG adversely impacted by foreign exchange movements, deposit repricing in Private Banking and lower balances in CIB. This was partly offset by increased deposit balances in UK PBB.

·

Funded assets decreased by £4 billion to £736 billion principally driven by RCR run-off.

·

Net loans and advances to customers decreased by £6 billion reflecting RCR run-off and the impact of currency movements.

·

Customer deposits fell by £17 billion reflecting a managed run-down of surplus liquidity. The customer funding surplus decreased to £14 billion, while the loan:deposit ratio increased by 2 percentage points to 96%.

30 June

31 March

31 December

Funding and liquidity metrics

2014

2014

2013

Deposits (1)

£440bn

£440bn

£453bn

Deposits as a percentage of funded balance sheet

60%

59%

61%

Short-term wholesale funding (2)

£34bn

£31bn

£32bn

Wholesale funding (2)

£102bn

£102bn

£108bn

Wholesale funding as a percentage of funded balance sheet

14%

14%

15%

Short-term wholesale funding as a percentage of funded balance sheet

5%

4%

4%

Short-term wholesale funding as a percentage of total wholesale funding

33%

30%

30%

Liquidity portfolio

£138bn

£131bn

£146bn

Liquidity portfolio as a percentage of funded balance sheet

19%

18%

20%

Liquidity portfolio as a percentage of short-term wholesale funding

406%

423%

456%

(1)

Customer and bank deposits excluding repurchase agreements and stock lending and includes disposal groups.

(2)

Excludes derivative collateral.

·

The bank remains highly liquid with short-term wholesale funding covered 4 times by its liquidity portfolio as at 30 June 2014 (4.2 times as at 31 March 2014).

·

The liquidity portfolio increased by £7 billion to £138 billion, mainly driven by decreases in customer loan balances and higher Discount Window Facility assets.

·

The liquidity portfolio decreased by £8 billion to £138 billion, mainly driven by a targeted reduction in volatile financial institution deposits in the first quarter of 2014, partly offset by decreases in customer loan balances and higher Discount Window Facility assets in the second quarter.

·

Targeted reductions in long-term wholesale funding and customer deposits contributed to a 700 basis point decrease in the net stable funding ratio to 111%.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

£m

£m

£m

£m

£m

Operating profit/(loss) (1) before impairment

losses by segment

UK Personal & Business Banking

1,142 

944 

544 

598 

394 

Ulster Bank

112 

122 

56 

56 

53 

Personal & Business Banking

1,254 

1,066 

600 

654 

447 

Commercial Banking

666 

695 

305 

361 

384 

Private Banking

145 

95 

71 

74 

49 

Commercial & Private Banking

811 

790 

376 

435 

433 

Corporate & Institutional Banking

269 

26 

(70)

339 

(251)

Central items

79 

550